Fintech companies are fundamentally changing how the financial services ecosystem operates, giving consumers powerful tools to help with savings, budgeting, investing, insurance, electronic payments and many other offerings. This industry is growing rapidly, filling gaps where traditional banks and financial institutions have failed to meet customer needs.
Yet progress has been uneven. Notably, consumer fintech adoption in the United States lags well behind much of Europe, where forward-thinking regulation has sparked an outpouring of innovation in digital banking services — as well as the backend infrastructure onto which products are built and operated.
That might seem counterintuitive, as regulation is often blamed for stifling innovation. Instead, European regulators have focused on reducing barriers to fintech growth rather than protecting the status quo. For example, the U.K.’s Open Banking regulation requires the country’s nine big high-street banks to share customer data with authorized fintech providers.
The EU’s PSD2 (Payment Services Directive 2) obliges banks to create application programming interfaces (APIs) and related tools that let customers share data with third parties. This creates standards that level the playing field and nurture fintech innovation. And the U.K.’s Financial Conduct Authority supports new fintech entrants by running a “sandbox” for software testing that helps speed new products into service.
Regulations, if implemented effectively as demonstrated by those in Europe, will lead to a net positive to consumers. While it is inevitable that regulations will come, if fintech entrepreneurs take the action to engage early and often with regulators, it will ensure that the regulations put in place support innovation and ultimately benefit the consumer.