Fintech, as we all know, has been one of the biggest drivers of technological innovation and wealth creation in the past decade.
Unfortunately, the sector has been walking a tightrope for a while now, and the results have been playing out live in our news feeds.
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So, what now?
This much we know: There is still a great need to continue transforming the global financial system, bringing inclusion and opportunity to more people and positioning fintech to make the world a better place. As a fintech CEO deeply immersed in the next generation of fintech, specifically embedded finance, I am intimately aware of the still untapped potential for change.
In today's sobering economic environment, we have a golden opportunity to reassess the essence of fintech, to reflect on what we may have sacrificed in our rapid rise, acknowledge our errors and engage in some critical self-evaluation so as to promote further change. In other words: It is time for fintech to grow up.
What does that mean?
Many fintechs have taken shortcuts around regulations, finding ways to circumvent traditional regulatory frameworks in creative ways. While this may have initially accelerated fintech adoption, it has outlived its usefulness or logic. Fintech firms working directly with consumers and businesses must be directly accountable to regulators at both the state and federal levels.
Having fintech firms that work with consumers and businesses not directly accountable to the regulator, avoiding the traditional licensing process and the continuous oversight and auditing involved, is just plain irresponsible and dangerous. Too many degrees of separation between the public officials responsible for keeping the system, businesses and consumers safe present many points of failure and, thus, numerous opportunities for bad actors.
Today's fintech innovator can no longer sidestep regulators. We have to embrace the regulators and need to be fully licensed and regulated directly. But at the same time, we cannot endure innovation-busting years-long bureaucratic processes that are too heavy for innovators to bear. There should be new and improved processes that relate to the times and the speed of innovation.
"Regulation needs to catch up with innovation."
That's not me; that's U.S. Treasury Secretary Henry Paulson in 2008, amid the growing financial crisis.
Wyoming had sought to intervene in the contentious lawsuit over master account access, citing concerns about its special purpose depository charter. The judge said it had no standing.
If fintechs rightfully want to continue to promote and benefit from change, they must engage in a productive dialogue with regulators and help rewrite the regulatory rules of the financial services industry to adapt them to our times. Smart fintech leaders need to get out in front of this realignment, as they are in the unique position to use a forward-thinking approach and a deep understanding of technology to accelerate any change.
For fintechs, embracing fiscal discipline is no longer a choice but a necessity. Until recently, with investment fueling more investment and driving easy growth, there seemed to be no urgent need to prioritize long-term sustainability and viability. The boom-boom years of cheap money made fiscal discipline and the development of robust financial models nice-to-have, because, let's face it, it seemed like money would never stop flowing.
But once the world economy hit the current speed bump, we saw fintechs that are entrusted with storing and moving money falter or fail, and it became abundantly clear that the fintech industry, as it matures, must embrace responsible fiscal planning, invest more in oversight, establish sound business models and exercise prudent spending practices. These pillars of business prudence are essential to foster the growth of a more stable industry — one that not only attracts customers but also earns their trust.
Fintech startups and established companies alike must move beyond the paradigm of short-term gains and fast growth to prioritize building a viable, scalable and adaptable business architecture. By doing so, we can position ourselves as true financial industry leaders, attracting not just fleeting customers but establishing enduring relationships that are built on trust and value, pillars of stability within the sector.
Fintechs' missions, their inclination toward cost efficiency and their foundational technology all point the way toward the ultimate objective: a transformative shift where customer trust and loyalty are ingrained in the very fabric of the business.
Transparency in fintech can become a strategic differentiator, but requires us to go beyond meeting regulatory requirements and industry standards. Fintechs need to gain a competitive edge on transparency by adopting a proactive approach to clear, accessible and relevant information regarding their services, products, fees, data handling and management practices, including their use of AI. By doing so, fintechs can build a foundation of trust and credibility, allowing customers to make informed decisions while fostering a long-term relationship, not only instilling confidence in existing customers but also attracting new ones who prioritize transparency and value ethical conduct.
Fostering and promoting transparency will shape the culture, values and long-term sustainability of the fintech industry. Customer trust and loyalty can, and must, become the cornerstones of the business model. And as transparency becomes the catalyst for a paradigm shift, to a future where customer-centricity and ethical conduct are deeply ingrained in the fintech ecosystem, the potential rewards will ultimately benefit both the financial industry, its stakeholders and, mostly, its customers.
