A Matter of Perspective: The Effect of Regulations on Innovation Gerhard Oosthuizen, CIO Entersekt

The security of financial and personal information is a necessary focal point for regulatory bodies worldwide. Fraud and data theft are concerns across all industries, but the threat is of particular importance to the banking and payments sectors.

For banks, advances in technology and new regulatory guidance set the beat for a perpetual dance between ensuring consumer protection on the one hand and offering a user-friendly and efficient experience on the other. 

Regulations have increasingly been viewed by traditional financial services companies as upsetting the ability to strike the right balance. I can appreciate this stance, but there is another perspective.

The role of regulatory bodies

In every sector, new developments open up possibilities, but will also bring new threats. In financial services, the cost of ignoring these threats is too high and affects too many people, which is where regulatory bodies come in.

Their reason for being is to ensure we get the most from the innovative technology solutions created. Regulatory bodies analyse potential threats and mandate measures to prevent the threat from being exploited. The partnership between these regulatory bodies and banks which must act on the guidance is crucial to making consumers’ lives simpler and more secure.

Regulations are a double-edged sword

New regulations can be seen to slow innovation with the constraints that they bring. The challenges of assessing impending regulation, planning and resourcing responding changes within relatively short time frames, and the ongoing work to meet compliance obligations (monitoring, reporting, auditing) are a drain on resources that might otherwise be massed to build something entirely new.

I enjoyed reading Paul Steenkamp, Standard Bank’s head of innovation capability, on why he thinks many banks fail in efforts to think outside the box: “There are exceptions, but there is evidence to suggest that banks have tied themselves in knots in trying to comply with new, more stringent regulations. This has resulted in them being more internally focused and less responsive. Another contributing factor is that customer experience expectations have changed radically over the past few years.”

Steenkamp was being interviewed about fintech. Many banks resent fintech firms and the fact that they have, to date enjoyed, less oversight. Steenkamp holds fintech companies in a different light. Working together, he says, “one plus one equals three”.

Staying ahead of the curve

At Entersekt, we choose to regard the evolving regulatory environment as a driver of innovation. Changes in policy have very real potential to shift the industry out of its conservatism and timidity and ignite an ambitious new approach to technological change. Look at anti-monopolistic legislation affecting mobile and telecommunications in general, at how fundamentally it has changed how we live, and how much value it has unlocked.

The regulatory changes and competing ideas roiling the industry are an opportunity. These are the conditions in which forward- and outward-looking companies that nurture true creativity grow fast. True creativity and adaptability know no barriers when you employ the brightest people and work with the best technology partners, including, yes, fintech companies!