The fintech industry, a spinoff of the financial services sector, is as highly regulated as the main sector. The key behind the high regulation is to protect the end users – the consumers. Financial services are a necessity for an effective financial system. To enhance the effectiveness of the financial services, technological advancements require that products that move with the advancements are created. The technological world is prone to high levels of abuse. Therefore, it is important to ensure that financial products and services are intensely regulated in order to genuinely serve consumers’ needs.
What is your fintech product?
Fintech could be regarded as a sector, because of the wide range financial products that serve different needs. Fintech simply stands for financial technologies – it is therefore not a new industry in itself. Its popularity is in essence tied to the way technology has enhanced the manner in which we now easily communicate. If you think of a simple infrastructure such as an ATM – it is a fintech product. On the other hand, accounting systems used for recording transactions are also in another industry of fintech. These products have evolved over time, to make usage and outputs required from them faster, more efficient and to reach a broader consumer base at lower costs.
Is your fintech product viable?
But, before focus and emphasis are on making faster, more efficient and lower cost fintech products, there is a need to verify the viability of the product from a commercial, financial (projected revenue, cost of development and subsequent maintenance) and, more importantly, from a legally compliant perspective. While practicality is important, you cannot have a product that is not financially and legally viable.
Does your product have public interest?
The legal aspect is mainly governed by pronouncements from The World Bank, to ensure an inclusive and sustainable world, where each country models its regulations in line with The World Bank. These regulations are then followed by the issuance of a license to operate and provide a particular service that covers a particular need. Not all services that are regarded as financial services require a license – it is mainly those that have a high public interest that generally involve the handling of third-party funds for various reasons.
Do you have the necessary financial and human resources?
There are many risks which a financial services business faces. Therefore, your fintech product will not be seen as just a standalone product. In simple terms, the license provided depends on the level of risk which your clients (the end user/consumer) face from losing the money that they have entrusted you with.
In order to deal with other people’s money, you might need to show that you also have money in your arsenal to address the risk of losing that money. Although you may have the money, you will also need to show that you are capable of dealing with third party funds and have the required experience to do so.
Who gives you the license?
If you are a cash handling business such as banking or processing payments, your primary license issuer is likely to be the Reserve Bank (South African Reserve Bank – SARB) and if you are in non-banking services such as insurance, investments, etc. Financial Services Conduct Authority (FSCA). Although the SARB and FSCA are separate regulators, they work hand in hand on a number of matters to ensure safety of the public.
What are some of the reasons your license application might be rejected, even if you have the necessary financial and human resources?
Fintech products and innovations are coming through at a fast rate and prior to approval of a fintech product, it is important that the product and its related service is governed by promulgated regulations. The process of promulgating laws into effect, generally takes long and this may result on your intended product and service being rejected or put on hold until the regulations catch up. However, the SARB and FSCA know about this challenge and are always working around the clock to have necessary regulations promulgated at a faster rate while being weary of the risks of high levels of fast tracking.
What happens after you have been awarded the license?
Once you have been awarded a license to operate your fintech product or service, it does not end there. Despite the fact that any technological product is faced with cybersecurity risks. You will need to ensure that you are constantly compliant with the necessary laws and regulations, so that you maintain your license to operate.