- Where Insurance & Technology Meet

Innovation, Integrity, Fintech: Pick 2?

When we hear of ‘innovation’ these days, the odds are pretty good that there is new technology behind it. The question now is whether the technology innovation can maintain integrity while scaling rapidly, especially for financial services.

Technology is a critical part of daily life

In a recent blog post, Mark Breading, partner in the Analyst firm SMA, wrote:

We are surrounded by amazing technology that permeates almost every facet of life and business. Fifty-plus years into the information age, our world is fundamentally different from the mid-20th century. The way we communicate, learn, travel, and plan is aided by a wide variety of technologies … Our dependency on technology cannot be overstated.

It’s fair to say that these days, more often than not, the access point to the technology is an app on a mobile device — always available.

It’s part of us, and it’s disruptive for some of our industries.

Show me the money

Financial services are already encountering disruption.  According to a recent survey by PwC of 544 financial services companies, financial institutions expect substantial disruption over the next 5 years. Notably, a significant portion of new technologies are coming from standalone fintech companies.

And these companies are leading the implementations.

Established financial institutions are not taking this lying down.  And one of weapons being used is concern about security and integrity of the fintech suppliers’ applications.

As reported in the Financial Post, The CEO of TD Bank, Bharat Masrani, called for regulation of on-line financial services, noting that “Security breaches — service interruptions — and solvency issues have plagued a number of fintechs.”

Time is of the essense

Fintechs dispute the issues as a ‘plague’, but the banks’ arguments may become a moot point in any event.

One issue in Canada is that the current regulator – the Office of the Superintendent of Financial Institutions (OSFI) –  is not mandated to regulate fintechs with existing legislation.  And the fintechs don’t feel that they should be placed in the same category as the major bank.

According to a report from Canadian Press, Jeff Mittleman, CEO and founder of Thinking Capital, an on-line small business lender, said there will likely be regulation in Canada, but not until the fintech business becomes more mainstream and snatches more customers.

If  Uber’s experience in Toronto is any example for how long this might be, the horses might have left the barn (or, should we say bank) far behind before there is resolution.

After a year of conflict between taxi drivers, Uber drivers, and various levels of government, the Toronto City staff just brought forward draft recommendations for regulating the ridesharing service.  A major conflict between the staff and Councillors is expected.

Meanwhile, Uber will likely continue operations — business as usual.

We have the answer, but what’s the question?

We turn back to Mark Breading for counsel.  Mark notes that over the years, we have introduced some excellent quality controls for software development, testing, deployment, and support.

And for mission critical applications, we can implement “products that virtually never fail,” Breading writes.

However new apps are “being pushed out so fast and in such high volumes that the quality and reliability is often overlooked,”  Breading writes.

What to do in this wild west

Breading notes that the major impact of low quality apps is loss of consumer confidence in the products.  That can happen quickly when it’s our hard earned money.

Governments could come to the rescue, but it will take time, and may not keep up with the rapid changes. Certainly, anything involving cross border transactions would be tricky.

In March of 2015, the UK Government Chief Scientific Adviser issued a document which reviewed the current state and vision for the UK.  It also supplied a division of responsibilities:

“The role of Government is to provide leadership and catalysis – the business and academic sectors must play the major role in developing and delivering new business models. The regulators are key to ensuring that existing, new and emerging risks are identified and managed effectively.”

Perhaps it is time for the industry to take this firmly in hand and develop its own protocols and testing standards.

What do you think?

We clearly can’t ignore innovation.  But we can’t turn customers into beta testers.  I’d welcome your thoughts.






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