payment services directive

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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.