This piece was co-authored by Simon Pickering, head of insurance and pensions at Finance Isle of Man.
The fintech landscape is constantly evolving. It has the potential to transform everyday lives, change the way businesses are run, and define the future of finance. In the last few years, we have already seen how the integration of digital and open banking, as well as the rise in the use of cryptocurrencies, has made financial trading more accessible to the everyday consumer. On a macro level, we are seeing investors for more resources into emerging markets, illustrating the truly global nature of the Fintech industry.
For many businesses, this globalization is a huge opportunity to disrupt the market and bring new, innovative technologies to the forefront. For other more established actors in the financial space, Fintech poses a significant threat to their business model. You only have to look so far as JP Morgan’s recent $12 billion investment in fintech to show that the rapid growth in the sector has caused businesses to rethink their operations.
In many ways, this explosion in the sector is exciting for fintechs across the world. However, it is also creating an increasingly complex environment that will become harder for businesses to navigate. We are currently witnessing a rapid decentralization in financial services as more and more fintech innovations enter the market; we can expect that governments and regulators will take a higher stake in the sector, and therefore impact the uncertainty that fintechs will feel when going to market with their products. Now more than ever, it is imperative that the fintech industry, government, and regulators work together to address these challenges, and continue to support the flourishing of the fintech sector.
In the Isle of Man, we believe that the cornerstone of a successful fintech is collaboration and legitimacy, and that you cannot have one without the other.
Before joining Digital Isle of Man as Head of Innovation, I worked for over 30 years in global banking and finance, with 20 of those years based in the Isle of Man. The Island has a truly unique offering and one that is well-placed to confront the challenges of tomorrow. Our self-governing status enables a pragmatic regulatory approach, meaning we can adapt quickly to new developments in the fintech landscape, while properly balancing this against regulatory risk to create a supportive environment for well-positioned businesses to thrive in the global market.
However, our biggest asset is our strong sense of community – a value which is often overlooked in business. As a hub of digital innovation on a small Island, businesses and government can work together to inspire creativity, as well as support one another to get our ideas from the ground. In the context of the fast-growing fintech sector, this is invaluable. A separate and siloed approach to digital and finance is no longer possible, and both sectors need to embrace one another and work together to promote smarter fintech solutions.
Government and regulators can act as a catalyst to this; they have the resources to foster innovation through increased investment, sectoral expertise, and by providing a space for businesses to learn and grow. In recognizing this, we are currently looking at our fintech footprint to support businesses through this collaborative approach.
The government and Isle of Man Financial Services Authority aim to provide collaborative regulatory sandbox and observatory capabilities that allow businesses to explore opportunities and test their products thoroughly before entering the market.
We have already seen the benefits of this collaborative approach, with the Isle of Man-based Blackfridge using the sandbox to establish the first fully-backed GBP regulated stablecoin in the British Isles. We are now looking forward to launching our Fintech Innovation Challenge in the coming months, which will give fintechs the chance to bring their ideas to life in a competitive environment assisted by government support, both financially and also by a positive relationship with the regulator.
It is vital that governments recognize their role in this. We cannot always predict what the next challenge will be, and that’s why this open collaboration between government and industry is so crucial for the fintechs of the future, encouraging them to foster innovation in a supportive environment that can prepare them for and project them onto the global market.
There is also a strong link between this collaboration and the legitimacy that it creates for businesses looking to upscale to other markets. From my experience, the community-minded nature of the Isle of Man means that business here is personal. We want businesses to come here to do well and be part of our community, and so we have high standards for the businesses we bring in.
In fintech, this is no bad thing: in such a vital industry that will undoubtedly affect every one of us in the coming years, we want to encourage smart businesses doing things in a smart way. This transparency of ethics allows us to do this, and in return, we offer a pro-active dialogue to support fintechs in their initial journey.
This approach to a high standard of regulation is not common, and understandably, fintechs worry about how an increasingly regulated sector might impact their ability to sell their product. However, I strongly believe that for the fintech sector, it’s not about curtailing regulation, it’s about creating the supportive and legitimate regulation that can add prestige to businesses operating in their jurisdiction.
When government and regulators work with industry to invest in fintech, whether this is with start-ups or international businesses, they are showing that they understand the power of fintech to empower consumers, and that they are committed to delivering good regulation to make this happen .
We are well-placed to do this in the Isle of Man, partnership and collaboration are at the heart of what we do. Our partnership with F10, the global innovation ecosystem, on the recently launched Insurtech Accelerator Program perfectly exemplifies where our maturity and scale of the existing insurance sector offers a gateway to a global market for insurtech start-ups looking to scale their business. We are excited about where this partnership will take us in the coming months as we develop our insurtech offer and how we can continue to support innovative businesses scale-up their operations and deliver positive solutions across the world.
In many ways, the Isle of Man’s Fintech journey is only in its infancy, but one thing is clear: this sector is not slowing down, and we can expect many more twists and turns in the future of fintech.
Governments and regulators must be prepared to work in collaboration with developers to generate smart solutions that improve consumer finance and make financial transactions more accessible and safe. By working together, we can raise the standards of fintech products and the regulations that guide them, to allow the sector to flourish and generate the solutions to the challenges of tomorrow.