Guest blog: Kristo Käärmann and Taavet Hinrikus, co-founders of TransferWise - Main contents

The future of finance: fairness enabled by technology

I would like to welcome TransferWise with this guest blog on fintech and the future of finance.

Technology will continue to change how we live, communicate and do business.

It is often hard to anticipate what will come next. The old rules of the game could easily become obsolete, while attempts to change them may be premature.

For a long time, banks have been in the vanguard of cross-border provision of e-services. These services have improved over time as nobody wanted to be left behind.

Today, new technologies along with a myriad of non-bank fintech challengers are going to raise competition to a new level. Newcomers are often less burdened by regulations, but also often more agile and swifter to take advantage of digital innovation.

There is every reason to believe that competing technologies and business models will eventually benefit both incumbent financial institutions and newcomers - not forgetting customers as well. However, it is not easy for policymakers to get a grip on all these developments.

By making full use of the benefits of digital technologies in creating jobs and welfare, we will be protecting competition as well as consumers.

Our project of building the Digital Single Market aims for effortless digital access to goods and services across Europe.

The advantages of a bigger market and better choice can only be realised when goods and services can be easily bought and paid for. This is why well-functioning payments services are so important.

The Digital Single Market strategy outlines how crucial innovative entrepreneurs are to the digital economy. Our further work in building a Capital Markets Union in Europe is set to broaden the access of startups and high-growth SMEs to finance.

Welcome to @kaarmann and @taavet (Kristo Käärmann and Taavet Hinrikus), co-founders of @TransferWise, on #Ansipblogs

The future of finance: fairness enabled by technology

When we talk about technology changing the world, we often hear about how it makes our lives easier and more connected.

We see this in our daily lives from Skype to WhatsApp; the impact is clear. But what of fairness?

The sharing economy, championed by the likes of Uber and Airbnb, is an interesting example. While it doesn’t necessarily make the market fairer, it does allow more people to enter and therefore drives down prices.

One industry where fairness is starting to take hold thanks to technology is finance.

Traditional consumer finance has been unfair for decades. Banks have had a monopoly on financial services and have been able to overcharge and underserve consumers.

With no alternatives, consumers were dependent on banks. And with no competition, banks did not need to offer a better deal. The main way that this unfairness was manifested was through the lack of transparency in the industry.

Consumers are often completely unaware of what the banks are charging them. And banks don’t make the information easy to find either.

But finance is fundamentally changing. Fintech (financial technology) companies are starting to emerge. Not bound by archaic systems like the banks, young tech companies are rapidly innovating in this space - building products that are better: quicker and easier to use and much lower cost, significantly undercutting the banks.

Fintech companies aren’t stepping in to run banks as we know them, but are slicing off a service normally run by a bank and doing it much better.

TransferWise is doing it in international money transfer, Funding Circle is doing it in SME lending, Square in card payments, Zopa in peer-to-peer lending, to name just a few.

And the new players are not simply a re-imagining of the old. If you look below the surface of these new fintech companies, they are fundamentally not the same as the banks.

Ultimately, we’re all working towards the same goal: a financial sector that is without friction and based on fairness for consumers.

This is a massive shift: from the incumbent model that is based on unfairness, greed and self-interest to one based on fairness where the needs of the consumers shape the service. And the governing principle is transparency.

Consumers know exactly what they are going to be charged, and when. There are no hidden charges - just an open, honest transaction.

The current rules that apply in this area need updating to reflect the innovation that’s taking place. Regulators need to become more agile and to work more closely with business to shape the necessary processes that ensure both that consumers are protected and that innovation thrives.

The Digital Single Market could really help, for example in changing the outdated anti-money laundering rules. In addition, the Payment Services Directive 2 strengthens the original’s requirements on transparency and widens the scope to payments outside Europe as well.

Both provide real opportunity to support the innovation in the financial services sector.

Technology is effectively democratising finance - giving control back to the consumers.

And the role of banks is changing. No longer the dominant providers of all services, they are rapidly becoming the pipes in the system - the infrastructure through which tech companies create the future.

In five to ten years from now, we believe that at least 40% of financial services will be provided by fintech companies.

And the sector will be unrecognisable: it will be fair and transparent, focused on what’s right for the consumer.

Kristo Käärmann and Taavet Hinrikus are co-founders of TransferWise