Innovation must be tamed. Let it run wild and risk serious economic consequences, not to mention hefty fines.
Thats not to say that innovation is inherently bad. In fact, innovation is the key to success in todays quickly evolving world of payments and financial services.On the other hand, innovation without proper guidance can do more harm than good. Regulation is a complex issue that requires proper attention from all players including financial institutions, payments service providers and financial technology firms.
Financial institutions and card issuers issuers that have a robust compliance framework will be the ones to thrive. The framework must extend to partners including IT companies and payment service providers. The increased responsibility on banks and issuers can deter them from partnering with companies that have the immense potential to better their business and provide for a better customer experience.
That said, there is much room for innovation in the regulatory space itself. More specifically, increased innovation and collaboration within Know Your Customer (KYC) regulations can help to strike a balance between fraud-protection and customer-protection. Integrating solutions like a digital footprint, which will expand identification beyond being a passport or bill, will create more fool-proof ways to identify clients while streamlining KYC processes. Technology enabled solutions like that appease regulators, mitigate banks risk and make life easier for customers.
One barrier to innovation in compliance and financial services overall is the lack of clarity of regulations. Financial institutions, issuers, payment service providers and financial technology firms alike need a clear idea of industry rules to guide their innovative endeavors. When innovation is complemented with clear regulatory rules, the industry can avoid unstable situations and negative economic repercussions. By fully understanding and playing along with established rules, financial service providers can ensure better solutions to customers problems and contribute positively to the industry.
This year, regulators must step up and provide clear and concise policies to guide innovations in the financial space. Going a step further, these policies should provide for a healthy balance between industry stability and security and room for innovation. Once this balance is achieved, financial institutions and issuers will be free to innovate and partner with the service providers who will help them to provide the best experience possible to customers in 2015.
Todd Latham is vice president of marketing at Currency Cloud.