Financial technology, often referred to as fintech, has become an integral part of the Kenyan financial ecosystem. Emerging fintech, including mobile money transfer platforms, digital lenders, and payment service providers, are redefining how financial institutions deliver services in an industry long defined by slow innovation.
However, the fast growth and the increasing importance of fintech services come with system-wide risks that require updated supervision policy frameworks. The innovation has brought unintended risk for financial firms and their customers.
Concerns of loss of privacy, rising risks of fraud, compromised customer data security, harmful manipulation of consumer behavior, a sudden collapse of some Fintechs, and borrower distress resulting from irresponsible digital microcredit lending practices illustrate such risks.
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The risks primarily arise from the underlying technology enabling fintech, but also from new business models, product features, and provider types. This poses two questions: Do we need regulations in this nascent fintech ecosystem? How can the financial sector keep up with current fintech regulations and prepare for the future as technology evolves?
Analysis of the global financial system has demonstrated time and again that government regulations aren’t just necessary — they often yield great value for consumers and businesses alike. Beyond protecting consumers, as technology changes business and fintech come into the market, regulations can help manage processes and pave the way for fair competition. The political and regulatory environment is a critical factor in the continued success of any economy. The sector needs regulations to foster strong growth of the fintech ecosystem. Policies targeting fintech firms and banks with digital arms are proportionately needed.
This way, the opportunities that fintech offers are fostered while risks are contained. At the same time, we need regulations to remedy the trust deficits following high-profile tech start-ups that have collapsed in the recent past.
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The regulation also establishes trust while creating a level playing field, especially for small and medium-sized enterprises, enabling them to scale faster. Any institution involved in financial activities must comply with various regulations, which certainly apply to the fintech industry. Without regulation, it would be difficult for fintech to operate widely in the financial services sector, especially for players in multiple jurisdictions.