Recently I had a pleasure to become a programme committee member of the FinTech Sector Congress which took place in Warsaw, Poland on 28 March 2017, and I also have moderated one of the panels during the congress, the one about a “Fintegration”.
Below I present my summary of the panel discussion – to find out more about the congress and the panelists please go here.
The panel’s theme was “fintegration”, understood as, on the one hand, cooperation of new players on the financial market (namely the FinTech sector) with the traditional players on this market (primarily the banks) and, on the other hand, an analysis of the approach of the Polish regulatory/supervisory authorities to financial innovation and the ability of these authorities to support innovation. The panel discussion revolved around the main arguments mentioned below.
“Zero to One”– what is financial innovation and does it require “fintegration”
The panellists discussed and mentioned numerous possible practical meanings of the term “financial innovation”, including:
- the acceleration of financial trading,
- greater bank penetration among consumers,
- a reduction in transactional costs,
- in view of the specialization of the new players in certain areas, more efficient
- operation of the organization and optimization of the costs of introducing innovation,
- the introduction of new models of collaboration between players on the financial
- market (e.g. eliminating some intermediaries and distributing the benefits among the
- parties to the transaction, such as, for instance in crowdfunding),
- the simplification of the methods of operation of financial institutions and
- improvement (by simplification) in the quality of customer service,
- the improvement of customer service by focusing on the so-called design thinking
- and client journey.
The participants of the debate unanimously acknowledged that support and a favourable approach of the legislators and supervisors would be necessary for real innovations to have a chance of success on such a regulated market as the financial market.
FinTech 2.0 and PSD2 – cooperation of FinTech innovators and bank digital rebels
The participants of the discussion agreed that the model of the so-called universal banking needs to be adjusted to the new realities, including the phenomenon of new players in the FinTech sector entering the market, as well as new consumer financial services (in particular, the so-called millennials). The panellists pointed out that there was exuberant growth of non-bank entities, which often constitute competition for banks, in many segments of traditionally bank services (such as international money transfers and consumer credit), which bankers have to face. In this context, a representative of the banking sector pointed out that the response of the bankers could be to simplify the services provided and to operate faster – so that the banks work operationally as quickly and efficiently as the FinTechs. At the same time, all the participants of the discussion agreed that the future of the financial industry, in general, is a collaboration between the new and traditional players.
They acknowledged that the method of implementing the second payment services directive (so-called PSD2) in Poland will be particularly important for the specification of the principles of future collaboration between the banks and the FinTech sector – which should take place in January 2018 – especially regarding access of companies from the FinTech sector to (transactional) bank data of customers through IT protocols (the so-called open API). The representatives of the latter considered the ability to relatively easily, but securely, share bank (transactional) data of bank customers with the FinTech sector to be the foundation of an increase in competitiveness in the banking and financial sector, which is, after all, the declared objective of the PSD2 directive.
Outlook for the Polish regulators – support, or do not disturb?
The statements from the representative of the Ministry of Finance indicating the desirable aspects of financial innovation, especially related to the so-called financial inclusion, namely attracting customers to the financial sector who have not previously used banking services or have used banking services to a small extent, came as a very positive note during the panel discussion. The solutions offered by entities from the FinTech sector can also attract young people to the financial market because of the ease of support and the use of modern sales channels (e.g. mobile channel – smartphones).
The representative of the Ministry of Finance, as a regulatory authority, also declared a positive attitude to the FinTech sector, simultaneously emphasizing that the key to the success of the FinTech sector is that the proposed solutions should be secure forcustomers. He also pointed out that the positive attitude of the regulatory and supervisory authorities is not purely at a declaration stage, but specific initiatives are being taken to develop the FinTech sector, the best example of which is the appointment of an inter-ministerial working party on financial innovations (FinTech), the objective of which is to jointly (together with the representatives of the FinTech sector and organizations of entrepreneurs from the financial market) diagnose the regulatory and supervisory barriers to the development of financial innovation in Poland and to propose solutions which can eliminate these barriers.
British and Polish experience – a “regulatory sandbox” and examples of cooperation on the market
Given that one of the companies, whose representative took part in the panel discussion (Billon sp. z o.o.) has unique experience in Poland, namely participation in the so-called “regulatory sandbox” organized in the UK under the auspices of the Financial Conduct Authority (FCA) – the British supervisor of the financial market – the discussion also included this topic. Broadly speaking, the regulatory sandbox is a special package of regulations, intended in this case for the FinTech sector, which has the purpose of facilitating the development of the sector, or safely testing new solutions, by temporarily releasing entities admitted to such a “sandbox” from some of the regulatory requirements (e.g., related to the requirement to have a licence, or the amount of share capital).
The representative of Billon sp. z o.o. considered the shortening of the time required to obtain a licence (if it is required and the given entity is applying for it) from 6 months to 6 weeks to be an important positive element of the British “regulatory sandbox”. In addition, an effective solution used in the “sandbox” was the introduction of the institution of a “custodian” from the FCA for every participant, who is constantly in touch with the given company and takes it through the potential regulatory complexities.
