Abstract
The development of new technologies by financial service providers is not new; banks, for instance, have always utilized technology to improve front- and back-office operations. The historical significance of fintech does not derive from the use of technology per se, but the leveraging of the distinct properties of digital technologies by non-traditional actors to offer consumers a better experience of financial services. More specifically, the goal of overcoming ‘friction’ in the user experience is here identified as the core feature driving many recent developments in a fintech context. This chapter explores the implications of such an account for incumbent financial institutions and regulators. From the perspective of incumbents, this new emphasis on the consumer experience requires banks and other financial institutions to organize-for-innovation. New capacities and a shift in mindset are needed to deliver a different kind of user experience, and two effective strategies for incumbents are explored. First, adopting more decentralized forms of organization and governance—what we refer to as ‘decentralized ecosystems’—that are better placed to innovate and overcome friction. Second, adopting a more strategic approach to venturing, i.e., purchasing start-ups from the fintech sector and integrating their innovations into incumbent operations. From a regulatory perspective, this requires a greater willingness on the part of regulators and other policymakers to foster experimentation in financial services. As such, the goal of regulation needs to shift from a traditional focus on managing systemic risk to more dynamic models that seek to facilitate responsible innovation and the delivery of a better-quality user experience. This can be achieved, for example, by state regulators working together—partnering—with incumbents and start-ups in the financial service ecosystems of the future via regulatory sandboxes and other similar schemes. Regulatory developments in Asia and Europe provide some evidence that policymakers recognize the need for such a shift in emphasis. However, doubts remain about whether they have gone far enough in pursuing this goal and that the full benefits of the fintech revolution have been realized.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
See Erroll and Erroll (2005).
- 2.
See Manning (2000).
- 3.
See Batiz-Lazo (2015).
- 4.
For an overview of these challenges, see Price Waterhouse Coopers (2014).
- 5.
On the ‘attention economy,’ more generally, see Wu (2016).
- 6.
- 7.
Evans (2018).
- 8.
For an overview of such apps, see Pratskevich (2019).
- 9.
See, for example, Sironi (2016).
- 10.
For example, on Alibaba’s move into financial services, see Zhou et al. (2015). Similar developments can be seen in Japan with the development of Line Pay.
- 11.
- 12.
Available at: https://www.imore.com/steve-jobs-you-have-start-customer-experience-and-work-backwards-technology. Accessed 31 March 2020.
- 13.
Available at: https://www.imore.com/steve-jobs-you-have-start-customer-experience-and-work-backwards-technology. Accessed 31 March 2020.
- 14.
Available at: https://www.ft.com/content/fb7a1cfc-84f7-11e8-96dd-fa565ec55929. Accessed 20 February 20, 2020.
- 15.
Available at: https://www.techinasia.com/category/fintech. Accessed 31 March 2020.
- 16.
Bloomberg Professional Services (2019).
- 17.
For an overview of these challenges, see Price Waterhouse Cooper (2014).
- 18.
- 19.
The concept of an ‘ecosystem’ described here is based on the empirical study of the most successful technology firms today. As such, it represents an ‘ideal type’ or composite of how a business needs to organize its operations and governance in a digital age. References to specific companies in the following are not meant as blanket endorsements of those companies, but an acknowledgment that on the specific point cited that company has identified an interesting approach. In this respect, we hope to move beyond the ‘all or nothing’ attitude that currently characterizes discussion of the most successful tech-firms.
- 20.
Newton (2015).
- 21.
For example, they seem to understand intuitively the power of co-working spaces; many smaller banks, for instance, have already turned their branches into co-working spaces in this way. See Macheel (2019).
- 22.
CBInsights (2018).
- 23.
Available at: https://www.techinasia.com/category/fintech. Accessed 31 March 2020.
- 24.
Tweddle (2018).
- 25.
- 26.
- 27.
Zetzsche (2017).
- 28.
Available at: https://www.openbanking.org.uk/. Accessed 31 March 2020.
