Fintech regulations are necessary to promote growth, confidence in the industry

Fintech has become an integral part of the Kenyan financial ecosystem. PHOTO | POOL

Financial technology often referred to as fintech, has become an integral part of the Kenyan financial ecosystem. Emerging fintech, including mobile money transfer platforms, digital lenders and payment service providers, is redefining how financial institutions deliver services in an industry long defined by slow innovation.

However, the rapid growth and increasing importance of fintech services comes with system-wide risks that require updated supervisory guidelines. The innovation has brought about unintended risks for financial companies and their customers.

Concerns about loss of privacy, increasing risk of fraud, compromised customer data security, harmful manipulation of consumer behavior, a sudden collapse of some Fintechs and borrower distress as a result of irresponsible digital microcredit lending practices illustrate such risks.

ALSO READ: Blockchain, crypto applications dominate CMA incubation unit

The risk arises primarily from the underlying technology that enables fintech, but also from new business models, product functions and supplier types. This raises two questions: Do we need regulations in this nascent fintech ecosystem? How can the financial sector keep pace with current fintech regulations and prepare for the future as technology evolves?

Analysis of the global financial system has shown time and time again that government regulations are not only necessary – they often provide great value for both consumers and businesses. Beyond protecting consumers, as technology changes business and fintech enters the market, regulations can help manage processes and pave the way for fair competition. The policy and regulatory environment is a critical factor in the continued success of any economy. The sector needs regulations to promote strong growth of the fintech ecosystem. Guidelines aimed at fintech firms and banks with digital arms are proportionately necessary.

In this way, the opportunities offered by fintech are promoted while the risks are contained. At the same time, we need regulations to remedy the loss of confidence after high-profile technology start-ups that have collapsed in recent times.

READ ALSO: Flutterwave now says it applied for a CBK license in 2019

The regulation also establishes trust while creating a level playing field, especially for small and medium-sized businesses, allowing them to scale faster. Any institution involved in financial business must comply with various regulations, which certainly apply to the fintech industry. Without regulation, it would be difficult for fintech to operate broadly in the financial sector, especially for players in multiple jurisdictions.