Many FinTech companies, especially in the early days, had no moral hazard. They were funded by easy venture capital – again, often from people with an understanding of technology but not of the financial industry. For example, the Hong Kong Monetary Authority found that applicants for FinTech licences couldn’t even fill the applications forms in properly.
There has been a presumption that everyone needs mobile, etc. services. In South Africa in 2018, the regulatory system was cautious. Lobbyists, arguing the case of accessibility, wrote a report as if the case for FinTech outside the banking sector was a done deal.
The South African attitude was simple: if you want to provide banking services, you must be, or must be a registered agent of, a bank.
Maybe they have changed that since: I’ll have to look it up sometime.
if it has, South Africa has added risk which it had prudently designed out of its financial system.
I have long argued that the FinTech industry is a bubble waiting to burst and that consolidations were inevitable.
The consolidations would happen by way of acquisition – which is what Wirecard did – and the burst would be when venture capitalists decided enough was enough and that the dot com bubble’s symptom of excessive burn rates was repeating itself.
As companies come under pressure and face failure, consolidation would accelerate but only for as long as the venture capitalists supporting the consolidator continue to pump in money.
Sooner or later, they pull out or call for whatever is the current incarnation of Drexel Burnham Lambert, in the hope of raising junk bonds. And yes, we are now seeing something similar to that with Initial Coin Offerings being proposed for takeovers of failing businesses.
The FCA did not issue a press release about suspending the accounts of Wirecard’s business in the UK, or rather it appears, as of today, to have issued one and, several days later, re-written it.