Six trends you need to know
Innovation is booming in payments and fintech – and challenging traditional models. Every part of the payments lifecycle is changing: from systems for central clearing and settlement, to authenticating individual transactions. Plus new players are entering the sector with disruptive business models and technology.
So to protect your investments, we've predicted six fintech trends you should know about.
1. More regulation but greater competition
Regulators are encouraging competition in financial services by bringing more services within the regulated regime, to let more players compete on a level playing field.
For example, proposed changes to the European Commission’s Payment Services legislative package, PSD2, will bring third-party providers of payment initiation and account information services within the scope of PSD2. Previously, these providers would not have been caught or could rely on an exemption.
Existing financial services regulators will also use new powers to promote competition. The UK’s Financial Conduct Authority has taken on concurrent competition powers with the Competition and Markets Authority, for example, and has said it will actively use its new powers. Competition regulators may also try to intervene if data-gathering becomes a new vehicle for monopolising, which could affect the data-centric fintech sector.
2. Governments and regulators are promoting innovation
The UK government set out its vision for the UK to be the premier location for starting, growing and retaining innovative financial technology businesses in its FinTech Futures Report, and has committed to fund research for digital currency technology.
The European Securities and Markets Authority has issued a call for evidence on investment instruments that use or rely on virtual currency or distributed ledger technology.
In the US, the Federal Reserve Bank has outlined ways to improve the US Payment System, and promote fintech innovation and investment by setting up favourable regulatory environments.
3. Different jurisdictions have distinct principles of owning data and protecting intellectual property
Data could be one of the most valuable assets for fintech institutions. Fintech institutions need solid rights to use their data, and it may be critical to their enterprise value that those rights are exclusive.
Unfortunately the position can be complex and unclear – factually and legally. Data is often aggregated from different sources and includes third-party data. Different legal frameworks can affect who owns, and how you can protect, that data, including:
- trade secrets;
- database rights;
- originality of copyright works; and
These rights vary from one jurisdiction to another, so contractual protection is vital.
4. How you collect, store and use data will become more regulated than ever
Regulators are tightening control over personal data. The EU will introduce stricter data protection controls within the next couple of years, probably to impose:
- stricter rules on consent;
- firmer controls over processing beyond the bounds of consent; and
- tighter requirements to dispose of unnecessary personal data.
Data subjects will have more control over what's done with their data, including controls over profiling and other 'big data' uses. Underpinning the regulation is an enforcement regime featuring fines that may be as much as 2 per cent of group worldwide turnover.
5. Fintech may be the battleground for the next big patent war
As fintech innovation increases, so does the risk of patent infringement claims.
While many patent systems don't allow patents for methods of doing business, many patents are being enforced over fintech – especially over innovations that are more 'tech' than 'fin'.
Existing patents are being challenged, in some cases also challenging the exclusivity and the value proposition of the business proposition. And ‘patent trolls’ are looking to buy up and assert patents.
In US litigation, injunctions have become more difficult to secure, but the forthcoming Unified Patent Court gives a potential route to an injunction covering the entire EU market, and may greatly increase a patent's leverage.
As technical standards develop, standard essential patents, FRAND licensing and competition law will also become an issue. So it will be essential to understand the patent landscape.
6. New regulations could drastically change business models
Traditional business models are changing, fast. New regulations may mean that it’s more efficient for businesses to restructure.