An increasing number of fintech initiatives and sandboxes is complicating attempts by fintech startups to reach key bank contacts, according to Fabian Vandenreydt, executive chairman at B-Hive.
“There is a multiplicity of initiatives, sandboxes at all levels and a lot of innovation hubs in all directions. Every country has its own fintech hub, every bank has that, and a lot of regulators do too. I think at some point there will be some form of fatigue also on the side of the startup to be asked to go into all of those opportunities. For them, it is eating up a lot of their resource and time,” says Vandenreydt.
“Every day we are contacted ourselves by our own startups which are in our own pool. They want to have introductions. They ask ‘can you find me the head of compliance at bank A.’ We do that, but we also try and let them know that they are 10th in line to get a meeting with this person,” he says.
“I wouldn’t say that it’s rosy for banks engaging with fintechs right now because we know that is not the case. There are a lot of proof of concepts that don’t land on anything concrete for the startups, primarily because it is a marriage between large institutions with very solid processes in terms of procurement, risk management, and the like. Startups, because of their speed and agility don’t necessarily have all it takes to be involved in a long winded procurement process.”
On June 30, BIS announced the creation of an innovation hub to promote international collaboration on financial technology for central banks and to look at critical technology trends affecting central banking. Hub centers will be set up in Basel, Hong Kong, and Singapore with the view to expanding to further locations in a second installment.
For Panagiota Kovani financial services consultant at BearingPoint, the announcement by Facebook of the launch of its digital currency Libra, will be a top priority for the innovation hub.
“It has raised a lot of concerns in the financial world. We knew already that bigtech giants they have set their eyes on getting into financial services, but it is definitely raising a lot of questions.
“The challenge lying ahead is trying to understand how far regulation will go and how transparent the monitoring will be from the new entrants into the market and how central banks can ensure that they have provided the right mechanisms in order to safeguard transparency and stability across the system," says Kovani.
On June 30, the head of the BIS told the FT the need for digital currencies may come earlier than expected.
“And it might be that it is sooner than we think that there is a market and we need to be able to provide central bank digital currencies."
However, on June 28 Huw van Steenis, a senior advisor to the governor of the Bank of England (BoE) published a review on the future of finance. The report stated that the BoE had no plans to issue a Central Bank Digital Currency (CBDC) and that the review did “not see a compelling case for a central bank digital currency given numerous uncertainties.”
“These include legal uncertainties, risks around deploying the technology at scale, the potential impact on monetary transmission, and critically the risk of diverting attention away from improving today’s systems for customers. Improving efficiency and cyber-security and enabling the core payment systems to be a platform for private sector innovation should remain the priority,” the review read.
In June the International Monetary Fund (IMF) published a staff report for the executive board on the experience of fintech so far which identified regulators’ resource constraints as challenging attempts to provide an adequate response to the increasing emergence of fintechs. Also causing concern for regulators was the need for international standards for supervision of fintech activities and providers.