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Winners and Losers in the Regulation Vs Competition Debate? How About New Business Models?

US treasury fintech innovation report

As Summer has abruptly turned to Fall, I have found myself daydreaming of a European vacation (and yes, I realize it’s Fall there too… or rather, Autumn). Maybe it’s the Instagram feed full of friends on a summer sojourn to Italy, France, or Germany, or the constant barrage of Premier League kickoff commercials on the NBC Networks (Let’s Go Gunners!), but yesterday it was something else entirely that had me drifting off into a memory-induced Nutella-crepe state of euphoria.

The US Treasury Department released what can only be called a “canary in a coal mine” report; it makes a slew of recommendations to basically overhaul the entire US financial technology sector and to move the US back to the top of the innovation discussion (at least in terms of financial services).

You may be saying to yourself, “Mark, you are certifiably crazy; 1) chèvre (goat cheese) crepes are where the crepe pyramid of tasty hits its apex and 2) we have been talking about a lot of these things for years - this is just someone in Washington catching up to the rest of us because we are a competition-driven economy and sector.

While we all have our differences on the sweet vs savory crepe discussion, Nutella is a gift, and while your logic is sound on point number 2, it misses the point. In the US, we are being driven by competition to a certain extent, but what we have learned in the aftermath of PSD2 and Open Banking is that competition can only get us so far. There is a very high barrier to entry that must be overcome. And for the flaws in those regulations, the overall intent has become clear; get more ideas into the market to drive us all forward. In the US, that bar was artificially lowered by the large amount of investment into FinTech startups, but at the end of the day, more than 75 percent of our accounts are held with just five institutions. So while innovation can happen, it hasn’t spread as quickly as it potentially could.

The interesting thing to me, in the whole discussion on regulations vs competition pushing innovation, is the discussion on who “wins” and who “loses” in each model. This argument misses the point of where the “Open” discussion is leading. Claiming someone will win, while someone else will lose, assumes that the current business models that are at play remain unchanged. At the end of the day, they can’t – the current business models have to change to unlock the potential windfall that is sitting on the other side of this debate. We have overused this saying over the past 5 years when discussing the New Payments Ecosystem, however it still bears repeating here; a rising tide raises all boats. And the US just let us know that they are readying the harbor for the incoming tide – I just hope it’s not too late!


Download our whitepaper “Open APIs: Seize the Opportunity”[pdf] to find out more.