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Deregulation Key to FinTech's Success

By Daniel Savickas | November 28, 2016

Small businesses are the back bone of the US economy. However, too many of them don’t have access to the necessary financial capital to stay afloat. It is also incredibly inefficient for these companies to provide the capital themselves.

This is why the Financial Technology (FinTech) industry has matured and expanded so rapidly in recent years. Investment in FinTech spiked from just $1.8 billion in 2010, to $12.2 billion in 2014, and is on pace to do well over $20 billion in 2016.

With this rapid expansion, it is crucial that US lawmakers do not bog down the industry with burdensome and unnecessary regulations.

The exponential growth in the industry can largely be attributed to the previous underdevelopment in the area, and the lack of any regulatory barriers. The recent focus on Person-to-Person sharing has left other areas of FinTech still underdeveloped and presents more opportunity for future growth and innovation. But, there needs to be a friendly regulatory environment in place for that to happen.

The harm of staggered, burdensome regulation on FinTech development can already be seen in other parts of the world. According to the research group, Accenture, regulations in cities like Berlin, Palo Alto, and Hong Kong have left small businesses unclear and stifled the growth of FinTech in these cities. This makes it impossible for any FinTech startups to get off the ground.

However, cities like London have had much success with FinTech, in large part due to their business friendly regulations. One initiative, named Sandbox, allows startups to begin without regulation and consult with the Financial Conduct Authority, so they can alter the regulatory framework going forward, to avoid stifling further innovation.

This has earned London the title of “FinTech Capital of Europe” and the city is slowly creeping up on New York as the most FinTech friendly environment in the world.

The success of a hands-off regulatory environment in Europe should stand as an example, as FinTech expands in America. There will be a temptation to continue the increase in financial regulations, and allow federal bureaucracy to guide the FinTech market.

This will set the US behind its global competitors, and will dissuade investment, and harm this nation’s small business community. America needs to stay the course and open up as many avenues as possible for an innovative industry that is here to stay.