In 2021 fintech investments totalled 210.1 billion US dollars worldwide, cementing its place as a leading player in the financial services industry.
But as providers become increasingly drawn to software-powered financial solutions, questions arise about fintech’s regulation, their privacy laws, and increasing security requirements during this rapid rise to the top.
When it comes to finance, it’s easy to assume the big-name banks have a legacy of trust and reliability that surpasses all others and that they are the pinnacle of regulations in the financial service industry, armoured with superior privacy laws and rules.
But what prospective businesses may not know about fintech companies is that they comply with fintech regulations exactly like big banks and are actually subject to more intense scrutiny.
So, when it comes to the question ‘are fintech companies regulated?’ The answer is yes. They are held to a standard equal to any other financial institution and share the predominant focus of customer protection, just like a bank.
Complying with regulations helps to bolster a fintech company’s trust and credibility in an industry like b2b financial services, where trust is essential.
Both big banks and fintechs must follow strict rules and regulations to work in the financial sector. Fintechs may have the upper hand when it comes to implementing new initiatives with smarter technology like AI and automation. But the fact is, no matter how banks and fintechs choose to implement the rules, they must follow them, and they must be able to prove their adoption.
Many other regulations include anti-money laundering, anti-financial crime, operational resilience, and competition. To learn more about regulations and fintech, download our ebook, Fintechs, and Big Banks: How innovation shapes finance for businesses and consumers.
It was initially challenging for fintechs to enter the highly-regulated market finance industry as the legacy players had all the power. Thankfully for consumers and businesses alike, updates eventually came about due to initiatives like Open Banking.
Open Banking, born in 2018, gave customers the right to share their banking data with third parties to access new financial services for the first time.
It was originally a set of activities created in the UK via the Competition and Markets Authority and enabled under PSD2. But Open Banking now refers to any set of policies from around the globe that lets customers (both business and consumer) use their data to access financial services from third-party providers.
It’s obviously both best practice and ethically sound for customer data to be kept secure. But fintech companies also care because the fallout of a security breach can be extremely grave for both the business and customer.
Like most economic structures, customers are vital for fintech companies to operate and innovate. Poor trust due to a data breach would lead to bad feedback and increased customer attrition. And if it was a severe breach, including something like GDPR, the fines, lawsuits, and legal repercussions could be business-ending.
The business would suffer in credibility beyond its customer retention, too, due to a data breach with the loss of faith also from stakeholders, investors, and affiliated companies. The brand name would lose its reputation.
With trust being the key component between providers and consumers, there may be no going back if lost.
At Payhawk, privacy is a priority, and we take multiple steps to protect customer data from harm. There are many dangers out there, from malware to phishing, and we continuously update our security measures to stay safe.
Trish Toovey works across the UK and US markets to craft content at Payhawk. Covering anything from ad copy to video scripting, Trish leans on a super varied background in copy and content creation for the finance, fashion, and travel industries.