SEB venture capital and Finansinspektionens opinions on the FinTech market

What are currently the most relevant issues in FinTech? What issues are you working on at the moment?

We have talked with Robert Karlsson, Deputy Executive Director/Consumer Protection at Finansinsinspektionen and Filip Petersson, Investment Manager at SEB Venture Capital, and they have shared their thoughts – from their respective point of view – of the current and coming topics in FinTech.

Robert Karlsson: We are seeing a consistently strong Fintech trend in most areas of the financial market and it is reasonable to assume that the trend will continue, with more actors and a greater range of products and services. The most relevant issue for Finansinspektionen at the moment is the remit we have from the government to investigate how we can address the issues and requirements that may arise when financial firms offer new innovative services. The remit involves for Finansinspektionen to mapping the FinTech actors in the Swedish market, investigating their problems and needs, as well as reporting on any measures we can take to address these requirements. Among other things, we will review other countries’ efforts in promoting innovative solutions and services (e.g. innovation hubs and “regulatory sandboxes”) to see whether these may be applicable and viable in Sweden. The work will involve close collaboration with the FinTech industry. This spring, for example, we have arranged a number of open meetings in order to listen to the challenges faced by the actors in terms of regulations, as well as their relationship with Finansinspektionen. The report will be presented to the government no later than December 1 this year.

Filip Petersson: In general, valuations are high in the market, which currently makes it relatively difficult to invest. Many companies are looking at US and UK valuations, and substantial amounts have been invested in new consumer and tech funds. In addition, there is a lack of differentiation in valuations based on quality, i.e. valuations are very similar for everything, irrespective of whether it is a bicycle or a space shuttle. Many new projects are also very similar to existing ones. Interesting sectors currently include advanced robo advice and equity crowd funding. 

Can you say something about the impact these issues may have?

Robert Karlsson: We consider it a positive trend, since it gives companies greater opportunities for developing more customized products and services, which often makes it easier and less expensive for consumers to get access to services in the financial market. However, for the trend to be sustainable it is critical that it does not happen at the expense of consumer protection or financial stability. In that regard, Finansinspektionen has an important role to play in clearly communicating our expectations of the companies in order to contribute to a healthier financial market that will continue to develop.

Filip Petersson: We do not think much will happen within retail before any good solutions/methods for immediate payments have been developed and agreed upon. Such initiatives will probably come from the collaborative bodies of the major banks (see e.g. Swish Privat, which more or less captured their entire market overnight). We believe robo advice may provide the users with a simple and rational savings method, something the major banks so far has had limited success in delivering to some customer groups. As regards financing (both lenders and borrowers) we believe equity crowd funding start-ups may start muscling in on corporate finance territory. One worry in the general market situation is that those who have raised large funds (that must be invested) will continue to inflate the bubble until it bursts. Investors who do not need to invest a lot of capital at the same pace – but can wait until it becomes more favourable – will hopefully watch and wait in these market conditions. Much of it is still lofty words with little or non-existent revenue or, at best, acceptable revenue but at large losses. We believe it is possible to question how the bulk of the tech/ FinTech start-ups will ever be profitable enough to come even close to the current valuations. As regards future developments we can see that block chain-based initiatives – that are not only currencies – are still moving slowly, but it will be interesting to see whether something may come of it in the future. RegTech(1) should grow stronger because the need is there, but lawyers are perhaps too well-paid to venture on to the start-up trail and it will be essential to combine skilled lawyers with skilled engineers to build value creating services. Anything that is proper big data analytics and artificial intelligence is still very interesting, but so far, the vast majority of all of all projects in this segment are mostly hot air, when examined more closely.

(1) RegTech, or regulatory technology, is a part of Fintech. RegTech exploits the opportunities of using information technology in regulatory monitoring, reporting and compliance, often by providing IT-based solutions for businesses where presently operations are largely manual. In addition to financial reporting, which is based on predetermined matrices about the conditions being reported, there are also RegTech products that contain significantly more legal elements. One example includes systems that monitor that investments, e.g. in a UCITS, are made in accordance with applicable regulations and policies. A challenge concerning those latter products is that “legal” monitoring, unlike financial reporting, cannot be reduced to pure facts, and that the monitoring process may also involve legal considerations to a greater or lesser extent.