Fintech, by word definition, is the combination of finance and technology. It provides financial services through technology innovation. Because the current definition of Fintech is still ambiguous, it is difficult to find a standardized definition of Fintech. However, according to Arner (2019), FinTech involves the use of technology, particularly information technology to transform the way that finance is being done in global markets, developing countries, and across start-ups and tech firms. The nature of Fintech is international, inclusive, easily accessible, efficient and gradually change the business model at the financial industry level.
Indeed, the combination of finance and technology is not a new thing. Our ancestors invented currency like coins and paper money to enable efficient transactions. Arslanian (2019) mentioned what different Fintech today from financial technology in the past is the development of Artificial intelligence in computer science and big data.
Industry overview in Finland
Finland has been well known as incubators of innovation due to its high transparency social system, educational level and globalization. One of the world’s most influential start-up founding events Slush is also created in Finland. Fintech industry is raising in Finland as well. According to Deloitte (2019), Finland is aiming to become the international hub for Fintech development and innovation.
Despite of being one of the most innovative country in the world, Finland is also enjoying the reputation of number 1 in terms of sounded banks, business environment and microeconomic stability, ranked by World Economic Forum in 2018.
Finnish Fintechs are operating in the following areas: payments, cryptocurrencies, blockchain, insurance, security and compliance, APIs and platforms, data and analytics, customer services and acquisition, financial software, wealth management, investing, financing and personal finance management. (Helsinki Fintech Farm 2020).
Currently the Fintech ecosystem in Finland is still emerging. Big incubators in the financial industry like Nordea, OP and Danske are cooperating with business accelerators to strengthen their role in Fintech development, to conquer the challenges of disruptive innovation from new entrants in the financial industry.
In order to have a sound Fintech ecosystem, Finland still needs to strengthen its inputs in talent acquisition, nurturing Fintech industrial leaders to drive the industry, developing Regtech, as well as helping Finnish Fintech companies to grow globally and encouraging them to access international capital. The financial industry in Finland has been focusing heavily in the local market, and talents here are sometimes lack of the ambition to go international. Due to the global nature of Fintech, these could be unignorable hurdles to consider when growing Fintech in Finland in scale.
Current market players in Finland
Current players in Fintech industry includes banks, insurances companies, pure Fintech startups, and technology companies. According to Helsinki Fintech farm (2020), there are approximately over 180 organizations that labeled themselves as Fintech in Finland, with accumulated revenue of €1,100 million in the year 2018, among which the most operated areas in the Fintech field are financial software, financing and payments.
Figure 1: Finnish Fintech landscape (Helsinki Fintech Farm 2020).
Other stakeholders in the ecosystem
Other stake holders in the Fintech ecosystem in Finland includes business accelerators such as Nestholma, Maria 01, Fintech Finland, Helsinki Fintech Farm. Finnish universities are also having growing interests in research and development in the Fintech field.
In addition, customers, regulators, individual and institutional investors are also playing very important roles in the ecosystem. According to Deloitte (2019), Fintech startups get funding mainly through PE, public sector grants, and debts. Fintech startups which are facing challenges in acquiring capital due to the lack of financial track record turned to innovative ways of funding, such as crowdfunding, or initial coin offering (ICO).
Game theory: Regulators need to look forward and reason backward.
The fast evolution of financial technology requires regulators to come up with new regulations for setting up the legal framework in order to standardize the industry at the right time. However, it is easier said than done. The agile and international nature of Fintech makes it difficult to catch up in regulation’s perspective.
In order to enable innovation and protect all the stakeholders in the Fintech ecosystem, innovation in regulation becomes imperative. Regtech is the combination of regulation and technology. The main functions of Regtech include regulatory monitoring, reporting, and compliance (Frankenfield 2019). It assists regulators in enacting regulations effectively by using technology.
One of the strategies in game theory is to look forward and reason backward. It would be obsolete for regulators to catch up always afterwards in such era of fast science and technology development. It is important to educate regulators to improve understanding of Fintech, Also it is crucial for regulators to think out of the box from the helicopter view by using the facilitation of Regtech. The increasing competition in technology also means incremental threats in data security. The bottom line for any Fintech regulation should be the protection of consumers’ privacy, national sovereignty in terms of data security and at the same time enabling innovation, which can be treated as dominate strategy for regulators to consider when making regulations.
Conclusion and Recommendations
Fintech has emerged to fill the gap between financial institutions and increasing financial service needs from individuals and organizations, especially for those who may not be qualified to receive financial services from incumbents. As a result, Fintech offered by technology companies becomes too small to pay attention to and too big to ignore, which started from offering poorer financial services to challenging the current leading position of incumbents after the leapfrog growth oriented from its technology and large customer base, that leads to incumbents to re-think of their business model. In order to cope with the challenge, it is recommended that financial incumbents to cooperate with large technological organizations to seize the opportunities in Fintech growth, or establishing its own technology units by going down to the bottom of market to conquer the disruptive innovation from technology companies.
Even though the ecosystem of Fintech in Finland is still immature especially regarding accessing to capital, talent acquisition and regulation. Fintech industry is still growing, and related regulations need to come up on time. This article recommends regulators to look forward and reason backward using game theory, in order to enact effective regulations to protect stakeholders in Fintech ecosystem, national sovereignty in terms of data security and at the same time enable innovation.
More information on current Fintech players in Finland:
Deloitte.2019. Finland as a FinTech Hub ,Pre-Study of the Finnish FinTech Landscape, the Supporting Ecosystem and Key Recommendations.Deloitte Oy. White Paper from Fintech Finland. Accessed 5.2.2020. http://fintechfinland.fi/wp-content/uploads/2019/10/FinTech-Finland_Whitepaper_2019-10-21.pdf
Doulas, Arner.2019. Introduction to Fintech. [online lecture notes]. from University of Hong Kong on Edx. Assessed on 10.2.2020. https://courses.edx.org/courses/course-v1:HKUx+HKU_08x+1T2030/course/,
Henri, Arslanian. 2019. Introduction to Fintech. [online lecture notes]. from University of Hong Kong on Edx. Assessed on 10.2.2020. https://courses.edx.org/courses/course-v1:HKUx+HKU_08x+1T2030/course/
Helsinki Fintech Farm.2020. Assessed on 5.2.2020. https://www.helsinkifintech.fi/fintech-landscape/
Jake, Frankenfield. 2019. What you should know about regtech. Investopedia.27 April. Accessed on 18.2.https://www.investopedia.com/terms/r/regtech.asp