Removing the borders for fintech

Published on November 15th, 2016

The old world of money saw the limits of financial systems aligning with the political borders of countries, but as the new world of finance emerges we’re learning that the old world’s borders don’t make much sense anymore, demanding a new approach from regulators. There is also the opportunity for African regulators in particular to be more proactive in enabling participation with their counterparts and enabling the expansion of startups on the continent while facilitating entrance into other global markets. Technology is already non-territorial and the nature of modern software-based businesses makes conventional borders seem more senseless than ever.

Revolut, for example, started by providing an innovative currency card in the UK, but has successfully started rolling out globally without much change required in its base operations. Another UK startup, Ebury is seeing demand for its trade financing platform from potential markets all over the world where little to no change is required for the core technology that underpins it. Mpesa started in Kenya but has been replicated - at least operationally - in other African countries with varying success.

In the blockchain space things are even more extreme because the technology was created without the idea of borders. The cost and speed of sending someone Bitcoin is the same whether they’re physically sitting next to you, or on the other side of the world. The blockchain has no borders, even if the bulk of Bitcoin mining does happen in China.

This is difficult for old-world regulators to deal with, but the first steps are being taken to enable collaboration and ease the flow of business between territories. In this regard the UK is perhaps most active.

A recent example is in the UK and China agreeing to form a “fintech bridge” in November 2016. On one hand this is an example of cross-border cooperation between governments on fintech, and the UK already has similar agreements with South Korea, Australia, and Singapore.

On the other hand this is born of necessity, since new technologies spread globally whether regulation allows for them to or not. In the example of Revolut, which I mentioned above, many were able to successfully order and use cards outside of the UK even when they were not allowed to from a regulatory perspective, strictly speaking.

The UK’s “fintech bridge” with China will serve to strengthen bilateral market access for British and Chinese fintech startups, reducing barriers to market entry for companies in both markets. In the wake of Brexit, this also perhaps encourages trade between countries outside of Europe.

It’s the right thing for a regulator to be doing and we will hopefully see similar agreements being struck with and between African regulators to enable the expansion of local fintech businesses. The technology is already there, we just need the rest of the world to catch up.