The effects of regulations in an industry is a vast subject. I often saw the debates around the desired amount of regulation and why a higher or lesser amount of it might positively or negatively influence certain industries as well as their social implications. Through my work experiences, from trainee to CEO, I have had to understand and work with regulations. I have witnessed how regulation can not only create a need for new technologies and services due to the regulatory obligations but also how it could encourage innovation, which itself provides new and better services to clients.
In 2010, I joined what would become one of Europe’s leading online money pot websites, Leetchi.com, where I served as Deputy General Director. At the time, we had to develop a system internally to allow payments to be processed from point A to point B. The payment engine has now been streamlined through third-party service providers such as MANGOPAY. The latter, for which I am now the CEO, was launched with Leetchi’s existing expertise to offer its services to other crowdfunding companies, to marketplaces and fintechs following the European Payment Service Directive (PSD1).
The Payment Services Directive is actually a great example of how access to a market may be unblocked thanks to new regulation and how some of the policies may push for further innovation than what would naturally had come about. The banking and financial system has always been regulated by central governments to try to protect the customers’ needs while trying to find a balance to allow the industry to practice and grow. Yet this same regulation, which was aimed to protect, also held back the potential growth of companies providing alternative solutions. Before the payment directive came into effect, access to banking and financial practices were extremely restricted. Since its implementation, startups have boomed. Not only were fintechs allowed access to the market, but their access itself allowed other companies to grow thanks to more flexible and cheaper services.
It might be argued that it was actually the regulation which was holding the industry back, and this was true to a certain point. But we are currently witnessing some major innovations, which would not have been made possible without the intervention of public authorities. The creation of an Open Banking environment, where third-party providers (TPPs) are able to collect information and process payments by accessing European bank’s APIs, would probably not have been pushed by banks internally, and would certainly not have happened on an industry-wide level. This is good news for TPPs, entrepreneurs, and consumers. 71% of SMEs and 64% of adults will adopt Open Banking by 2022.
You will probably also know that 3-D Secure, the famous security protocol launched by Visa and Mastercard and now considered an industry-wide security reference, is currently experiencing a major revamp. Having started as an independent security protocol, it is a good example of how regulation can actually integrate a privately created feature, which is then standardised and its features improved. The implementation of 3DS 2.0 with new obligations comes at a certain cost. Not all of the banks are ready to implement it, and it could cost the industry quite a bit on the short-term. But it also means that companies need to adapt to safer ways to pay, for example with biometric scans, and will create a more secure environment for European users. The cost might be high, but innovation will, without a doubt, play a key role in the new 3DS systems for all of the payment industry’s actors and their customers.
The rise of the internet in Europe has led to a logical increase in cybercrime. The 3-D Secure protocol has helped minimise its effects and has allowed platforms to transfer responsibility to issuing banks. Anti-money laundering directives have pushed for companies to increase their due diligence capabilities. Know Your Customer is now one of the major legal processes a company needs to worry about. It’s a heavy process that has created a demand for it to be delegated to third-party companies. It is exactly what we are seeing across the industry, the fact that it has been streamlined via end-to-end automatisation tools, which enable online platforms to focus on their growth without having to worry about compliance issues. KYC has pushed for TPPs to innovate with exhaustive services and also help platforms to avoid fraudulent users. This is another example of regulation creating an innovative environment with benefits for the consumers.
My experience is mostly in the payment industry, and I could enumerate some of the other benefits that resulted from the use of TPPs, with for example the increasing use of e-wallets as a means of an instantaneous, cost-free payment method. Regulation can easily become the scapegoat for an industry’s issues. Regulation is what defines an industry’s rules, its functioning. Rightly calibrated, regulation can, however, create a more competitive, more innovative and definitely more user-friendly environment.
About Romain Mazeries Romain Mazeries is MANGOPAY’s CEO. In 2010, he joined Céline Lazorthes, after five years of consulting and auditing experience in France, United States and Mexico, including Deloitte & Associés and Mazars. Romain holds a Masters degree in Econometrics from Toulouse and a Masters degree in Management Sciences from NEOMA Business School (formerly ESC Rouen).
About MANGOPAY MANGOPAY is an end-to-end payment solution for marketplaces, crowdfunding platforms, and fintechs. Unlike traditional payment solutions, MANGOPAY provides a white-label, seamless, and developer-friendly API to its customers. It enables platforms to accept multiple currencies and multiple payment methods online, hold the funds in segregated accounts, and automate most of the payment process including payouts. Today, over 2,500 platforms use MANGOPAY’s white-label API. MANGOPAY is a brand of Leetchi Group and is part of Credit Mutuel Arkéa. It was granted an E-Money Issuer licence valid in all EEA countries. https://www.mangopay.com/en_UK/contact/
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