How the UK fintech industry can benefit from standards

Research published by BSI explores the role standards have to play in helping to strengthen and accelerate the development of fintech in the UK. How can the right regulatory environment be created to establish credibility for this growing sector without stifling innovation?

Fintech: the disruptive force that’s changing financial services

The UK fintech market is a success story. Currently valued at £20 bn, the sector has thrived in a supportive regulatory environment. Initiatives such as the Financial Conduct Authority (FCA)’s regulatory sandbox, which allows businesses to test new products in a live environment without onerous restrictions and liabilities, have helped to promote this growth.

The well-established forms of fintech such as peer-to-peer lending now sit alongside more recent developments, such as regtech, which seeks to automate parts of the compliance process, and roboadvice, which uses artificial intelligence and algorithms to provide low-cost guidance to consumers.

Despite this flourishing, fintech still makes some people feel rather nervous. For banks, there is the threat of disruption from nimble competitors unhindered by weighty regulation and processes; where banks commission services from fintech companies there may also be concerns about important matters such as data security and regulatory compliance.

For consumers, there may be lingering concerns about the credibility of recently-founded companies and whether they can be trusted to the same extent as large, long-established banks and institutions.

The scope of BSI research

BSI worked with research consultancy Finextra to gather insights into the sector from a cross-section of more than 80 experts drawn from fintechs, banks, trade associations and technology vendors. The resulting analysis is contained in the report, ‘A Roadmap for Fintech Standards.’

Researchers found that there was an appetite for new standards to help drive growth in fintech, and some consensus about which areas should be covered by standards. However, research participants were also keen to avoid restricting growth through excessive rule-making. Some stakeholders also thought existing standards could be leveraged to relate to fintech, instead of entirely new ones being required.

Key priorities and recommendations of the report

The report identified areas where there was greatest consensus on the potential of standards to help fuel fintech in the UK. These were around procurement and onboarding processes; integrating fintechs into the standards and language of the financial services industry; and consumer assurance and gaining trust.

In terms of procurement, there was agreement that it would benefit banks and fintechs alike to have some standards which would help demonstrate reliability and credentials in fintech provision. It is hoped that a standard for this can be developed within around six months.

Guidance covering the standards and language of the financial services industry would help to ensure better communication between fintechs and their partners or customers. A high-level data concept model would indicate where data dictionaries could be developed in key areas, creating a shared vocabulary between banks, fintechs, industry bodies and other stakeholders. Research into this area will be initiated over the next few months.

The report outlines areas in which progress can be made to help consumer assurance and trust. These include demonstrating fintechs’ credentials, tackling the issue of digital identity, streamlining ‘know your customer’ (KYC) processes, supporting robust risk profiling methods, data sharing in open banking, onboarding and ‘offboarding’ processes and interactions involving e-wallets and e-money. Further investigations in this area will be carried out over the next six months.

Is Brexit a threat or an opportunity for fintech?

Many in the financial services sector have concerns about how Brexit could impact their industry. The future regulatory environment is less than clear, and it is well known that there are many cities in Europe, America and other places around the world that would like to steal the UK’s crown as a prime global financial hub. The potential for rivals to compete with the UK could be stronger in fintech than other parts of the financial sector – as a more nimble and tech-oriented area with many smaller companies, fintech is more mobile than the big banking giants.

Standards could play a key role in helping to keep fintech innovation within the UK. If a regime can be created with regulations that allow the freedom to be creative alongside standards that provide assurance of quality and trustworthiness, the UK fintech scene will continue to exercise its potential in the export financial services market.

It should also be noted that fintechs, being based around technology, generally have a positive attitude towards standards. The world of computing has developed so rapidly partly as a result of diverse contributors developing shared standards over technical issues. If an affordable and practical standards framework can be agreed, this should help the UK fintech sector to continue to flourish for years to come.