Depending on whether you are a wealth manager, solution provider or regulator, the question “what is fintech?” can be answered in a slightly different way.
But the bond that unites us is innovation. Industry players and industry watchers agree that without it, you might just be making apps.
“It goes beyond the norm of just having an app or just having a website. I think there are common attributes that we attribute to (the term) fintech,” said Nicole Murphy, compliance officer at Cash Investing App. “In this space, it will be new. It will be innovative. We seek disruption.
“We want to push boundaries and do it creatively. Maybe it’s about putting a fresh new approach on tried-and-true products. Or maybe it’s about putting something completely new into the ecosystem.
But it is also agreed in the definition that with rapid innovation comes the risk of overshooting the current compliance structure. Industry insiders say that with innovation comes knowing how to ride the razor’s edge without getting cut.
“You can digitally deliver services online, and that doesn’t necessarily make you a fintech. That’s the innovation part of it, and often that innovation leads to challenges of existing standards,” said Alan Carlisle, Director of Corporate Compliance at SoFi. “You have to apply an old regulatory framework to new ways of doing business…how you try to engage with consumers or create products and services. So where it creates these questions of interpretation, I think it really gets you into the realm of fintech.
These ideas and many more were in the spotlight this week on FINRA Annual Conference during a one-day discussion on the hot topics of fintech.
Moderated by Senior Vice President of FINRA’s National Cause Program, Steve Price, the hour-long session saw Bob Chao, Senior Director of FINRA’s Risk Oversight Department, join Murphy and Carlisle for a breakdown of everything from the right way to embedded clients to metaverse implications.
The session also included a discussion on new and innovative ways companies are integrating fintech into their business models; the importance of a strong compliance structure to meet regulatory obligations; and what separates the culture of technology from the culture of financial institutions.
Price’s opening question was about the definition of fintech. While Murphy and Carlisle approached it from a creator’s perspective, Chao said FINRA has a very clear definition of fintech, much like the agency has for anything it regulates.
He said the definition, which is constantly changing, is “using innovation to disrupt the way financial services and products are delivered and created for retail investors.”
Chao added that the definition is not an effort to limit or categorize fintechs. Instead, it is an attempt to help the regulator keep pace with innovation.
“I think we put the groups together so we could get ahead,” he said. “We can see the trends. We can see red flags. We can see things happening in one business that may apply to someone else.
Price talked about the wide range of things regulators need to watch out for and how technology’s ability to give investors access to so much more increases the need to remain flexible.
He remembers being a young investor years ago, his brokerage account being the only thing he was able to interact with when logging on.
But today, technology has the ability to give wealth managers and other financial service providers a full suite of unsolvable tools that seem to grow every time clients update their apps. For this reason, panelists said that one of the hottest trends in fintech is figuring out how to present your entire buffet of tools without overwhelming the end user.
This challenge becomes more difficult when looking to serve young customers who may be unfamiliar with financial services, or older customers who may have an aversion to new technologies.
“Through this onboarding funnel, you have to introduce friction. And it’s important to put the right friction in the right place,” Carlisle said. “If they’re younger, make sure you have the right education. You understand that they may or may not be a novice investor, but as they come in, you should have the information to provide them with something that is appropriate for the stage of sophistication they are at. find.
“And you don’t want to create so much friction in your onboarding flow that they go, ‘Oh forget it. You’re asking way too much of me just to open an account.'”
But Murphy said it’s a challenge that will only get tougher as innovation progresses. She said being a multi-service platform is table stakes for modern fintechs, and differentiation comes because of the unique products you can offer.
Moving on to the importance of having a strong compliance structure, Chao encouraged those working in the fintech space to engage with regulators often. Chances are, if you’re working on something truly groundbreaking, FINRA and other agencies haven’t seen anything like it and will need to learn as much as possible before proper regulation can take place.
With early collaboration and conversation, developers can avoid heading down a path that could lead to regulatory ruin, and FINRA can better keep pace with what comes next.
Chao also said growth should be a priority for anyone starting a new fintech business in the industry today. Without planning ahead, this lack of foresight can be the cause of your quest for innovation coming to a screeching halt.
“You might come up with an app for the next big new fintech and this big new innovation, and you have a great API to go with it. But what about the plans for building your broker-dealer? what about the resources you will need in the future?” Chao said. “As you start to grow, what is really important and what we are really pushing at FINRA is how are you going to develop your resources, your knowledge base and the level of experience of your company?”