An integrative approach to guide the multi-billion dollar FinTech industry

An integrative approach to guide the multi-billion dollar FinTech industry

RMIT University’s Professor Anne-Laure Mention examines the future challenges and limitations of financial technology and advocates for coherent efforts to shape the future of FinTech research, policy and practice.

The financial technology (FinTech) industry is transforming the development, delivery and consumption of financial services on a global scale.

Payment systems and loans are just two examples of everyday services that have been revolutionised thanks to this disruptive digital innovation.

With financial start-ups taking advantage of the new technology, traditional financial institutions are being forced to clarify their strategies, develop new capabilities and transform their cultures to keep up.

As FinTech brings about new services, products, processes and business models, customers stand to benefit in multiple ways, including more competitive pricing and an increased ability to compare banking choices.

With global FinTech investment estimated to be worth US$111.8 billion in 2018, the industry is now deemed ‘too big to fail’.  

Nonetheless, the future success and adoption of FinTech could be in jeopardy according to a new publication authored by Mention, the Director of RMIT’s Global Business Innovation Enabling Capability Platform.

In the paper, Mention calls for an integrated and multi-disciplinary research approach to develop a common understanding and interpretation of the FinTech industry, which has to date been largely understudied.

Limitations in scope and differences in market contexts have further limited the value of FinTech research to policymakers so far.

“The paper proposes a concept map with five ‘building blocks’ to help researchers and policymakers to focus their efforts going forward,” Mention said.

“The development of compliance toolkits, for example, could be one means to ensure that FinTech firms and initiatives meet regulatory requirements, an area which has received a lack of attention up to now.”

Currently 95% of FinTech firms fail when they reach the scale-up phase, primarily because they fail to integrate and deploy solutions beyond regional and national regulatory boundaries.

Money laundering and collaboration on nationally sensitive and non-sensitive information are just two of the challenges faced in the cross-border regulation of FinTech.

In addition, FinTech researchers have often focused more on the impact of the technology, such as the digitalisation of retail banking, than on the end user.

This is despite persistent consumer misconceptions and concerns relating to the security and reliability of their personal data which is often required by FinTech firms and banks to provide a tailored customer service.

Securing and building trust among customers, especially those used to traditional financial services, can be difficult to achieve but is another aspect critical for the future of FinTech according to the research.

“Given the technology’s tendency to shift customer service interactions from the human to digital, policymakers need to find a balance between protecting consumers and fostering innovation,” Mention said.

“A systematic, cohesive and joint research agenda informed by stakeholders’ views and roles has the potential to shape future awareness, regulation, and growth of FinTech firms.”

Mention hopes that research efforts can increase understanding of FinTech and its implications thanks to the proposed concept map.

By identifying building blocks, the map will help to guide research policy and practice, provide advice on legal and compliance issues, recommend actions, and identify areas of potential impact.

One critical building block to secure FinTech’s future involves collaboration between stakeholder groups such as central banks, regulators, start-ups, consumers, and supply chain providers.

Most FinTech start-ups are likely to fail if they do not build partnerships and Mention hopes that the map will lead to increased cross-sectoral collaboration as well as integrated standards of operation.

In this way, customers worldwide can continue to benefit from FinTech innovation as it injects new vision, energy, direction, and purpose into our financial institutions.

The research has received funding from the Horizon 2020 Programme of the European Union within the OpenInnoTrain project under grant agreement no. 823971.

The Age of FinTech: Implications for Research, Policy and Practice’ is published in The Journal of FinTech (DOI: 10.1142/S2705109920500029).

 

Story: Hannah Tribe

09 September 2020

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09 September 2020

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