America: the world’s largest economy and the third-most populous country. Yet it seems to be lacking in fintech innovation and development, compared to other leading developed countries.
There is an insufficient number of US-based fintech firms which offer a legal framework for encouraging innovation and ensuring the protection of its consumers.
The rigid laws surrounding financial business in the US provide a stark contrast when compared to its European counterparts, particularly the UK.
London is not only the world’s top foreign exchange hub, but it is also becoming a burgeoning home for fintech firms.
With a long withstanding history of regulation and deregulation, London has earned its title as the European capital of fintech.
The growing unyieldingness of the American payment system is highlighted by the gradual decline in card authorised payments.
On the other end of the spectrum, European nations have taken initiative in implementing cashless methods of payment. Particularly in countries such as Denmark, the government has taken measures to authorise retailers distributing every-day necessities such as fuel and groceries, to refuse cash payments.
In Sweden, it is estimated that cash transactions will only account for barely half the value of all payments by the year 2020. The Scandinavian nation is leading the race in ridding itself of the fraud-infested swipe and sign method. Buses have not been accepting cash for years now, and it is customary to refuse notes even for small purchases such as candy or water.
This utopic ideal of a cashless society has spread to the UK, where the cashless trend has also cogently kicked-in. In 2016, two of Britain’s supermarket giants, Waitrose and Tesco, were the first pioneers to experiment with the use of cash-free tills.
With the cashless fad gaining momentum, the US is now making baby steps towards boosting fintech activity, as it carefully examines the advancements made by its European cousins.
The Office of the Comptroller of the Currency (OCC) announced on July 31, that it will begin accepting applications for special purpose national bank charters for fintech companies.
Joseph M. Otting, the comptroller of the currency, argued that “companies that provide banking services in innovative ways deserve the opportunity to pursue that business on a national scale.”
Yet while the US is slowly progressing on a domestic level, its European counterparts across the pond (with particular attention to the UK), are making headway on a global level.
Earlier this year, the UK’s Financial Conduct Authority (FCA) announced it was seeking to expand its opportunities for a global sandbox for fintech firms.
The proposal by the FCA would allow firms to conduct tests on various products and services within a regulated and controlled environment. The aim would be to reduce costs and time to market, as well as assist regulators in choosing appropriate consumer protection.
Although there has been word of similar laws being implemented Stateside, decisions of the sort in the US tend to fluctuate, the Dodd-Frank legislation being an example of the latter. On the other hand, decision-making in Europe appears to be far more steadily-paced when it comes to post-legislative challenges.
The EU’s second Payment Services Directive (PSD2) is an example of this. Among other things, the incentive obliges banks to open customer transaction data to third-party companies. The UK is already exhibiting signs of enactment. Particularly due to the country’s history of reaction regulation, a sense has been established that providing competition to traditional banks is favourable not only towards companies within the fintech industry, but also the banking industry, and consequently, its consumers.
With the repercussions of the financial crisis still rippling throughout the continental bloc, consumer trust and protection has been given utmost importance by companies within the industry. While the concept of open data was initially dismissed by traditional banks, consumer data was shortly after recognised as a competitive asset. Fintech firms can contribute through their capability of collaborating with traditional lenders in order to solve specific issues.
The increasing popularity of fintech firms stems from the fact that technology can often provide the resourcefulness to solve problems which is seldom found in traditional lending institutions.
The success of the UK as a fintech hotspot is based on this notion. Britain is at the fulcrum of fintech innovativeness, by providing and endorsing contactless, mobile and other forms of digital payments. Moreover, the UK has provided a digital learning platform on which fintech firms can lay their groundwork.
It is paramount for firms and regulators across the United States borders to pick up on this innovativeness by observing directives such as PSD2. Only then can America fully harness the potential of the fintech industry, and until then, it will continue to disfavour millions of consumers.