Depending on if you're a wealth manager, a solutions provider or a regulator, the question of “what is fintech?” may be answered in slightly different ways.
But the tie that binds is innovation. Both those in the industry and those keeping an eye on it agree that without it, you might just be making apps.
“It goes beyond the standard of just having an app or just having a website. I think there's kind of some common attributes that we put toward (the term) fintech,” said Nicole Murphy, chief compliance officer at
“We want to push boundaries and do so in creative ways. Maybe it’s putting a new, fresh take on tried and true products. Or maybe it's putting something completely new out into the ecosystem.”
But also agreed upon in the definition is the understanding that with rapid innovation comes the risk of moving ahead of the current compliance structure. Industry insiders say that with innovation must come awareness of how to ride the bleeding edge without getting cut.
“You can digitally deliver services online, and that doesn't necessarily make you a fintech. It's the innovation part of it, and a lot of times that innovation leads to challenges of existing norms,” said Alan Carlisle,
Those insights and more were on tap this week at
Moderated by FINRA National Cause Program Senior Vice President Steve Price, the hourlong session saw Bob Chao, a senior director in FINRA’s risk monitoring department, join Murphy and Carlisle for a breakdown of everything from the right way to onboard customers to the implications of the metaverse.
The session also included discussion about the new and innovative ways firms are integrating fintech into their business models; the importance of a strong compliance structure to address regulatory obligations; and what separates tech culture from financial institution culture.
Price’s opening question focused on how fintech is defined. While Murphy and Carlisle approached it from the standpoint of creators, Chao said FINRA has a very clear definition for fintech, much like the agency has for everything else it regulates.
He said the definition, which is constantly changing, is “the use of innovation to disrupt how financial services and products are delivered and created for retail investors.”
Chao added that the definition is not an effort to limit or pigeonhole fintechs. Instead, it's an attempt to aid the regulator in keeping up with the speed of innovation.
“I think that we put the groups together so we can get ahead of things,” he said. “We can see trends. We can see red flags. We can see things happening at one firm that may apply to someone else.”
Price spoke to the wide range of things regulators need to be on the lookout for and how technology’s ability to give investors access to so much more increases the need to remain flexible.
He recalled being a young investor years ago, with his brokerage account being the only thing he had the ability to interact with upon logging in.
But today, technology has the ability to empower wealth managers and other financial service providers with an entire suite of intractable tools that seem to grow whenever clients update their apps. Because of that, panelists said one of the hottest trends to follow in fintech is figuring out how to present your entire buffet of tools without overloading the end user.
That challenge becomes more difficult when looking to serve young customers who may be unfamiliar with financial services, or older customers who may have an aversion to new tech.
“Through that onboarding funnel, you have to introduce friction. And it's important to put the right friction in the right place,” Carlisle said. “If they're younger, make sure you’re surfacing the right education. You understand that this may be a novice or it may not be a novice investor. But as they come through, you should have the information to provide them with something that's tailored to the stage of sophistication that they’re at.
“And you don't want to create so much friction in your onboarding flow that they go, “Oh forget it. You’re asking me way too much just to open an account.’”
But Murphy said it’s a challenge that will only become more difficult as innovation moves forward. She said being a multiservice platform is table stakes for modern fintechs, and that differentiation comes by virtue of the unique products you can offer.
Transitioning to the importance of having a strong compliance structure, Chao encouraged those working in the fintech space to engage with regulators often. Chances are if you’re working on something truly groundbreaking, FINRA and other agencies haven’t seen anything like it and will need to learn as much as possible before suitable regulation can take place.
Through early collaboration and conversation, developers can avoid going down a path that may lead to regulatory ruin, and FINRA can better keep pace with what’s next.
Chao also said that growth should be top of mind for anyone launching a new fintech company in today’s industry. Without planning ahead, that lack of foresight may be what brings your pursuit of innovation to a screeching halt.
“You may be coming in with an application for the next great new fintech and this great new innovation, and you have a great API that goes along with it. But what about the plans for building up your broker-dealer? What about the resources you're going to need in the future?” Chao said. “So as you start to grow, what’s really important and what we really push at FINRA, is how are you going to grow your resources, your knowledge base and the experience level at your firm?”
