A key learning moment in my career happened in 2012: After spending several years as a product professional in the automotive industry, I transitioned to a product role at an international financial services company. During the first month, I worked diligently on solving a process issue around online term deposits that was triggering numerous customer complaints. I spoke with the operations team to learn how a term deposit request is processed, talked with customers to understand the user perspective, and undertook the term deposit process myself to experience the problem firsthand.
Basically, I took the steps any good product manager would take and came up with what I thought was a brilliant solution. It was promptly shot down by the head of product. The reason? It violated fintech regulations.
What I hadn’t taken into account is that fintech products are bound by stringent policies and laws—meaning the usual ways of working aren’t always applicable. To effectively solve problems and launch successful products in the sector, I would need to take a different approach.
Around the world, fintech regulation differs greatly. Despite huge investment in the sector and a surge in consumer use, no formal fintech-specific regulatory framework has yet been developed for any region. Rather, your product is likely to come under the jurisdiction of multiple regulatory agencies and bodies. In the US, for example, a company in the payment business must comply with regulations set by the Federal Reserve Board and the Consumer Financial Protection Bureau, among others. The situation is further complicated by the way regulations often differ at the federal and state levels, so one solution may be subject to multiple layers of licensing.
A decade in the fintech industry has taught me to embrace this complex regulatory environment rather than be hindered by it. Sustained growth in the sector means a wealth of opportunities for product managers, so now is a great time to learn how you can seamlessly build compliance into your development process.
Treat Your Legal Team as a Key Stakeholder
First, and perhaps most importantly, you should seek input from the company’s legal team throughout the fintech product development process. Their role is to interpret the regulations and guide you; your role is to create great products within those parameters. Consult with them as soon as you have potential product ideas and use their feedback to determine which ones to take forward.
Be aware, though, that you may need to bridge a knowledge gap around products or technology for legal teams. Recently, a legal team I worked with requested one-time password (OTP) customer authorization at two points in an online application process, intended to mirror the two signatures required on the physical version of the application. I helped them understand that customers would not be able to skip any pages in the online experience, and in fact we would have a log of the customer’s journey on each page, confirming that they had seen the information before confirming their identity via an OTP at the end. By explaining digital logging software to the legal team, we were able to create a simpler UI with limited input from the customer while still complying with regulations.
Legal teams are also unlikely to be familiar with Agile management approaches, so some clarification of the product team’s processes and timelines may be required. While you should look to include legal at every stage, mandating their attendance in daily standups may exceed their bandwidth, particularly if you are part of a large organization. An optional invite will provide a platform for them to voice any urgent concerns, as a supplement to their required presence in sprint demos and planning sessions.
Even if you have access to an internal legal team, you will need to seek advice from external counsel. This is particularly important when product regulations are complex or ambiguous, so that if a dispute arises the company can demonstrate to regulators that information was cross-checked externally. This is expensive, so be sure to budget for it.
Legal firms often have a turnaround time of at least one to two weeks and, once you receive a response, follow-up queries can be costly. With this in mind, define key milestones when legal input will be required, be proactive in scheduling meetings, and factor response times into your product plan. Overcommunicate in the brief you share with external counsel, describing all the potential solutions you may build, to reduce the likelihood of needing to seek further advice should your roadmap change.
Be Mindful of the Additional Burdens on the User
While a good product manager will always consider the user perspective in product development, the fintech regulatory environment demands that extra care be taken to make interactions as clear and seamless as possible, while remaining compliant. Users may not understand why they are being asked to submit personal information, for example, so make sure that the UI design features clear explanations for these additional asks and that you translate industry jargon into consumer-friendly language.
Essentially, teams need to ensure fintech products balance user burden with security and compliance. A good example of the importance of this occurred during my time working for a large global bank. One of the international branches had an auto-fill process in place for credit card applications that used customers’ social media profiles. However, a change in regulation meant that was no longer permitted. Instead, customers had to manually enter all their information in a clunky UI with 12 extra steps—a huge deterrent. The bank’s nonperforming assets started growing, illustrating that the contingent of people willing to commit to the application process were only those who were highly likely to have been refused elsewhere. The product team had to rethink the entire process to drastically reduce the user burden.
View Changes as Opportunities to Innovate
Evolving regulations can cause problems, but they also create fertile ground for innovation. Sudden changes have spurred many rapid advancements in the fintech landscape in recent years, including shifts in payments, lending, and banking.
It’s vital to stay attuned to the economic context in which your products exist, so you can both anticipate and take advantage of regional developments. For example, when India went through demonetization in 2016, it created prolonged cash shortages. Payment applications that facilitated cashless transactions were suddenly essential and saw a huge increase in use virtually overnight. This altered the marketplace, attracting new players that increased competition and led to more innovation.
Regulatory sandboxes—controlled spaces set up by regulators in which you can test your solutions—are a great way to innovate and experiment on a smaller scale. A regulatory sandbox essentially provides a testing environment that eliminates the possibility of mistakes or failures in the real world. Maintain an open line of communication between your company and regulators so you can use sandboxes as they’re created. This is an opportunity to demonstrate your product’s capabilities to regulators, as well as highlight that you are mindful of user safety.
Keep in mind that regulators are not trying to discourage innovation or prevent you from disrupting the market with new, unique products. Rather, they are mitigating the occurrence of errors that could have a negative impact on consumers’ hard-earned savings.
Ensure Partners Are Informed and Prepared
The rules are not just applicable to your company and product, but also to the vendors and partners you engage with. Any partners you use may need to be properly certified by one or several regulatory bodies. As such, it can be challenging to establish third-party relationships. Partners need to have an understanding of the markets you work in and the regulatory environments, as well as willingness to undergo potential audits or mandatory reporting. Remember to keep your company’s compliance team in the loop here, as they will be able to advise which bodies have oversight for these third parties.
A multinational financing organization I consulted for ran into issues in this area due to a partner’s lack of awareness. It was expanding into the Indian market and already had an exclusivity contract in place with a payment gateway company. After five months of product development, the organization was unable to launch the pilot because the payment gateway company had not researched local fintech regulations and was not prepared to be audited by the appropriate bodies.
The lesson here is to always discuss with any potential partners their readiness and ability to operate in a fintech domain, specifically for the geographical region in which your product will function. Never assume that you can use the same partner in multiple locations—in many cases, you may have to work with local companies.
A Marketplace That Offers Huge Potential
Fintech is a complex but exciting sector experiencing rapid growth, which means demand for fintech product managers will continue to grow. There are many types of products within the marketplace that you could move into, each with their own regulations. Try not to think of them as restrictions, but rather consider them rules that help keep users safe. It can be a challenging environment to navigate as a product manager, but by working closely with your legal team, building compliance into your UI design process, carefully vetting third-party partnerships, and viewing changes as opportunities, you can develop valuable gateways to help consumers to send, invest, save, and spend.
Do you have experience building these types of products? Share your insights in the comments section.
Understanding the basics
Regulation is important in fintech because when users engage with products, their finances are often at stake. Failure to comply may cause errors or misunderstandings that could result in significant losses.
There are myriad regulatory bodies in the US. The leading authorities are the Federal Reserve Board and the Consumer Financial Protection Bureau, but products may come under the jurisdiction of many others.
Fintech products include payments, lending, cryptocurrency and blockchain, insurance, wealth management, mortgage, personal finance, capital markets, and money transfer services.