- 29.
See Camerinelli (2017).
- 30.
- 31.
Creehan and Tierno (2019).
- 32.
See Gupta (2019).
- 33.
- 34.
See Kessler (2018).
- 35.
Fenwick and Vermeulen (2019).
- 36.
Reddy (2018).
- 37.
Levin (2019).
- 38.
Fenwick et al. (2017).
References
Batiz-Lazo B (2015) A brief history of the ATM. https://www.theatlantic.com/technology/archive/2015/03/a-brief-history-of-the-atm/388547/. Accessed 31 March 2020
Beaumont L (2018) Banks can’t partner themselves into digital relevancy. American Banker (26 June). https://www.americanbanker.com/opinion/banks-cant-partner-themselves-into-digital-relevancy. Accessed 31 March 2020
Bloomberg Professional Services (2019) Why Asia is leading the fintech revolution. Bloomberg News (27 January 2019). https://www.bloomberg.com/professional/blog/asia-leading-fintech-revolution/. Accessed 31 March 2020
Camerinelli E (2017) Open bank, APIs, and financial services ecosystems: The future of banking. https://www.softwareag.com/corporate/images/Aite_Group_Open_bank_api_and_financial_services_Research_Jul17_tcm389-167453.pdf. Accessed 31 March 2020
Campbell D, Meyer M, Xin Li S, Stack K (2015) Haier: zero distance to the customer (Harvard Business School Case Study 115-006). https://www.hbs.edu/faculty/Pages/item.aspx?num=49076. Accessed 31 March 2020
CBInsights (2019) Where top US banks are betting on fintech. CBInsights https://www.cbinsights.com/research/fintech-investments-top-us-banks/. Accessed 31 March 2020
Chishti S, Barberis J (2016) The fintech book: The financial technology handbook for investors, entrepreneurs and visionaries. Wiley, Chichester
Creehan S, Tierno P (2019) The slow introduction of open banking and APIs in Japan. https://www.frbsf.org/banking/asia-program/pacific-exchanges-podcast/open-banking-apis-japan/. Accessed 31 March 2020
Eroll D, Eroll J (2005) American genius: nineteenth century banks locks and time. Quantuck Lane Press, New York
Evans B (2018) The end of the beginning. https://www.ben-evans.com/benedictevans/2018/11/16/the-end-of-the-beginning. Accessed 31 March 2020
Fenwick M, Kaal WA, Vermeulen EPM (2017) Regulation tomorrow: what happens when technology is faster than the law. American University Business Law Review 6:561–594
Fenwick M, McCahery JA, Vermeulen EPM (2019) The end of ‘corporate’ governance: Hello ‘platform’ governance. European Business Organization Law Review 20:171–199
Fenwick M, Vermeulen, EPM (2019) A sustainable platform economy & the future of corporate governance (European Corporate Governance Institute—Law Working Paper 441). https://ssrn.com/abstract=3331508. Accessed 31 March 2020
Fenwick M, Vermeulen EPM (2019) The end of the corporation. 482 European Corporate Governance Institute—Law Working Paper. https://ssrn.com/abstract=3472601. Accessed 31 March 2020
Gupta N (2019) The PSD2 deadlines: Are the banks ready? https://medium.com/akeo-tech/the-September-14th-psd2-deadline-are-the-banks-ready-5c4c57e39ec5. Accessed 31 March 2020
Hacquedord F, McArdle R, Merces F, Sancho D (2019) Ready or not for PSD2: the risks of open banking. Trend Micro Research, London
Kaal WA, Vermeulen EPM (2017) How to regulate disruptive innovation: from facts to data. Jurimetrics J Law Sci Technol 57:169–209
Kessler K (2018) Gigged: the end of the job and the future of work. St. Martin’s Press, New York
King B (2018) Bank 4.0: Banking everywhere, never at a bank. Wiley, Chichester
