FINTECH

REVOLUTION AND
FINANCIAL
REGULATION
TSAI & PENG 2017 ARTICLE
GROUP 4:
SHEDI
VILANT
KYLIE
MCDONALD
STANLEY
INDEX

• Introduction – What is Fintech

• Tsai & Peng Article – Themes
• Fintech Revolution in South Africa
• Fintech Revolution in Europe
• Fintech in Lithuania
• Conclusion
WHAT IS FINTECH?

Financial technology, referred to as “Fintech”, can be

described as the usage of technology and innovation to
compete with the traditional sense of banking and
financial services being provided.
 TSAI & PENG (2017) ARTICLE
Tsai & Peng address and speak to various themes in the realm of financial technology. The following
themes emerge from the article:
• Financial disintermediation: The replacement of traditional banking intermediaries by other non-bank
intermediaries.
• Allows for more players in the financial market – provides more avenues for sourcing funding by
investors that are not registered bank institutes.
• More affordable way of obtaining loans, at a lower interest rate.
• Risk: financiers not guaranteed a return on their investment due to higher risk that the borrower, such
as start-up company, may not succeed with its business.
• Example: Rainfin – online marketplace that allows borrowers to access affordable loans from investors.
• Financial inclusion: Phenomenon that comes about through the use of financial technology to allow
SME’s and individual borrowers to have access to funds through non-conventional ways of funding such
as online supply chain funding.
• Financial technology: Known
as “Fintech” – provides
financial solutions through
technology such as financial
electronic applications or
online supply chain financing
done through crowdfunding.
• Uses innovation to provide
funding to developing business
and start-ups for SME’s.
 Examples of different
types of financial
technology:

Digital banks Banking technology

Crowdfunding Online payment solutions

Business finance: peer-to- Cybercurrency: bitcoin and

peer business lending blockchain
• A focus on this theme is the use of Fintech in supply chain financing.
• Supply chain financing refers to funding programs provided by companies that are
funded with or without the backing of a central bank.
• Three types of supply chain financing:

Collaboration between
Traditional offline
commercial banks and
supply chain E-commerce
online supply chain
financing platforms financing

• In the long-term traditional modes of

Fintech used to revolutionize
banking are encouraged to provide more a long standing service,
affordable, faster and user-friendly traditionally provided by
services such as mobile banking, banks and allows for more
especially for the financially marginalised participation in financial
market for investor and
or low income earners and for SME’s.
lender.
• Financial regulation: Two methods of regulation for the financial sector.
Caters for new and emerging fintech and encourages light touch
Principle-based
●

regulation.
●
Poses a threat to financial stability and makes it difficult for

regulation regulators to protect users of financial technology from instances

of fraud without recourse.

More onerous and rigid regulation used for traditional ways of

Rule-based
●

doing business and banking.

