Carefully considered regulation of financial technology must be applied to extract the benefit of innovation and mitigate any risks, according to the South African Reserve Bank (SARB).

Tim Masela, Head of the National Payments System at the SARB says one of the analogies that came from recent research conducted by the firm sums the current attitude of the institution to the challenges posed by fintech innovations.

"This one person said we are like a tortoise because they viewed us as so risk averse such that when danger comes we actually hone in and let everything pass. I think the relevant one that we would like to work on, is that the majority agreed that we are like an elephant - very smart in addressing all the issues but very slow."

As more fintech innovations emerge, Masela says SARB's stance is to regulate them in a way that manages risk without stifling innovation because the regulator's role is often criticised when things go wrong.

"Our major issues are around payments but we try to apply ourselves generally to fintech innovations. We participate in the Financial Stability Board, working groups of the Bank for International Settlements on these matters and currently the major challenge for us is about digital currencies, cryptocurrency, distributed ledgers and all that. We interact on international fora because collaboration by regulators is required in order to address them. In SADC we have initiatives underway and we are working on finalising what we call mobile money guidelines so that we could have a harmonised regulatory framework in the region because all these transactions are flowing across borders."

Levelling the playing field

Masela says there is a notably unlevel playing field between banks and non-banks like mobile network operators and retailers who plead for regulations to be relaxed or tightened depending on their needs and the competitive landscape. "There are multiple players in payment service provision and they need to be regulated appropriately and not over-regulated or under-regulated so that we can level the playing field."

Masela acknowledges that while regulatory uncertainty can hamper fintech innovations and hinder financial inclusion, the SARB has to take its responsibility to manage risks seriously in order to prevent threats like disintermediation of regulated firms and activities.

"We would like to understand how these technologies work so that we can support their development. Our starting point is that we do not understand them and we would like to understand them with a view of taking the good out of it through regulatory intervention. We would like to act in a responsible manner and in South Africa as a jurisdiction we want to create a grouping of banks, non banks, payments and securities to look at these issues."

Regulatory balance

Judah Levine, CEO of Mondato and expert in telecommunications and mobile financial services,

says while fintech innovations traditionally first succeed in places with less stringent regulation, that is not ideal.

"If you want entrepreneurship and you want services to spring forth it will happen if you have more laissez faire and less strict control ....but having said that you can't have a wild west when it comes to money. One of the criticisms against South Africa is that it is very regulated when it comes to banks and reserve requirements and financial controls overall, but that has proven to be valuable at other times. When it comes to innovation categories and spaces where you want to drive entrepreneurship and experimentation, it is good to have some space for that experimentation to take place without making it too difficult - especially for the younger companies in their early days to give it a shot."

Levine adds that there is correlation around Africa in countries where regulators have taken a heavy handed approach like Nigeria and those that have not like in Mozambique where there was an ability for telcos to provide banking services and for banks to provide telecom services which proved essential to the popular adoption on mobile money.