Levin S (2019) Google scraps AI ethics council after backlash: Back to the drawing board. The Guardian (5 April). https://www.theguardian.com/technology/2019/apr/04/google-ai-ethics-council-backlash. Accessed 31 March 2020
Macheel T (2019) Banks are turning branches into coworking spaces. Tearsheet https://tearsheet.co/modern-banking-experience/banks-are-turning-branches-into-coworking-spaces/. Accessed 31 March 2020
Malan D (2018) The law can’t keep up with new tech. Here’s how to close the gap. World Economic Forum. https://www.weforum.org/agenda/2018/06/law-too-slow-for-new-tech-how-keep-up/. Accessed 31 March 2020
Manning RD (2000) Credit card nation. Basic, New York
McMillan J (2014) The end of banking: Money, credit, and the digital revolution. Zero/One Economics, Zurich
Moazed A, Johnson NL (2016) Modern monopolies: What it takes to dominate the 21st century economy. St. Martin’s Press, New York
Newton R (2015) How to borrow some of the start-up genie’s magic. Financial Times (28 July). https://www.ft.com/content/6b5e4ba6-ffcc-11e4-bc30-00144feabdc0. Accessed 31 March 2020
Parker GH, Van Alstyne MW, Choudary SP (2016) Platform revolution: How networked markets are transforming the economy and how to make them work for you. Norton, New York
Pratskevich A (2019) Financial apps report. Liftoff. https://liftoff.io/blog/finance-apps-2019/. Accessed 31 March 2020
Price Waterhouse Coopers (2014) Retail banking 2020: Evolution or revolution. https://www.pwc.com/gx/en/banking-capital-markets/banking-2020/assets/pwc-retail-banking-2020-evolution-or-revolution.pdf. Accessed 31 March 2020
Price Waterhouse Cooper (2016) PSD2 in a nutshell. https://www.pwc.com/cz/en/bankovnictvi/assets/psd2-nutshell-n01-en.pdf. Accessed 31 March 2020
Reddy N (2018) How to harness the power of network effects. 2 January, Forbes. https://www.forbes.com/sites/forbescoachescouncil/2018/01/02/how-to-harness-the-power-of-network-effects/#2b41823462e8. Accessed 31 March 2020
Shevlin R (2019) Bank/Fintech partnerships will be a huge disappointment in 2019. Forbes (7 January). https://www.forbes.com/sites/ronshevlin/2019/01/07/ bankfintech-partnerships-will-be-a-huge-disappointment-in-2019/#3dc33dc837ba. Accessed 31 March 2020
Sironi A (2016) Fintech innovation: From robo-advisors to goal-based investing and gamification. Wiley, Chichester
Tweddle K (2018) Doomed? Fintech partnerships are vital. American Banker (10 July 2018). https://www.americanbanker.com/opinion/doomed-fintech-partnerships-are-vital. Accessed 31 March 2020
Wu T (2016) The attention merchants: The epic scramble to get inside our heads. Vintage, New York
Zetzsche DA (2017) Regulating a revolution: From regulatory sandboxes to smart regulation. Fordham Journal of Corporate and Financial Law 23:31–103
Zhou W, Arner DW, Buckley R (2015) Regulation of digital financial services in China: Last mover advantage? Tsinghua China Law Review 8:25–62
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2020 The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd.
About this chapter
Cite this chapter
Fenwick, M., Vermeulen, E.P.M. (2020). Fintech, Overcoming Friction and New Models of Financial Regulation. In: Fenwick, M., Van Uytsel, S., Ying, B. (eds) Regulating FinTech in Asia. Perspectives in Law, Business and Innovation. Springer, Singapore. https://doi.org/10.1007/978-981-15-5819-1_11
Download citation
DOI: https://doi.org/10.1007/978-981-15-5819-1_11
Published:
Publisher Name: Springer, Singapore
Print ISBN: 978-981-15-5818-4
Online ISBN: 978-981-15-5819-1
eBook Packages: Law and CriminologyLaw and Criminology (R0)