FinTech - A "Disruptive" Innovation

FinTech will inevitably change the way we do business in Mauritius and elsewhere, thereby creating opportunities for both industry incumbents and new players. The dynamic nature of emerging markets creates challenges that have never confronted the developed world but at the same time, it also opens up opportunities for innovation and growth. Over the years to come, we are set to see faster changes in the payments landscape, building on the accelerating growth in electronic payments and the advent of new and disruptive market players.

 

What is FinTech?

FinTech is a global phenomenon which is disrupting and changing the worldwide financial landscape. It started with an apparent spelling error to a word that is on everyone’s tongue.

Originally, the term referred to technology which is applied to the back-end of established companies and financial institutions. Since the end of the first decade of the 21st century, the term has expanded to include any technological innovation in the financial sector, including innovations in financial literacy and education, retail banking, investment and even crypto-currencies like bitcoin. 

The term financial technology can apply to any innovation in how people transact business, from the invention of money to double-entry bookkeeping. Since the internet revolution and the mobile revolution, financial technology has grown explosively. Originally, FinTech referred to computer technology applied to the back office of banks or trading firms. It is now described as a broad variety of technological interventions into personal and commercial finance.

Before proceeding to see what type of disruption can be caused by the emerging opportunities of FinTech, let us first look at the existing legal framework in Mauritius.

 

• Legal Framework

The Bank of Mauritius and the Financial Services Commission are the two main regulatory bodies in the Mauritian financial services scenery. The Bank of Mauritius regulates the banking sector and the Financial Services Commission regulates non-banking financial services. Under Mauritian law, contracts to buy and sell are governed by the Civil Code.  For the operational and regulatory aspects, we turn to the Banking Act, the Financial Services Act and the Securities Act.

This has worked very well so far, however, the upcoming of FinTech with new technology and innovation aims to compete with traditional financial methods in the delivery of financial services. It is clear that FinTech will ultimately transform and revolutionise the Mauritian financial landscape.

Let’s face it, apart from always boasting about our beautiful country, we, Mauritians, have always been proud of our booming economy. We have always wanted to be ahead in the fields of finance and technology and now is definitely the time for us to start making a move and see how to accommodate the global phenomenon that is called FinTech.

This situation is both a challenge and an opportunity. A challenge to make financial regulation and reporting more transparent, efficient and effective; but also an opportunity to apply the innovative FinTech prototypes and big data analytics to regulation and compliance.

 

Why is FinTech disruptive?

• Disruption vs Innovation

With the upcoming of FinTech, the buzz these days is that FinTech is “disruptive”.

 If one stops and ponders over the question, one has to wonder whether the word “disruptive” is not just a new way of saying “competitive”.

 The innovation or disruption brought by FinTech is looking to take market shares away from Financial Institutions (FIs) and provide more options to consumers and commercial customers that are either less expensive, faster, more convenient, more efficient, outside traditional banking channels, a more personalised experience, or may be even all of these. At this point, we have to ask ourselves whether this is really disruption or just healthy competition which spurs innovation by all competitors in the place, new or old.

 

• FinTech vs Financial Institutions/On-going Businesses

Another way to consider FinTech as “disruptive” is to look not only at the new entrants but also at existing Financial Institutions and On-Going Businesses.

There is no doubt about the great benefits that FinTech can bring to businesses and people. An underlying theme on the tables of global CEOs and senior business executives, however, is that such acceleration of innovation and the speed of disruption are hard to understand and to anticipate. This is so even for the best connected and most well informed companies. Indeed, across all industries, there is clear evidence that the technologies that underpin this new revolution are having a major impact on businesses, but none of the industries in the market have been experiencing so much disruption as banks and financial Institutions.

Today, we see that banks have started moving past the “testing stage” and have started to collaborate with FinTechs. This collaboration by banks is either done directly or through investments, to assess new technologies without fully committing to FinTechs. We can see this step forward through the introduction of Apps such as Juice by Mauritius Commercial Bank, SBM (App) by SBM and the various facilities available with on-line banking.  We see the need for banking institutions to keep up with the competition and bring new digital products for its clients to use.

 

• Disruption vs Competition

In the last year or two, we have noted that a pivot towards partnership, rather than competition, has begun to flourish between FinTech startups and FIs. This shift suggests that most FinTech startups are actually enterprise software companies that provide new, innovative ways to do banking in the digital age.

Be it businesses or FIs, all have recognised that many of their clients and product systems are decades old and are in deep need of a refreshing. To do this, they are exploring investments in FinTech and in the process, redeveloping themselves from the outside. FinTech is that segment at the intersection of the financial services and technology sectors where technology-focused startups and new market entrants innovate the products and services currently provided by the traditional and once untouchable financial services industry.

This brings us back to our original question of why is FinTech considered to be disruptive? Is FinTech actually disruptive or innovative? Is a new or innovative approach to traditional banking/business transactions disruptive, or it is just an update of a bank’s legacy system and of normal business norms to remain competitive and relevant in the millennial age? As clients, we should probably be thankful that FIs and businesses are getting shaken up, as it will help drive efficiency and meet the growing needs of retail and commercial customers.

As we can see, FinTech will change the usual methods of traditional banking and ways of doing business. Regulators will have to consider new tools to facilitate the delivery of risk and compliance functions to make informed decisions based on real time information. As announced in the Budget 2017-2018, the Economic Development Board will, in its quest to promoting Mauritius as an attractive investment and business centre, engage in discussions with all stakeholders, including industry experts, regulators and policymakers. The key role of the Economic Development Board will be to provide strong institutional support for strategic economic planning and ensure greater coherence and effectiveness in economic policy formulation. We look forward to such innovation as there is an appetite for “disruption” because many see the gleaming pot of gold at the end of the road.

 

 

Khemila Narraidoo,

Associate-Barrister

Juristconsult Chambers

 

[Khemila Narraidoo holds an LLB from the Sheffield Hallam University, UK and a “Maîtrise en Droit International des Affaires” from the University of Paris XII, France. She did her Bar Vocational Course at the Inns of Court School of Law (City Law School) in London. She was called to the Bar of England and Wales in 2010 at the Honourable Society of the Middle Temple and was called to the Mauritian Bar in 2012, after having done her pupillage in high-calibre chambers in Mauritius.]

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