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financial technology:
a tool for
financial inclusion

Financial Technology (FINTECH) is undoubtedly changing the face of the financial industry and offers broadened accessibility to the financial sector for customers. It also has created new product distribution channels. Although some analysts argue that technological advancement in the financial industry is likely to lead to job losses, the opportunities that FinTech offers customers and emerging businesses in the financial sector are worth exploring. Financial technology has been enabling communication between financial institutions for many years, with platforms like Mastercard, VISA and SWIFT as examples of this. The difference with the surge of FINTECH today, says expert Lebo Mokgabudi, is that the solutions developed now are from a customer perspective. This includes solving for the unbanked, the consumer that cannot get access to credit, the consumer that does low value transactions, etc. FINTECH also offers an opportunity for consumers to access financial products at reduced costs, which leads to a more inclusive financial industry.

The South African FINTECH consumer is anyone that utilises internet based platforms or cellphones to transact for goods and services - like financial products. In South Africa, where only 28% of the market is unbanked, most consumers have bank accounts and bank cards, which gives them exposure to FINTECH. Many more have access to mobile phones and social media, giving them exposure to innovations like crowdfunding and crypo assets.

As a member of the Intergovernmental Fintech Working Group (IFWG) which compromises of FIC, National Treasury, SARB and SARS, the FSCA has covered significant ground in its understanding of new ways of doing business and disruptive technologies. This includes gaining insight into industry trends and supporting technological innovation that enables inclusion. As a result, the conduct regulator has established a number of task teams to investigate various elements of FINTECH, like crypto assets, crowdfunding, block chain, robo advisors and others.

Although FINTECH innovation provides opportunities, there are risks, such as the processing of fraudulent transactions, which the regulatory frameworks are designed to mitigate. These risks are not limited to FINTECH providers, but also extend to customers who run the risk of losing money should a FINTECH company fail, and the possibility of unsecure payment transactions.

Although there are general regulatory frameworks for financial transactions (which FINTECH companies need to adhere to) there is a need for further mitigation by regulatory bodies, specific to the risks associated with technology products services.

The FSCA’s approach to the regulation of this industry is to ensure an appropriate balance between innovation and risk management.

“It’s important to have regulatory frameworks that mitigate the risks associated with technology in financial services, while encouraging innovation that delivers efficiencies and promotes inclusion. That’s why the FSCA, as a conduct regulator has conducted extensive research on how our counterparts around the world strike this balance. We’ll also be working quite closely with this growing industry to ensure that customers are protected,” says Noma-Afrika Sandlana, a member of the IFWG.

Emerging businesses in the financial sector bemoan the inaccessibility of the industry, and the subsequent inhibition of smaller entities from participating meaningfully in the sector. The FSCA is working closely with innovators to better understand their experiences, and any regulatory obstacles to innovation that currently exist. As part of the regulator’s FINTECH strategy, plans are in place to support FINTECH start-ups through innovation hubs and regulatory sandboxes that include providers and other regulators. Last year the FSCA co-hosted the inaugural IFWG conference aimed at facilitating engagement between regulators and the financial sector. The aim is to make this an annual discussion.

In addition to protecting consumers and supporting FINTECH innovation, there is also a need for the FSCA - whose objectives include ensuring that consumers are provided with adequate knowledge of the financial sector - to increase consumer education on financial technology. An increase in consumer education will not only serve the consumer in ensuring they understand the process and risks, but will also ensure accessibility of financial technology to marginalised consumers.

“This highlights the important role of regulators in this space to ensure that FINTECH companies don’t only focus on the technology and driving usage of the products, but also on the customer experience. This requires up to date industry insights, trends and developments. To ensure that gaps in regulatory frameworks are closed, we have put research at the core of our FINTECH approach and will ensure that we have the skills and tools in place to keep abreast with changes in the industry,” says Sandlana.

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