South Africa’s complex financial technology (fintech) domain is in flux and morphing into never-seen-before services across every aspect of the financial sector, with regulators and policymakers working on a coordinated approach to policymaking that will leverage fintech innovation in a way that meets the needs of the local market.
A report by the Intergovernmental FinTech Working Group (IFWG) shows that the infusion of technology within financial services presents significant potential benefits, including improving financial inclusion and enhancing the value of financial services provided to society.
The report is a result of the inaugural market outreach workshop held in April to identify key considerations in developing a harmonised approach to fintech-driven innovations for the benefit of all South Africans.
The fintech phenomenon has the potential to reshape the financial services industry by removing market inefficiencies and delivering novel solutions by exploiting emerging exponential technologies, such as application programming interfaces, big data, blockchain and cloud computing.
“Improving overall social welfare may be one of fintech’s greatest promises; however, it can also pose risks to consumer protection and overall stability,” the report noted.
The inaugural workshop provided a platform to identify the risks and benefits involved in financial services innovation driven by technology, the regulatory challenges faced by fintech companies in South Africa and input on the response that regulators in the country should take to develop appropriate policies and to implement effective regulatory frameworks for this emerging industry.
The Financial Intelligence Centre, Financial Sector Conduct Authority, the South African Reserve Bank and the National Treasury are collaborating to ensure that fintech’s potential can be fully leveraged and to develop a common understanding among regulators and policymakers of fintech developments and the relevant policy and regulatory implications for the South African financial sector and economy.
However, while it is believed that innovation in financial services is “best left to market forces and competitive dynamics”, the authorities are “fully aware” that regulation needs to keep pace with innovation, owing to potential risks.
“Regulators shoulder the responsibility to assess and manage these risks. Intermediation risks include consumer protection concerns, money-laundering considerations and general business risks, which include more macro-level financial stability risks.
“Greater interconnectedness through growing . . . alternate financial services platforms may have an impact on financial stability. Such platforms may grow quickly and may become too-large-to-ignore,” the IFWG said.
Private cryptocurrencies and initial coin offerings, financial inclusion and innovation facilitators are the three main topics of focus.
The workshop was an important step towards achieving the objective of regulator and private sector engagement and collaboration.
The IFWG plans to host another workshop this year, and is working on a policy paper setting out the South African policy position on fintech and innovation in the financial sector, which is expected to be released in 2019.