MAS moves to promote financial technology

Singapore's banking regulator is exploring an all-in-one system that will allow people to pay others electronically using the payee's mobile number, e-mail address or social network account, without the need for bank account numbers.

It is also working towards setting up a unified payment system that can read all kinds of cards at retail and hospitality outlets, said Monetary Authority of Singapore managing director Ravi Menon, speaking at the Singapore Forum last Saturday.

This is part of efforts to promote financial technology (fintech) here, he said at Shangri-La Hotel.

This is done through three main channels. First, by creating common platforms like the unified payment system and standards so fintech applications can complement each other.

The MAS is also engaging with fintech firms to better understand emerging innovations, he added.

Lastly, it also allows banks to experiment with new technologies in a safe environment.

"We want to create an environment where, if an experiment fails, it fails safely and cheaply without larger adverse consequences."

The MAS will soon issue guidelines for public consultation on how this "regulatory sandbox" approach will work.

This is necessary as emerging fintech is transforming the banking industry and may well be "the best hope for the future of finance" but is not without risks.

Unregulated fintech firms are offering many financial services and disrupting banking, he said.

However, "banks and insurance companies have something that unregulated entities do not have… trust based on a track record of performance," he said.

Banks are not sitting still amid all this - they are setting up in-house fintech units and collaborating with or buying over fintech firms.

But rapid change is throwing up many questions for the industry and regulators, Mr Menon noted.

He said the MAS is taking a differentiated approach to fintech applications, as the risks and benefits of different technologies vary.

Each must be assessed on its own merits, he said.

However, regulation of fintech must not hold back innovation.

"Introducing regulation prematurely may stifle innovation and potentially derail the adoption of useful technology," said Mr Menon.

The MAS applies a "materiality and proportionality" test, he said. This means regulation will kick in as risks posed by a new technology becomes material. The regulation must be proportionate to the risks.

For instance, peer-to-peer lending that takes place outside traditional banks are not regulated as long as they do not take deposits.

"But if they get very large and pose macro prudential concerns, then we may consider regulation."

Similarly, an Internet payment service will not automatically attract regulation if it is for small payments for e-commerce. Only larger, more significant players will be regulated.

"Even then, we do not regulate them as banks and throw at them the whole kitchen sink of capital and liquidity requirements under the Banking Act," said Mr Menon.

This article was first published on April 4, 2016.
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