Earlier this summer, consulting firm EY released a report highlighting that financial technology (fintech) adoption among consumers nearly doubled over the past 18 months, and the adoption rate was growing faster than anticipated.
The firm’s Global FinTech Adoption Index showed nearly two-thirds of consumers in 27 markets are using Fintech, mostly to transfer funds or make payments.
In the Cayman Islands, which was not part of the survey, Fintech adoption is a little bit lower, says EY technology advisory partner David McGibbon, “but we expect that to continue to rise quickly”.
Driving that adoption are several factors. More tech-savvy customers and clients are pushing companies to overhaul their legacy systems and new legislation and regulations often require companies to look at fintech solutions to comply in a cost-effective way.
Cayman’s anti-money laundering legislation and intellectual property protection in copyright, trademark and patent laws are prime examples of legislative areas that have given rise to fintech solutions. The new Data Protection Law, which is due to take force by the end of this month, is another such initiative that is going to impact Cayman companies in all industries.
In addition, McGibbon says, both Cayman and international firms and institutions see Cayman as a mature and sophisticated international financial centre. As such, Cayman’s ecosystem is conducive to the fintech industry. “The mix of location, stability, regulation and the physical infrastructure and talent here is a winning combination to increase fintech in the region.”
The first few dozen firms have already set up shop in Cayman.
“When the buzzword of fintech first started, everybody thought it would be disruption replacing financial institutions,” McGibbon says. “What we are seeing now is that a lot of fintech’s are approaching a specific problem with their solution.”
This could be a solution tackling customer onboarding, data analytics or a part of the payment process. In many cases, highly repetitive manual tasks are replaced with an automated process, not just to cut costs but to execute tasks more quickly and free up resources to do judgmental and higher-value tasks.
In addition, automated processes can help capture and digest larger amounts of data and the quality of that data is higher with fewer errors than when using manual inputs.
The key applications of fintech at the institutional level in Cayman are funds investing in crypto assets, blockchain and related technologies. Meanwhile, funding mechanisms like initial coin offerings (ICOs), which saw Cayman play host to the largest ICO globally with Block One, have tapered off this year.
But other real-life applications emerge around smart contracts running on private blockchains to carry out complex transactions involving multiple parties, contracts, terms and conditions in a more efficient way.
“Blockchain technology continues to be very promising as it evolves from the cryptocurrency and fundraising early stages to additional applications,” the EY advisory partner says. “I am definitely bullish, not just on the cryptocurrency side, but the actual other uses and applications of blockchain.”
One factor shaping the evolution of distributed ledger technology and crypto assets is regulation.
There is currently not one uniform approach, with some jurisdictions, like Bermuda, enacting specific cryptocurrency or digital asset legislation. Others are amending existing legislation and a third group, which includes Cayman, is taking a wait and see approach while it maintains a dialogue with the private sector.
McGibbon, who is responsible for a region comprising Cayman, the Bahamas, the BVI and Bermuda, says it is too early to tell which strategy is going to be more successful.
Cayman, with its more conservative approach on a case-by-case basis, is now at a point where it needs to act and proactively plan for fintech, he notes.
“Because that disruption is happening right now, I don’t think it is too late or anything like that, but we are in that phase right now where the regulator, the government and the private sector need to come together to decide on how to best move forward to maintain and foster a positive environment for fintech development and, at the same time, strike that balance of stability and protection.”