The use of digital banking services has grown during the pandemic © AFP via Getty Images

Regulators around the world have reacted to the spread of coronavirus by speeding up the pace of fintech rulemaking, according to new research from the World Bank and the Cambridge Centre for Alternative Finance.

As people started to access more of their financial services digitally, regulators were forced to take a fresh look at their fintech plans.

The research looked at 118 authorities in 114 different jurisdictions. Almost three-quarters of them said they had accelerated or introduced new initiatives on digital infrastructure, while 58 per cent said they had accelerated or introduced new measures to support “RegTech” and supervisory technology, or “SupTech”.

Over half of officials surveyed in advanced economies said that fintech was now a high, or even higher, priority due to coronavirus. In emerging markets and developing economies, that proportion rose to almost two-thirds.

This response seems entirely correlated to the widespread adoption of new technologies to deliver financial services in lockdown.

Six out of 10 regulators reported strong increases in the use of digital payments and remittances, with most of this increase taking place in jurisdictions with “more stringent Covid-19 containment and closure measures”. A fifth of the regulators also reported strong increases in the use of digital banking services and digital savings platforms.

Caroline Freund, global director of trade, investment and competitiveness at the World Bank, noted that regulators had to move fast to enable these much needed services to be provided safely, for example by allowing testing in “sandbox” environments. “The findings show that Covid-19 has in many cases accelerated policies and programmes that support a shift to digital finance, such as innovation offices and regulatory sandboxes,” she explained.

Part of the reason, the study suggests, is that regulators have seen how fintech companies took part in Covid relief efforts. Their top five uses globally have been in digital disbursement of payments and remittances (reported by 38 per cent of regulators), delivery of governmental relief and stimulus funding (28 per cent), contact tracing (22 per cent), ensuring business continuity (17 per cent) and support for small businesses (12 per cent).

As a result, more than a third of national regulators have taken new measures to enable fintech activities — with those in developing economies the more likely to have acted.

In Kenya, for example, the central bank made emergency rule changes to more than double mobile money transactions and balance limits to KES 150,000 ($1,379) and KES 300,000 ($2,758) respectively. This immediately led to “increased usage at higher amounts and greater convenience”. The bank has also insisted on the whole or partial waiving of transaction fees by mobile money providers.

In Jordan, the central bank allowed the use of mobile wallets in distributing government aid and salary payments — reducing human contact and infection risk.

James Duddridge, the UK’s minister for Africa at the Foreign Office, said that the impact of Covid on all developing nations had created “unprecedented demand” for regulated ways to “transition to . . . inclusive digital finance”.

In advanced economies, the appetite for regulatory change was related to the strictness of government lockdowns.

In jurisdictions with “higher Covid-19 stringency measures”, 42 per cent of regulators were likely to have accelerated their regulatory sandbox initiatives, allowing new fintech apps to be tried out using real but anonymised customer data. In “lower stringency jurisdictions” it was only 33 per cent.

Not every finding was positive, though. More than three-quarters of regulators admitted that their increased action was due to rising Covid-related cyber security risks. Others mentioned concerns over consumer protection, fraud and scams. A majority admitted to challenges in performing proper inspections of fintech firms, while around a third struggled with stretched resources and coordinating with other agencies.

More worryingly, given they are the organisations designated to supervise fintechs, 80 per cent said they would benefit from skills development.

Quick Fire Q&A

Company name: PayKey

When founded: 2014

Where based: Tel Aviv and Singapore

CEO: Sheila Kagan

What do you sell, and who do you sell it to: A mobile keyboard system enabling banks to embed financial services into customers’ daily interactions in any social or messaging app.

How did you get started: We initially focused on millennials, helping banks better engage with this segment on social apps.

Amount of money raised so far: $16.4m

Valuation at latest fundraising: N/A

Major shareholders: SBI Group, Magma, Commerz Ventures, MizMaa, Mastercard, Santander and Siam Commercial Bank.

There are lots of fintechs out there — what makes you so special: We enable banks to bring financial services to the most valuable interface today: customers’ social environments where financial decisions happen.

Further fintech fascination

Stumbling blocks: Visa’s $5.3bn acquisition of fintech Plaid is facing scrutiny by the US Department of Justice, reports Reuters. The DoJ has asked a court to allow it access to more information about the business so that it can determine if the deal violates antitrust law. The deal was announced in January.

Trendwatch: Paris is targeting London’s position as a global hub for international tech talent, according to a Sifted interview with Cédric O, the French junior minister for digital affairs. Mr O sees Brexit as an opportunity to lure people to the French capital, and says that the financial sector is one area that Paris is targeting.

Follow the money: Tech-based motor insurer Root raised $664m in its IPO, which valued it at $6.7bn, says the Financial Times. The US company priced its shares at $27 each, which was above the $22-$25 range that it had set. The valuation is also well above the $3.6bn implied by Root’s previous equity fundraising in August last year.

Follow the money (2): The third quarter of 2020 was the most active quarter ever for insurtech fundraising, reports The Insurer, with $2.5bn raised across 104 deals. The data, produced by consultant Willis Towers Watson, show that there were six funding rounds of over $100m and also a resurgence in early stage deals.

AOB: Singapore’s largest bank, DBS, is working on the launch of a digital currency exchange, reports The Business Times; Swiss bank UBS is to invest $200m in fintech start-ups, says Bloomberg; Private equity firm AnaCap is in exclusive talks to buy a majority stake in Carrefour’s payment processing business, according to Finextra; FT Alphaville has taken a look at why challenger banks are struggling.

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