Although I am not a lawyer, and my legal training ended with two corporate law classes years ago in university, regulation of technology is a fascinating topic. It’s also one that should be considered actively by product managers and other technology professionals. On one hand, you have the regulatory quagmire of blockchain that is spanning the globe – and on the other, you have PSD2 open API coming up soon (more about that below). Both situations offer an interesting perspective on how regulatory change can drive or stifle innovation.
For those who are not up to speed on Payment Service Directive 2 (or PSD2), it is a sweeping directive issued by the EU that will transform banking. And this is not one of those great ideas that CAN transform in the ideal world. The bare minimum requirements WILL drastically alter the landscape, and that’s a good case of regulatory change driving innovation.
It is guided by two key changes: banking information is not owned by the bank but by the user, and payment can be initiated by a third party. The ownership of banking information is being transferred to the user, not the bank, and that enables third parties to trigger a payment. This is essentially a battering ram for the bank’s economic castle in terms of traditional banking and payment processing.
So essentially, banking info will not be housed in some outdated user interface (UI) of a local bank, but will be accessible by third parties. Think companies like Amazon and Facebook rather than traditional financial services companies. Apple’s recently unveiled an iMessage-based mobile payment service is a good example.
In addition, money transfers can also be initiated without direct user access or interaction with a bank. There are two massive caveats to this: a) it is only for the EU and b) as of the time of this article, the technical guideless have not been published. Basically, it won’t happen soon and when it will, it will only be in Europe. A smaller roadblock is that many players may meet bare minimum compliance and may not fully endorse it from the start.
Nevertheless, this is an example of regulation that is expected to spur competition and innovation. Having regulation and tech innovation in the same sentence is not a common thing. But it can clearly be done, even if the results are still to be seen. The consensus amongst many technology observers is that it will create a wave of innovation. How will it add innovation? Through more access to data to third-party companies who previously never had a chance to view it.
It has the potential not only to introduce whole new products, but also new sets of business models the remainder of the world can follow.
On one hand, there is the blockchain regulatory uncertainty across the globe. Some regions are dropping the hammer on all things blockchain, as seen by China with its nationwide crypto ban. On the other hand, Switzerland has a “crypto valley” with a favorable legal framework for crypto companies. And although there are crypto safe havens right now, there is a large degree of uncertainty in the air for most people involved. Due to an early stage of understanding of the technology, the uncertainty is reasonable. It takes time to dive in and to see the direct and latent benefits – and risks of the ecosystem.
The US is an interesting case study on this. At the federal level, there is guidance given by the SEC and other agencies. However, at the same time, the states are doing their own thing. Delaware is establishing itself as a corporate-friendly state – as it always has – but this time in crypto space. There’s evidence that groups in Tennessee and Illinois are trying to position themselves as the center for innovation. New Hampshire also has passed innovation-friendly legislation.
As much as state efforts are amicable, the United States as a country is still at a crossroads on how will it treat the cryptocurrency and blockchain industries.
At some point, status quo of ambiguity will not be tolerated and companies will do regulatory and tax shopping around the globe. This has happened many times before – look at the insurance industry and the Caribbean islands. And when that time hits, governments will have to make a decision – and that decision will be a story of its own. Whether it’s a story of creation or destruction remains to be seen.
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