The regulatory environment of crowdfunding platforms – is it a solution to the sector’s problems?
A part of the panel discussion applied to the regulatory situation of the crowdfunding sector in Poland, whereby the starting point of the debate was the observation that, despite rapid development world-wide, this sector is growing relatively slowly in Poland. The representative of the industry outlined the fundamental barriers to the development of the industry, indicating that one of the main barriers may prove to be the lack of a uniform position of the regulatory and supervisory authorities regarding even the same facts. An example of a crowdfunding platform was mentioned, which received conflicting positions from the Ministry of Finance and the Polish Financial Supervision Authority twice in the same case. As for other substantive barriers to the development of the sector, the unclear treatment of loan crowdfunding, including the need to register the funding parties as entrepreneurs, the tax aspects of such transactions and possible licensing requirements with regard to Act on Payment Services.
Summary: Fintegration: opportunities and threats
In response to the question posed to the panellists – does “fintegration” carry opportunities of perhaps threats? – the distribution of responses was six : zero and, including the vote of the moderator, even seven : zero in favour of opportunities. This means that the representatives of the traditional financial sector and the regulators in Poland view this new FinTech phenomenon positively, while the representatives of the FinTech sector are looking hopefully at the opportunity to work with the traditional players and are waiting for institutional support for financial innovations. However, the key to good cooperation and the development of innovation will be an appropriate regulatory environment (in particular the implementation of the PSD2 directive) and the removal of the regulatory barriers mentioned by the FinTech sector. Additionally, given the declared positive approach of the Polish regulatory and supervisory authorities to financial innovation, perhaps it will be possible to fulfil the vision of Poland as a regional leader of such innovations in the FinTech sector.
Let’s hope this happens.
Author: Jacek Wiśniewski is a Polish attorney-at-law, founder of #WIŚNIEWSKI.legal law firm, focusing his practice on innovation in finance (FinTech), corporate M&A and PE/VC transactions, payment services and consumer finance. Jacek is originator and chair of #TechVoice monthly events for FinTech founders, banks, investors and FinTech consultants, held in Warsaw.
There is no binding definition of “FinTech”, so let me stick with the definition I have used at several finance conferences this year: FinTech is an industry made up of companies (entities) that use innovative financial technology to provide or support financial services. People also use the term to describe those companies that create the technology to provide or support financial services, so it is very likely that you have already met firms claiming that they are FinTechs themselves.
The big question now is what kind of relationships between banks and FinTech newcomers shall be developed in the coming years?
Being the organizer and chair of #FinTechFriday @ Squire Patton Boggs Warsaw monthly meet-ups, I thought this might be good to ask this question to my colleagues at Alior Bank, one of the most innovative Polish banks, which has even created an in-house innovation lab (Alior Bank Innovation Lab or “AIL”) to make the most of the rise of FinTech (which, as I understand, is usually a goal of such labs). During our latest #FinTechFriday event on 18 November 2016, Mr. Igor Zacharjasz, Startups and Ecosystem Leader at AIL, was our guest speaker and provided his insight on the meeting’s theme: Bank Innovation Labs: FinTech’s Friends or Enemies?
During the meeting, Igor has shared with us some details of AIL (for example, a basic Bank-FinTech joint project assessment period is 100 days within AIL) and confirmed that in his (and his firm’s) view, banks and FinTechs, in most cases, are destined to co-operate, with such co-operation already taking place in many instances. As an example of a Bank-FinTech co-operation success story in Poland, he pointed out Alior Bank’s co-operation with VoicePIN, a Polish FinTech company providing advanced voice biometrics solutions to clients around the world. Alior Bank in co-operation with VoicePIN has launched a smart-collection project using the so-called virtual agent Dronn – an application for which the bank won one of BAI Global Banking Innovation Awards earlier this year.
I also took the opportunity to ask Igor which FinTech types he considered as the most interesting from the perspective of possible co-operation with banks. According to Igor, such cooperation in the coming months is most likely in the areas related to business models based on PSD2 (Payment Services Directive 2), blockchain, artificial intelligence and, last but not least, biometrics.
By the way, Igor’s predictions as to friendly scenario of future relationships between banks and FinTechs has also been confirmed by most of speakers during FinTech CEE Digital Congress which took place in Warsaw on 22-23 November 2016.
The bottom line is that, in my view, we are now in the so-called FinTech 2.0 phase. This means that banks and FinTechs should work together to find opportunity areas within the banking sector and work together to implement such improvements.
To borrow a quote from Casablanca: “Louis, I think this is the beginning of a beautiful friendship.”
This article was originally published on the O-I-CEE! Central and Eastern Europe Legal News and Views Blog.
The KPF’s 5th Cash Loan Sector Conference in Warsaw was a jubilee conference this year. Five years have passed since the first Congress, so the time has inevitably arrived for a summary. This Congress adopted such a formula.