●
Provides protection for investment and legal certainty on returns

regulation Proportionate
as compared to
in orderby
regulated
regulation
toacater
should thus
riskier investments
forprinciple-based
relaxed
beasimposed
such
a balance between
P2P lending would be
the
regulation.
promotion of Fintech developments on the one
hand, and the reduction of emerging systemic risk
possibly imposed on the other hand.
FINTECH
REVOLUTION IN
SOUTH AFRICA
• Digital and technology innovation
and development is evolving and
rowing at an exponential rate, and
financial institutions will have to
adapt in order to survive
competitors and the economy
itself.
• Banks are realizing that disruption
by both traditional and non-
traditional competitors, especially
in the supply chain is threatening
their survival.
• Physical branches are being
decreased to allow for digitization
and clients to migrate to a digital
channel.
• Forms of Fintech include
Artificial Intelligence; Big
data and analytics;
Cryptocurrencies;
Biometrics and Blockchain.
• Information and data will
thus have to be protected to
ensure trust and confidence
in the banking industry.
• Despite the growth, still a possibility of disruption due to lack of skill and knowledge when it
comes to technological and digital innovation in the financial sector.
• South African Fintech Landscape: Includes key players in Fintech evolution –
→ Payment and remittances sector: SnapScan; → Savings and investments sector: Nobuntu.
→ Lending sector: Wonga; → Crowdfunding sector: Jumpstarter;
→ Insurtech & risk sector: WiCover; → Big data and AI sector: Nervedata;
→ Rechtech sector: PaySpace; → Digital solutions: SMEasy;
→ Security sector: Entersekt;
• The Fintech Ecosystem – consists of regulators who will assist with rules and legislation regarding
financial innovation; incubators where ideas are developed; accelerators which provide guidance
and funding; entrepreneurs providing custom solutions; and investors providing funding.
 FINTECH REVOLUTION IN EUROPE
• Fintech and banks: Friends or Foes?
• Fintech is being described as “disruptive”, “revolutionary”, and armed with “ digital weapons”, that
will “tear down” barriers and traditional financial institutions.
• Stability and competition are the aspects in question regarding Fintech, and how to regulate it.
• Crucial question here is – whether and how far Fintech is replacing banks and other incumbent
financial institutions.
• Fintech allows for the enhancement of competition in financial markets, provide services that
traditional financial institutions do less efficiently or not at all, and widens the pool of users of such
services, BUT, they will not replace banks in most of their key functions.
• Banks are to adopt technological innovations – by doing the old things in the new ways themselves.
• Fintech provides the same services as banks, but in a new efficient way by using technology, suc as
crowdfunding.
• Intermediation remains a crucial function of financial markets – which includes more internet
and internet platforms and more processing of hard information through big data.
• Small and unspecialized banks will most probably be unable to incorporate and cope with
digital innovation due to the required intensity and scale, as opposed to large banks.
• In terms of regulations, it should be concerned with the services being provided, rather than
with whom it is providing it. Not Everything has to be Regulated!!
• What is crucial, is the levelling of the playing field, avoiding regulatory arbitrage which might
lead to serious events of financial instability.
• In conclusion, the game is still open and the jury is still out – a lot of work which still lies
ahead.
• We can all concur that, Fintech is a crucial evolution of financial markets.
FINTECH IN LITHUANIA
• Inokaitis (2019) presents the emergence of the Bank of Lithuania as one of Europe’s
most progressive regulators and how a series of reforms have cut red tape and sped
up processes giving Lithuania’s Fintech sector the agility it needs to succeed.
• Lithuania’s Global Business Services story began in 2009-2010, with the arrival of the
first key international players: Western Union and Barclays, who were drawn by the
country’s ‘can-do’ attitude and versatile talent pool of a country.
• Global leader in the Fintech sector due to its Fintech-friendly environment.
• Streamlined its licencing regime to enable financial institutions to be licenced in as
little as 6 months – fastest approval process within the European Union.
• Regulatory sandboxes enable innovative financial products to be developed and
tested under the watchful eye of the Bank of Lithuania.
• “Lite” banking licence introduced in 2017 requires initial capital which is five times
less than a standard banking licence in the European Union.
• In 2018, the number of • Bank of Lithuania has
companies making up issued three Specialised
Lithuania’s Fintech sector Banking Licences (SPB’s),
rose from 117 to 170. 33 Payment Institution
licences and a stunning
• Around 2 600 specialists 47 Electronic Money
are now employed in the Institution licences
industry. (EMI’s) making it the EU’s
• 88% of respondents leading issuer of such
planned to expand their licences.
operations in the coming • In contrast, Luxembourg
year, due to flexible office – another leading Fintech
rental spaces in the hub in Europe – has
capital. issued just 7 EMI’s.
• Bank of Lithuania’s push
towards a start-up-
friendly legislative
environment has created
a recipe for sustainable
GBS and Fintech success,
and other countries
should try and adopt it.
CRITICAL CONSIDERATIONS FOR
REGULATORS
• Finitech Regulators need to consider the following 4 critical issues:
• What is the overall objective of Finitech regulation? A Prudent Role? Promote
Finitech by eliminating barriers? Preferential regimes hence facilitators?
• Do we Regulate Now or ‘wait and See’? Regulators ought to be cautious
- Need to weigh the expected benefits against potential risks- Do we do cost
benefit ex-ante when empirical data are limited or unavailable? Need for a
SOIA.
• Are the key challenges Internal(local) or External? How far do National
regulators mandate go in terms of regulation? What level of collaboration?
 CONCLUSION AND RECOMMENDATIONS
• Fintech has implications on both the banks and banking systems, as well as regulators and
regulatory frameworks.

• Impact on the current business models in place, which include numerous operational, security and
compliance risks to be taken in the process of adoption and development. Banks will thus have to
ensure that there are proper IT, as well as risk management plans in place in the process of
adopting these technologies, in order to avoid disruption.

• Banks will have to communicate with the relevant regulators in order to ensure compliance with
the relevant and necessary rules, law, regulations and legislation in place.

• Unlike Netflix, Uber, Blockbuster etc –banking is multiproduct, with largely heterogeneous customers
and heavily regulated.
• Further, it is of paramount importance that the necessary training and skills are implemented
to staff in order to ensure that they are on par with these technological developments taking
place internally, as well as in the industry itself. Finitech can be an Oasis of job creation
• Strategies being utilized: employing individuals with the necessary skills and knowledge, not
relying on physical branches, migrating to a digital channel.
• Regulators, together with the SARB, will have to ensure that the necessary regulations and
legislative requirements are enforced.
• Banks will have to be more pre-emptive rather than being proactive – to identify
opportunities and provide solutions before competitors are able to do it.
• Banks must work on Strategic and profitability risks, high operational risks, third party/
vendor management risk
• Lithuania can be a good model for the development of Finitechs
• Finitech, An Enemy or Friend for Africa? South Africa?