A brief discussion of the challenges of fostering innovation in an emerging space, such as fintech, when it is seen as part of the highly regulated financial services sector.
In the Daily Express newspaper in Trinidad and Tobago last week, there was an article highlighting a challenge that is being experienced by local entrepreneurs operating in the fintech space. The article highlighted the experience of WiPay, a digital payments solutions provider that relocated its headquarters from Trinidad and Tobago to Jamaica in 2020.
The company initially made waves in Trinidad and Tobago by offering a payment solution for the courts to allow people to make court-ordered maintenance payments electronically or online. Before the solution, called CourtPay, and as often as weekly, the payer and payee had to be physically present in order for a transaction to be completed. However, and as expected, CourtPay made the payment process more efficient and convenient for the parties involved, thus increasing compliance.
Buoyed by the success of CourtPay for maintenance payments, the plan was to extend it to other types of court-mandated payments, such as fines and fees. However, the regulations did not permit the broadening application of the platform, essentially halting CourtPay’s use to collect those fines and fees.
The challenges Trinidad and Tobago-based fintech businesses are experiencing are, to varying degrees, occurring across the Caribbean region. There is a need for policies, laws, and regulations to better support fintech-related innovation if the region is to have a chance at becoming an attractive location for fintech start-ups, and by extension entrepreneurship more generally.
Policy and legislation follow innovation
We have all heard it before: policy tends to play catch-up to industry. Typically, the industry is out ahead doing innovative things and pushing the envelope, and once things have settled somewhat, and policymakers have an understanding of the lay of the land, policy and legislation are then put in place to provide structure and order, along with measures that could foster further development of the industry.
Indeed, in an industry where very few structures exist, entrepreneurs and innovators tend to have free rein to experiment – granted that the environment would most likely be fraught with risk, and have limited safety nets. During that time, the gains might be huge – which fuels interest and investment – but the possibility of failure may also be high, and pricey.
However, in the financial services sector, many of its segments are highly regulated. Structures, procedures, and protections have been well established, and it is within that construct that fintech is emerging. Based on the WiPay example, that very framework has been hindering the roll-out of their services, which led to the decision to relocate the business. Hence, the question that may need to be asked, especially with respect to fintech is, “When should existing policies be relaxed (or revised) in order to allow an industry to develop?”
Entrepreneurs will find a work-around
Without a doubt, whenever there is an obstacle, entrepreneurs will find a way to overcome it – even if it is to circumvent it. Here in the Caribbean region, we have seen it with respect to e-commerce. For start-ups, micro, and small businesses, securing an online merchant account through the traditional banks can be a costly and highly protracted process, which requires resources that businesses of that size possess.
Depending on the business, some have opted to receive payments through online payments platforms, such as PayPal, or a similar service. Others have established their business in countries in which the needed services can be easily secured. So, although the business might be located in the Caribbean region, and is serving a Caribbean customer base, its revenue is being collected outside of the region, and may not all be returning to the region, to benefit the region.
An enabling environment fosters innovation
It is important to highlight that when an environment works, that is when appropriate systems that are proportional to the circumstances and promote the growth are put in place, it can rapidly accelerate the development of that environment. However, to do so, a deft touch with the measures established is essential.
With respect to fintech in the Caribbean, although countries have expressed the desire for it to be innovative and hopefully become a key driver of their economy, it could be argued that entrepreneurship and innovation are being hampered by challenges in the enabling environment. Fintech is not being treated differently from financial services, and so to varying degrees, the former is being hindered by the regulations pertinent to the latter.
Although there may be value in debating whether fintech is different from financial services, the bigger issue is how can the regulatory requirements be balanced, noting that one is emerging and still evolving, and the other is longstanding and more established. There may not be an easy answer, but resolving this issue may be pivotal to the growth of key segments in the region’s fintech industry.
Image credit: Pascal Bernardon (Unsplash)
