We Need to Bridge the Gap Between FinTech Policy and Innovation

Over the last decade, chatter about financial technology – or FinTech – has grown into a loud chorus. Buzzwords like blockchain, cryptocurrency, and artificial intelligence have seeped into our vocabulary without us noticing. But what does this all mean?

From accessing affordable credit to cover an unexpected car repair, to obtaining a loan to start a new business, to mobile banking on your smartphone, our lives are impacted by FinTech on a daily basis in ways we may not fully realize. Online lending platforms, faster underwriting with algorithms, data aggregation, and cryptocurrency all fall in the FinTech category, but are vastly different from one another. We must move past sweeping these innovations under the broad FinTech umbrella so they can be truly understood.

To ensure new technologies get off the ground before they are snuffed out by policies that impose a steep barrier to entry, we need congruent, simplified standards. Our complicated and fragmented financial regulatory structure makes it challenging for financial service providers to know who to turn to and which rules to follow. Indeed, the Government Accountability Office indicated “fragmentation and overlap have created inefficiencies in regulatory processes, inconsistencies in how regulators oversee similar types of institutions, and differences in the levels of protection afforded to consumers.”

The fragmentation and regulatory confusion in the U.S. has already pushed companies abroad to nations that have signaled they are “open for business.” The United Kingdom, Singapore, Canada, and China are just some examples of countries that have invested greatly in an innovative infrastructure that will promote innovation and efficiency that will benefit consumers, investors and economies.

Even though action is needed, before lawmakers take up their pens, it is critical that we fully understand the benefits and potential harms of these new FinTech advances. This is why we launched the U.S. Chamber’s FinTech Innovation Initiative, which brings together financial services participants from across the FinTech world with a wide array of different products and services. Through this group we developed and established our FinTech Principles, which outlines our stance on what smart policymaking looks like in this ever-changing industry. Our recommendations are to:

1. Encourage safe innovation in the financial sector, whether by a new entrant, traditional financial institution, or by a joint initiative by both. While banks may have been the original innovators – from the creation of the ATM to remote deposit capture – new entrants have entered the ecosystem to fill any gaps in the marketplace and to create new ways of doing business.
2. Streamline the fragmented regulatory structure so a company has one set of rules to abide by, instead of the rules of 50 states and multiple federal agencies. The challenge is the fragmented regulatory structure between requirements from states and a multitude of federal agencies. In order for innovation to thrive, companies need certainty on various policies and they need to know which regulator to turn to.
3. Foster partnerships between new entrants and incumbent financial institutions, while minimizing the burden of “vendor management” requirements. Partnerships and collaboration between these new entrants and traditional companies have created a more robust financial services sector that can better serve the unique needs of consumers and small businesses, including unbanked and underbanked consumers.
4. Support policies that foster financial access to unbanked and underbanked consumers and small businesses. There is an opportunity to reach those outside of the conventional banking system with new and innovative products and services. It is critical to reach these consumers in order for them to improve their financial health and build wealth.
5. Enrich financial literacy through multiple platforms to reach the consumers, investors, and small business owners who need it most.A financially educated public can better make decisions for themselves and their families. We need a comprehensive financial literacy plan that spans across government agencies and partners with the private sector in order to suitably reach these consumers.
6. Educate policymakers about the benefits of financial innovation and the opportunities to serve the consumers and small business owners who may not have traditional access to credit.It is critical that the industry educate policymakers and their staff about the innovative products, services, and technology being developed to ensure that they make informed, thoughtful decisions.
7. Protect consumer privacy, create best practices for cyber security protections, and develop safe ways for consumers to manage their digital identity. Throughout all sectors and across all products, it is critical that innovation is kept safe and consumer privacy is protected.
8. Promote new and innovative ways to access capital, such as initial coin offerings (ICOs), while advocating for tailored oversight and protections against bad actors. With new innovations, comes the opportunity for creating efficiencies in the marketplace and new ways to raise capital, but also comes the need to insure the innovation is safe and legally compliant.

At our kickoff event we heard from Congressmen French Hill (R-AR) and Patrick McHenry (R-NC), along with experts in the field that discussed the changing world of FinTech and the complex regulatory landscape. As this industry rapidly evolves, the FinTech Innovation Initiative will develop with it. We look forward to learning about the innovations to come and working with policymakers to solve complex issues that are sure to follow.