Pub. 11 2021 Issue 2

16 www.azbankers.org AzBA Fintech Council Background and Current Status By Paul Hickman T HE TERM “FINTECH” IS A PORTMANTEAU of the terms “financial” and “technology.” It is generally used to refer to innovative information technologies in the financial services industry. The development of highly sophisticated information-technology algorithms over the past several decades has enabled the creation of a new generation of products and services that enhance convenience, speed and accuracy; and that can potentially destabilize entire industries — and create new ones. The Uber ride- hailing app is a good example of this. Applying these relatively new algorithm- based information technologies to the creation of innovative products and services in the financial services sector gave birth to the nascent “fintech industry.” Launching these new fintech products and services in modern economies carries with it a higher level of risk and difficulty than the introduction of algorithm-based technologies outside of the financial services sector due to the highly regulated nature of the sector itself. While a high degree of regulation is necessary in the financial services sector to protect consumers, it can and does stifle the development and distribution of these new fintech products and services. In 2016, the United Kingdom carved out a less stringent regulatory environment for companies to market-test new fintech products and services while at the same time maintaining a robust level of consumer protection. This “fintech sandbox” is a temporary regulatory safe harbor for companies seeking to bring new fintech products and services to market. It also limits the raw number of consumers or businesses these companies are permitted to co-opt in order to test their products and services. Other countries — and jurisdictions within them — such as the United States, Singapore, Hong Kong, Thailand, Australia and Switzerland, have followed suit. In 2018, Arizona became the first U.S. state to officially launch a regulatory sandbox for fintech. Arizona Attorney General Mark Brnovich was a prime mover of the legislation