Mobile disruption and regulation: Part 2 - Regulation is always slower than any technical development

Is all the disruption and innovation that fintechs are causing really such a bad thing?

Not at all. Both banks and fintechs have realised that the cross fertilisation brought about through collaboration increases the success rate significantly. Banks have the delivery channel and the financial muscle, and the start-up community offers new vision and can achieve a much faster time-to-market. Each party can benefit the other.

Will banks follow the approach of major technology companies like Google (Double-click), Facebook (Whatsapp) and Amazon (Audible) and acquire their upstart competitors who complement their strategy in one way or another?

All options are possible and available for banks. Based on the discussions and presentations at Mobey Forum, banks will probably do both: collaborate and compete with fintech startups. M&A deals are one way to provide new services quicker to the market, but they are not the only solution. One very interesting issue that was repeated in Munich was the idea that banks should provide open interfaces (APIs) to the rest of the ecosystem and, at the same time, continue to foster their own businesses. Competition and collaboration are not mutually exclusive.

How can regulators protect consumers, while not stifling innovation or be seen as too heavy handed by potential foreign investors?

This is the major challenge at the moment. Regulation is always slower than any technical development. But the vast number of innovating companies offering attractive solutions and services for consumers makes it difficult for regulators to provide consumer protection without destroying the business. Banks that are operating under a banking license are also very much challenged in this regard, since they often have far stricter regulation to comply with than the new market entrants. The only way to handle this from the regulators point of view is to focus on high-volume areas and try to be prepared in advance for topics that are anticipated to have a major impact on consumers’ lives.

There is a lot of discussion about how PSD2 regulation is promoting innovation in the payments space and reducing costs, but even more about enabling new market players’ access to the payments space. How will regulators link data protection compliance to third-party access to bank accounts?

Yes, it’s true that PSD2 opens new opportunities for consumers, new payment service providers and banks. At the same time, PSD2 is quite unspecific about how the actual implementation should be performed. Items like data protection, for example, are dependent on the individual implementations and collaboration between the parties. Of course one of the central ideas of PSD2 is that consumers’ consent should be specifically sought before an action is taken. But how can we be sure that this was done transparently enough to ensure the consumer understood what they were agreeing to? On this particular issue, there will probably be more work that needs to be done.

How will the financial landscape look in the next 5/10 years in terms of banks, fintechs revolution, security concerns, and regulation?

That is the million-euro question! Everyone in the business is looking for the right answer, right now. One thing is for sure, evolution will continue. It will probably even accelerate. More new services will be introduced to the consumer and, most likely, they will create a more user-friendly experience. But at the same time security threats are rising. This gives security specialists like G&D the opportunity support banking customers with sophisticated and secure solutions.

If you want to read more on mobile disruption and regulation, you can find the first part of the interview here, touching upon the subject of how Fintechs introduce new services and business models that engage consumers directly.

About Edgar Salib

Edgar Salib is Head of Financial Institutions Division for G&D Mobile Security at Giesecke & Devrient Systems. Prior to joining G&D, Mr. Salib moved progressively through senior positions, including Vice-President, Finance at Quebecor’s B.A. Banknote, where he played a key role facilitating the acquisition of the company by G&D and leading its smooth transition to a G&D global subsidiary, known as BA International. Mr. Salib holds an MSc. Economics from the University of Paris, and an undergraduate degree in Finance and a post-graduate degree in Accounting from the University of Quebec.

About Giesecke & Devrient

Giesecke & Devrient is an international technology provider. The company develops, produces, and markets products and solutions for payment, secure communication, and identity management. G&D maintains a competitive and technological position in these markets. The group’s clients most notably include central banks and commercial banks, wireless communications providers, businesses, governments, and public bodies.

About Mobey Forum

Mobey Forum is a global industry association empowering banks and other financial institutions to lead in the future of mobile financial services.