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Rapid penetration of consumer fintech worries regulators
Former finance minister Alan Dukes Pic: RollingNews.ie

01 Dec 2022 / technology Print

Rapid penetration of fintech worries regulators

A Department of Finance roundtable on the future of finance heard this morning (1 December) that fintech is expanding rapidly, and policy areas are being co-ordinated across Government as a result.

The fact that Ireland is such an important domicile for funds means that this country has a strong interest in what happens in fintech, said former Minister for Finance Alan Dukes.

He said that traditional banks were facing an enormous challenge, and fintech had invaded the entire consumer-facing part of that business.

However, fintech has only just begun to make inroads in commercial and investment banking.

Increased activity will pose challenges for regulators, who are already worried about the degree of penetration by fintech into consumer markets, Dukes said. 

Digital payments are on a very different trajectory in Asia, compared with Europe however, the webinar heard, as monetary authorities grapple with innovation.

GDPR 'significant'

Dr Shenglin Ben (Zhejiang University) said that GDPR is "significant" because Europe is good at coming up with smart regulations.

Hardcore technology innovations all started in the US, he said, and this cannot be easily copied by large developing countries, such as India, Indonesia, and China.

"Our technology is not as strong and our regulatory regime is not as smart - we are more a consumer demand-driven model for fintech," he explained.

A good collaboration opportunity exists for Ireland and Asia, given the small and controlled regulatory environment here, which can easily be scaled up to a larger market, he said.

Felimy Greene (Standard Chartered Bank, Singapore) said that fintech was an existential threat to traditional banks, but if they embraced the change and recognized the part they could play, everyone would win.

In Hong Kong and Singapore, neo-digital banks were being set up in partnership with traditional institutions, he said.

"There is a future if banks recognize what they can bring – in expertise and knowledge systems, in the regulated aspects of the industry – to the nimbleness and scale of other digital retailers. There are tremendous possibilities," he said.

The Singapore financial regulator has issued a position paper on using blockchain to verify tracing and tracking in the green economy, thus avoiding the risk of greenwashing, he said.

"It's important to look and learn from what they are doing because the opportunities are huge, and Ireland is uniquely positioned to be a jumping-off point for Europe," he said.

52,000 jobs

International financial services in Ireland now directly support a significant 52,000 jobs, and Dublin is a leading European center with the second-largest level of funds domiciled here.

Banking and insurance, as well as aircraft leasing, are also significant sectors in Ireland, said the Department of Finance's Michael J McGrath (vice-chair of the EU Financial Services Committee).

A departmental strategy for the period up to 2026, will prioritize investment management, banking, insurance, funds, servicing, trading, and fintech and payments areas, with the goal of a 10% increase in direct jobs.

Ireland could help with the development of the Capital Markets Union, McGrath said.

Alan Dukes said that, during the financial crash, more progress on the Capital Markets Union would have made life a lot less painful.

Dr. Paul Ryan of the department said that climate change presented opportunities in the transition to a low-carbon economy.

"Ireland is a leading European hub for green finance," he said.

Lack of bankable projects

However, while there was money for green investment, there was a lack of bankable projects worldwide, he said.

'Greenwashing' is a problem and projects that are not bankable are still getting a 'green light', he said.

"That's not the right way," he commented, because projects must make business sense, and make an impact for both investors and end users - and not simply waste money.

PwC partner Dervla McCormack said the role of financial institutions would depend on the customer approach to conducting their business. Customers wanted speed, convenience and personalized services, she said, and banks must compete with a range of other providers.

Front-end revolution

The 'front-end revolution' will see a range of services provided by non-financial institutions, McCormack added, predicting the "disintermediation" of different parts of the value chain, as tech firms and other well-known brands entered the arena.

James A Carroll of Mastercard said that regulators and compliance officers could play a practical role in innovation, and shouldn't be regarded as "the police".

"Our strategy in payments is making things as simple and secure as possible," he said.

The speed of innovation was speeding up, he noted, and was always building on the last paradigm. He predicted a "formidable customer-value proposition" for Twitter, given the advanced AI available to Elon Musk and the worldwide 'stream-of-consciousness' information flowing into the app.

Gazette Desk
Gazette.ie is the daily legal news site of the Law Society of Ireland