FinTech Convergence, Not Collision

It may not be obvious to consumers, but the financial and tech industries are converging in the digital world as new technologies offer added convenience, security, and opportunity. This process has given rise to a now-common term – FinTech.

FinTech foreshadows what the convergence of these two industries will mean in the near future:  It’s not just “TECH companies getting into FINancial services,” it’s really “FINance and TECHnology evolving in a shared universe,” and that’s a universe based on rules that prioritize the trust consumers have today in their financial providers with the converged FinTech providers of tomorrow.

Yet there’s a back-and-forth taking place over how Washington policymakers should react to this inevitable (and unfolding) convergence between sectors.  The scintillating story is, of course, the idea that this is another inter-industry food fight.  But in reality, the battle lines are not that distinct.

Is the FinTech industry waging a battle against being regulated?  Yes.  Should this be a surprise to anyone? No.  It’s a battle that makes perfect sense and is quite healthy, and consumers will be the beneficiaries when the dust settles.

To level-set: The tech industry, used to moving at the speed of the internet, having mastered e-commerce and streaming cat videos, discovers it can port its entrepreneurial brilliance and creativity to improving the processes that allow people to borrow money, send money, manage their finances and buy stuff.  It’s a playbook they’ve utilized with great success to disrupt and reshape numerous industries.

But the tech industry has, and will, learn the headwinds it will face when attempting to apply its brand of disruption to a marketplace, like the financial sector, whose rules of the road are largely dictated by volumes of established regulations.

Naturally, technologists are going to hold this inevitability at bay for as long as they can.  This is what we’re collectively witnessing as new FinTech start-ups seem to appear every day, siphoning up VC funds to fuel their charge to disintermediate financial companies from their customers – a process certainly made easier when working outside a comprehensive regulatory regime.

At some point, however, in attempting to bring these innovations to scale or to underserved populations, the regulatory pressure will increase.   Like it or not, consumer advocates, members of Congress and regulators care greatly about consumer protection – particularly of their constituents – and will naturally go there.

Which begs some questions:

• Should all industries be required to protect the data and privacy of customers? Yes. Should they be accountable to someone to ensure this? Yes.
• Is regulation the answer? Not necessarily.  Can the market resolve many of these issues through collaboration and contract? Probably.

The marketplace is not at all black-and-white, Finance vs. Technology, and neither is the “battle.”  In fact, many financial companies are evolving and innovating themselves, or partnering with and investing in FinTech solutions to instantly provide resources, industry knowledge and scale.

The financial sector has a long head-start on mastering security in the context of robust federal rules.  Collaboration between these two industries in pursuit of shared public policy goals can harness the experience of the financial sector and the fast-paced enthusiasm of start-ups to provide smarter, safer products and services in the connected world.

Put another way:  If these two sectors can collaborate on the business side, we should be able to find common ground on smart public policy as well.

Jason Kratovil is the Vice President of Government Affairs and oversees payments and cybersecurity policy at the Financial Services Roundtable.