The Race To Regulate Fintech

The recent aborted initial public offering (IPO) of Ant Group, which was set to be the biggest in history, was a stark reminder of just how important and closely watched the fintech industry is globally.

In Ant’s case, Chinese regulators halted the planned IPO because of what they called “changes in the regulatory environment” — an indication that the company is encroaching too far into the financial ecosystem regulated by the central bank.

While we don’t know all the details of this particular intervention, there are many sensitive issues that may be involved such as monetary policy, shadow banking, traditional banking versus data-driven lending, digital currencies and the control of data.

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Financial technology companies are in a unique position because of their potential for far-reaching effects. As people become used to the ubiquity and convenience of mobile technology, they come to expect the same always-there accessibility from their financial services, a level of dependence that can sometimes upset the apple cart.

Regulators often struggle to keep up with the relentless and rapid pace of technological development, and they are only as effective as the laws they have in place. These laws are often simply not as sophisticated as the high-tech companies they are supposed to oversee, and companies can often be requested — or forced — to slow down if regulators feel that more information is needed.

The Ant case is a good example of how fintech companies need to be wary of disrupting established financial infrastructure too much. Ant has historically worked closely with regulators to navigate China’s unique financial landscape. Despite this relationship, it still seems to have verged into territory that regulators feel uncomfortable with.

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More work needs to be done to convince authorities that enabling companies such as Ant to expand their scope of services won’t cause too much disruption to the system. This seems to be part of the reason why regulators halted the IPO.

But therein lies part of the problem. After Ant changed its name from Ant Financial to Ant Group earlier this year, it declared that it was not a bank but rather a technology firm, asking brokerages to send banking and technology analysts to cover it and branding itself as “techfin” rather than “fintech” (the former is a tech company that has branched into finance; the latter is a finance company that uses technology to do business).

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Ant isn’t the only business nimbly positioning itself between two worlds: Uber sells car rides, Airbnb facilitates house rentals, and Impossible Foods makes veggie burgers, but all of them claim to be technology companies, sometimes to the frustration of regulators.

And consider companies that offer multiple services, like Grab. Is it a ride-hailing service, a food delivery company, a personal shopping assistant, or a mobile payment system? Traditional methods of classification are butting up against the rapid pace of change.

Fintechs have learned to move fast and adapt even faster, but this is not a strategy that government oversight agencies can match. Until they do, it seems likely that these cat-and-mouse games will continue.

Originally published at Bangkok post

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