The FinTech Revolution and Financial Regulation: The Case of Online Supply Chain Financing

Abstract

Online supply chain financing has been a relatively novel funding channel for suppliers as small- and medium-sized enterprises (“SMEs”) to obtain loans in that the revolution of financial technology (“FinTech”) transforms traditional supply chain financing, which used to be administered only by official banks, to an online model also used by electronic commerce platforms (“e-commerce platform”). Endeavors towards financial inclusion of the underserved SMEs could rationalize why we should allow for or encourage FinTech innovations exemplified by the online supply chain financing mentioned above. What would be an adaptive regulatory regime for such innovative FinTech-enabled financial services as the online supply chain financing? Within our conceptual framework to regulate the FinTech industry at the early stage, rather than rigorous rules traditionally placed on large financial institutions, a principles-based strategy should be adopted to strike a balance between financial stability and access to financial services advanced by disruptive innovations. As a necessary complement, regulatory sandboxes would be needed to spur a shift in institutional philosophy to a principles-based regulatory regime. In other words, the regulatory attitude of FinTech regulation should be humble and light-touch to promote innovation for improving digital financial inclusion, albeit on the premise of containing potential systemic risk and protecting consumer interest in the meantime.

Keywords: Financial disintermediation, financial inclusion, principles-based regulation, regulatory sandbox, light-touch/humble regulation, financial technology

JEL Classification: K29, G18, G23, G28