The 5th edition of the Fintech Inn conference, the Baltics’ largest fintech event, delivered two days of stimulating discussions, expert insights, and valuable networking opportunities, all available for free to participants online. Over 1,000 attendees gathered online to hear nearly 70 industry-leading speakers address the major and emerging issues across the global fintech ecosystem.
In line with its slogan “Spin the Energy of Fintech”, Fintech Inn 2021 invited attendees to examine how fintech might recharge global finance through digital acceleration, transformative technology, improved risk management, and greater sustainability. The discussions largely focused on the effects of the pandemic on the industry, as well as on ways for fintechs to get ready to meet client, regulatory, and societal demands of the future.
Here are 5 takeaways from fintech leaders speaking at Fintech Inn 2021.
Nimble fintechs need infrastructure to pioneer new Open Banking applications
It has been nearly four years since the EU’s Second Payment Services Directive (PSD2) came into force, setting up the stage for widespread adoption of Open Banking practices. Yet Open Banking is still struggling to take off, which means missed opportunities for both customers and companies who might have created new products and services.
The slow uptake has been partly attributed to the foot-dragging by some of the large financial institutions who may have perceived Open Banking as more of a threat than an opportunity. But the current unsatisfactory situation might be remedied by innovators free to experiment with open data.
Speaking at Fintech Inn 2021, Rolands Mesters – co-founder and CEO of freemium open banking data platform Nordigen – highlighted the need to set up conditions for risk-taking innovators to explore the possibilities of Open Banking.
“This ability to have fun and to play around is absolutely necessary for future innovation. When we think about the future of Open Banking, the already operational infrastructure is being rapidly adopted by large financial institutions, but not enough developers,” he said. “The latter also need a playground where they can have fun – if it’s not fun, they’re not going to be able to build anything that’s good.”
To unlock the true value that Open Finance can provide, the upcoming years should see better communication between market participants, especially between the fintech space and the banks, said George Parks Davie, Open Banking Product Director at payments provider Klarna.
“I also wish for more trust to be created,” he said. “Take the often unresponsive open banking APIs or inconsistent data of the big banks – they will soon taste their own medicine when using the lacking APIs of other banks. So we need a much closer dialogue with everyone in the Open Banking game.”
Behavioural analysis is the future of AML
The UN estimates that the amount of money laundered around the world is 2-5% of global GDP every year, and to intercept even a small fraction of these transactions, financial institutions are harnessing more and more data. At the same time, consumers and regulators, especially in Europe, are putting more pressure on businesses to be compliant with data privacy laws.
Staying compliant on both AML and GDPR fronts is a challenge for financial institutions, big and small. What might help marry both approaches is behavior-based analysis.
According to one of Fintech Inn 2021 speakers Taavi Tamkivi, co-founder and CEO of AML platform Salv, the future might hold a shift from a focus on fighting fraud based on wrongdoers’ identity to a focus on their actions.
“Currently, actual behavioural monitoring is heavily under-prioritized. If we become better at behaviour detection with AI and other new technologies, the approach will shift from ‘who the person is’ to ‘what the person does’. This ultimately decreases the pressure on privacy data processing and puts more emphasis on more complex AML investigations,” Tamkivi said during the conference.
Green finance presents a big opportunity for fintech
Sustainability is on everyone’s lips these days, and the financial world is no exception. Steeped in innovation and technical expertise, the fintech sector seems to be uniquely positioned to generate solutions that help businesses to evaluate and reduce their environmental impact, and investors to channel their operations towards more sustainable assets.
One of Fintech Inn 2021 panelists, Tee Pruitt – Head of Partnerships at Doconomy, an impact-tech developing digital tools for climate impact calculations – said that innovative and progressive financial institutions see sustainability as the new ‘digital’ – the biggest seismic change to hit finance globally in their lifetime.
“Sustainability is a huge vector for finance. The change is accelerated by the market draw around ESGs as well as consumer pressure. Also, the impending regulatory structures like the EU’s green regulation will force financial institutions to understand their exposures and do something about them. Financial firms have a dual mandate to get their own internal operations in shape while helping their existing clients and partners to be more sustainable as well,” Mr. Pruitt explained.
Data shows that ‘sustainability’ already is among the top investment categories for newly launched VC funds. But to truly prosper, green fintechs should offer high risk-high reward investment opportunities, said Dominykas Stankevičius, Investment Associate at LaunchPad Capital.
“I believe that the next big test for sustainable fintech is breaking into the retail investment market. But retail investors are usually attracted to the possibility of high yields in short periods of time, so green fintechs should provide retail investors with opportunities of high risk and high return,” he explained.
CBDCs will disrupt the crypto space, but are unlikely to push out stablecoins
It appears that Decentralised Finance is not just a fancy term for blockchain but rather an emerging alternative to finance as we know it. As the technology behind such decentralized blockchain networks as Ethereum and Solana progresses, consumers and businesses increasingly embrace digital currencies, and investments in crypto assets continue to gain ground.
With the rapid rise in circulation of stablecoins over the past couple of years, central banks have stepped up efforts to explore their own stable digital currencies. Central Bank Digital Currency (CBDC) projects have emerged all over the world, including in Lithuania, where the Bank of Lithuania introduced the world’s first blockchain-based digital collector coin.
“CBDCs are definitely the missing part of DeFi. We all have and still use cash – an asset that is not yet digitized or tokenized. We need CBDCs in this market, as some participants need the “solidity” they offer,” said Vytautas Kašėta, co-founder and CIO of SUPER HOW, a private DARQ technologies lab, and president of Crypto Economy Organisation.
The arrival of CBDCs, however, is not likely to completely overtake the role that stablecoins enjoy today. The regulation of these digital currencies are bound to make monetary transactions more transparent albeit less private.
“If CBDCs were used like stablecoins, which I think they could be, I doubt that the regulators would be willing to issue CBDCs that could not identify the holder. I think it’s not going to take off in a way that we expect, and will live on parallel private blockchains, where the identity of holders will be known,” Vytautas Karalevičius, co-founder of cryptocurrency exchange SpectroCoin, said during Fintech Inn 2021.
Decentralized identity is a critical enabler of DeFi
The recent emergence of decentralised digital identity (DDID) solutions promises to give users full control of how, when, where and what information on their identity is being shared. But in addition to self-sovereignty over identity data, DDID has the potential to create seamless, accessible, and verifiable DeFi ecosystems by solving the identity verification issues on privacy-preserving blockchain networks.
According to Barbara Hałasek, Head of Regulatory Affairs at Coinfirm, a AML platform for crypto assets, the worldwide reach of the blockchain-based financial ecosystem makes traditional KYC checks obsolete in DeFi.
“Customers of DeFi platforms can transact in seconds from different corners of the world, but at the moment, decentralized finance does not use AML/KYC controls to the extent it should,” she explained. “This situation should change with regulators looking into developing a good framework to impose AML obligations on DeFi. And due to the global nature of DeFi, I don’t think that traditional IDs would work here – DDID is the way forward.”
The Fintech Inn conference was jointly organised by the Ministry of Finance, the Ministry of
Economy and Innovation, and the Agency for Science, Innovation and Technology (MITA), with support from compliance platform Ondato, API management platform Sensedia, and Vilnius-based ROCKIT – Home of FinTech and Sustainable Innovation.
