In recent times, it is common to see the term “fintech” being bandied around in common parlance. Perhaps you yourself may be interested in finding out more about fintech and even starting your own fintech business to ride the fintech wave. However, you may be uncertain as to how to go about doing so.
This article seeks to offer some guidance on the main considerations to bear in mind should you intend to embark on such an initiative.
What is Fintech?
Financial technology, otherwise known as fintech, comprises any technological changes in products and processes in the financial services sector.
Several examples of such technology are set out below:
- Artificial intelligence, where machines analyse user data, including users’ behavioural patterns, to predict future decision-making;
- Cryptocurrencies, such as Bitcoin and Ether;
- Insurtech, which is technology to enhance the efficiency within the insurance industry;
- Payment applications on mobile platforms, such as Apple Pay and Android Pay;
- Regtech, which is technology that aids companies in the financial services industry to adhere to financial compliance rules and know-your-customer processes; and
- Robo-advisers, which are platforms that dispense advice on investments based on financial algorithms.
Considerations to Take Into Account When Setting Up a Fintech Business
The main considerations to be taken into account when setting up a fintech business are:
- Registration of Business Entity
- Building of Team
- Procuring of Funding
- Complying with Regulatory Laws
- Complying with Data Protection Laws
- Building of Intellectual Property Capabilities
Registration of Business Entity
You must register your business with the Accounting and Corporate Regulatory Authority. This can be done online through the BizFile+ website.
Building of Team
Procuring of Funding
You may bootstrap your business (i.e. finance your business with your own capital) at the start.
However, to support the business and to minimise the further personal incurrence of financial risk, you may want to seek seed funding from external sources. This may come in the form of government grants, angel funding, crowdfunding, and venture capital financing.
The various government schemes/grants that your business may leverage, provided all relevant requirements are fulfilled, are set out below:
- Startup SG Founder, where SPRING Singapore gives financial and non-financial support to first-time entrepreneurs with innovative business ideas;
- Startup SG Talent, where SPRING Singapore facilitates the setting up of innovative businesses in Singapore by global talents by, among other things, granting them access to Singapore-based talent;
- Startup SG Accelerator, where SPRING Singapore renders financial and non-financial assistance to start-ups with high potential;
- Startup SG Equity, where SPRING Singapore, alongside independent third-party investors, will invest in technology start-ups that have intellectual property and the potential to expand into the international sphere;
- Startup SG Tech, where SPRING Singapore will fund start-ups that are technically and commercially strong or promising;
- Capabilities Development Grant – Technology Innovation, which is a subsidy that the Info-communications Media Development Authority gives in relation to certain project costs that Small and Medium Enterprises incur for their upgrading initiatives. These initiatives include the developing of products, improving of processes, and enhancing of productivity; and
- Financial Sector Technology and Innovation Proof of Concept Scheme, where the Monetary Authority of Singapore (MAS) gives financial support to technology providers that seek to solve problems in the financial industry.
Angel funding is funding procured from angel investors (i.e. individuals with significant financial means) in exchange for equity in your business and/or convertible debt.
Crowdfunding is funding from a large number of individuals through platforms such as Funding Societies and MoolahSense, in exchange for promised commodities, equity in your business and/or payment of principal and interest at a later date.
Venture capital financing
Venture capital financing is funding procured from a venture capital firm, in exchange for equity in your business and/or convertible debt.
It should be noted that different venture capital firms may have different industry focuses and funding-stage focuses (e.g. seed capital stage funding, early stage capital funding, later stage capital funding).
Complying with Regulatory Laws
First, identify the regulations which will apply to your business, based on your business model and operations.
Some of the potentially relevant laws are set out below:
- Banking Act, if your business provides financial services online, g. accepts deposits and allows withdrawals;
- Finance Companies Act, if your business accepts fixed and saving deposits and/or credit facilities;
- Financial Advisers Act, if your business provides information on investment products, arranges life insurance products, and/or markets collective investment schemes;
- Insurance Act, if your business leverages insurtech;
- Money-Changing and Remittance Businesses Act, if your business trades foreign currency and/or handles outbound payments;
- Moneylenders Act, if your business is involved in a moneylending business;
- Payment Systems (Oversight) Act, if your business offers stored value or prepaid wallet services;
- Securities and Futures Act, if your business trades certain instruments, and/or deals in securities or manages funds of a certain amount, amongst others; and
- Anti-money laundering and terrorism financing standards, as set out by the MAS.
You may consider engaging lawyers should you encounter any difficulty determining which regulations will apply to your fintech business.
Alternatively, you can determine which financial institutions provide products and/or services that mirror your business’ the most, and then search the Financial Institutions Directory to ascertain the licences that these financial institutions hold.
Second, obtain the necessary licences, where applicable.
Should your business seek a relaxation of the applicable legal and regulatory requirements for a certain period of time, it should leverage the MAS FinTech Regulatory Sandbox to “experiment with innovative financial services in the production environment but within a well-defined space and duration”.
To make use of the sandbox, your business first has to submit an application to FinTech_Sandbox@mas.gov.sg. The MAS will evaluate the application before informing your business about the application’s outcome.
If your business’ application is approved, your business will have to inform customers about the sandbox experiment and the major risks accompanying the financial service provided. Additionally, your business must obtain its customers’ acknowledgement regarding their understanding of these risks.
During the sandbox period, your business will not be subject to the specific legal and regulatory requirements that the MAS has chosen to relax. Therefore, it can experiment with and tweak the financial services stated in its application accordingly so that it can eventually comply with the relevant legal and regulatory requirements.
Upon the expiry of the sandbox period, your business will exit the sandbox. Your business will then be able to launch its financial service on a larger scale as long as:
- The MAS and your business are satisfied that the sandbox has fulfilled its intended test outcomes; and
- Your business can entirely adhere to the legal and regulatory requirements that apply to it.
Should either of these requirements be unfulfilled, your business will not be able to launch the financial service concerned.
Find out more about the MAS FinTech Regulatory Sandbox here.
Complying with Data Protection Laws
If your business will collect, use, and/or disclose the personal data of individuals in the course of its operations, it will be obliged to fulfil its key obligations under the Personal Data Protection Act.
Building of Intellectual Property Capabilities
Should your business create any novel inventions along the way, it is important to obtain patent protection for these inventions to preclude third parties from making or using them without authorisation. You can consider hiring an intellectual property lawyer to assist you with registering your patent in Singapore.