On the one hand, this was a summary of achievements, the undeniable achievements of this sector, which, five years ago, was facing problems at practically every level, problems of financing, problems with reputation and now, after five years, it is a modern, buoyant market of modern financial institutions, which responsibly provide funding to consumers and this market is developing excellently. So a positive summary of this five-year period is justified.
On the other hand, of course, as at every Congress and this is probably the third or fourth Congress that I have attended, there was a great deal of discussion about legal regulations; here, lawyers always have ample opportunities for presentations. Although this market is not as regulated as the banking market, as the discussions have shown today, regulations are having an increasingly greater impact on the functioning of this sector.
A very interesting topic, which appeared for the first time at the Congress, is the financing of the sector. This was always a somewhat shameful topic, a sort of taboo. In fact, I have the impression that the players on the market did not want to share information on this with each other. Certain information was imparted at this Congress, hands were uncovered. It turns out that it is increasingly easier to obtain funding on the cash loans market. To the extent that, what was unthinkable just two years ago, namely to obtain a bank loan to finance lending activities, it turns out that such a transaction was conducted this year. One of the entities on the market obtained substantial financing from a bank. This is certainly a symbol of change and caused a great deal of excitement in the room. Clearly, entities from this market see bank loans as an opportunity to obtain financing, although they have also been using other forms for a long time, namely corporate bonds.
There was also talk about securitization of claims related to granting loans, although I have the impression that securitization it is still in its infancy. I have the impression that this is still being thought about rather than acted upon.
This article was also published on my LinkedIn profile and can be found here.
Regulatory Landscape for Non-bank Lenders
The most important regulatory reference for non-bank lenders (including payday lenders and on-line lenders) which are, or plan to be active in the consumer (personal) loans business in Poland is the Polish Act on Consumer Credit (ustawa o kredycie konsumenckim) (hereafter, the ACC). Generally, the ACC is the implementation of EU Directive 2008/48/EC on credit agreements for consumers and therefore Polish regulations and requirements regarding the lending process and the content of loan documentation are generally in line with EU standards in this respect. Other important pieces of legislation regarding the consumer loans market from the point of view of the lending process are also the Personal Data Protection Act, the Consumer Rights Act and the Electronic Services Act.
Under the ACC, a consumer loan is understood to be a loan of no more than PLN 255,550 (approximately EUR 60,000) or the equivalent of this amount in a currency other than the Polish zloty, which the lender grants (or which it promises to grant) to the consumer. Payday and on-line loans to be granted to consumers by a Polish non-bank lender are generally considered to be consumer loans under this definition.
The provision of loans (pożyczka), including payday and on-line loans, to consumers by non-bank lenders under a civil-law contract does not require a banking (or other) license in Poland (as opposed to credit (kredyt) provided by banks under Polish Banking Act, which requires a banking license).
Non-bank lenders can only operate as a limited liability company or a joint-stock company with a minimum share capital of PLN 200,000 (approximately EUR 46,000), in which the capital can only be paid up in cash and the members of the corporate bodies can only be people who have not been convicted for certain offences or crimes.
Given that financial services provided by non-bank lenders are provided in most cases to consumers, the main regulatory body that supervises the market and performs controls is the Polish Office of Competition and Consumer Protection (Urząd Ochrony Konkurencji i Konsumentów, UOKiK).
The Act on the Amendment to the Act on Financial Supervision, the Banking Act, and other Acts of 5 August 2015 (hereafter, the Amendment) introduces important changes to the regulatory landscape of the consumer loans business in Poland, which will have a significant impact on the payday and on-line loans sector.
The Amendment covers, among other things, the following aspects of the non-bank lending business in Poland, which enter into force as of 11 March 2016:
- it introduces the definition of “non-interest costs of credit” (pozaodsetkowe koszty kredytu) to the ACC – which are defined as “the total cost of credit excluding interest”;
- it sets a cap on the above non-interest costs of credit, which cannot be higher than25% of the total credit (loan) amount plus 30% of the total credit (loan) amount per annum, but in any case no more than the total credit (loan) amount over the total term of the credit (loan), and provides that certain loans (and their costs) which are deferred and/or rolled-over within a term of 120 days should be combined for the purposes of this calculation;
- tt sets out the maximum level of all payments related to late payment (e.g. “soft collection” costs) and interest for late payment, at the level of the maximum interest rate for the level of late payment.
I believe the Amendment will have a significant impact on the non-bank lending business in Poland. The main trend to be expected is the extension of the product offering of payday lenders (which have offered mainly short term and relatively small loans to date) with longer term loans of a higher value, repaid in instalments. In my opinion, the reason for such a shift is that the limits of non-interest costs of credit and payments related to late payment that are being introduced undermine the main source of income to date of payday lenders, whereas these limits do not have such an adverse effect on longer term, higher value installment loans. In fact, such changes can already be observed as the market players have already adjusted their product offering to the new regulatory framework.
This article is my personal opinion and cannot be considered as legal advice.
The article was also published on my LinkedIn profile and can be found here.
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