FinTech Regulation in South Africa

Takundwa, Simbarashe

FinTech Regulation in South Africa

Thesis / Dissertation

2022

Abstract

The rise of FinTech has been an interesting development globally and South Africa is no exception. With an increase in computer processing, the availability of this technology on simple handheld machines like tablets and cell phones, FinTech has taken advantage of this development to create a new industry. However, the growth of FinTech has outpaced the growth of the necessary regulations that regulate such financial services and the need to have an adaptive regulation regime is therefore necessary. The study aims to determine whether regulation is a key enabler in the uptake of e-money and by making cross country comparisons with countries where e-money and other Fintech products have been successful, and to provide guidance on the regulatory approaches that can increase financial inclusion whilst minimizing the risks to the South African financial system. This study is based on the benefit and risk framework, guided by the technology-acceptance model in assessing the adoption of e-money, based on the perspectives of the regulatory authorities, in this case in the South African Reserve Bank (SARB). The Efficient Market Hypothesis is also tested on why there is a need for regulation, when the markets are efficient? Behavioral theory on the rationality of individuals, when it comes to financial decision-making, availability and the cost of obtaining information, is also the key to analyzing how and why Fintech technologies are accepted and adopted. The hypothesis is that regulation does influence the adoption of Fintech technologies, such as crypto-currency and mobile money. A qualitative case study of representatives from regulators, MNOs and other fintech operators and research institutions was carried out in order to determine their views of current regulations and its impact and proposals on how regulation can be fine-tuned to the South African market and other similar markets. The research finds that regulation can be a constraining factor, a neutral factor and also an enabler to Fintech development and that the South African regulators have a taken a more cautious approach to Fintech regulation. This is mainly motivated by the need to protect consumers from market conduct risk, data protection and market failure risk. Market conduct risk is exacerbated by the high levels of financial illiteracy in South Africa. A cross country comparative also revealed that economies with sophisticated and developed financial markets tended to go for a collaborative approach, where Fintech players and traditional financial incumbents have to collaborate either because of the forced relationships via regulation or because of market requirements. In less sophisticated and developed markets on other hand we see the Fintech players rather taking up the role those traditional financial institutions ought to have played due to inefficiencies in the system. Finallya regulatory life cycle approach is recommended as the best method to regulate such an ever-evolving industry in order to mitigate the risks and at the same time maximize on the benefits of Fintech products in increasing financial inclusion

Keywords

development finance

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