“The Federal Trade Commission is committed to protecting consumers in the fast-moving realm of . . . FinTech.”(1) Indeed, the FTC has brought actions against companies across the FinTech industry, from mobile payment providers (PayPal) to virtual currencies, in an effort to clamp down on FinTech companies.
Chargebacks911 Founder Monica Eaton is leading the effort for more nuanced accountability within the multifaceted FinTech ecosystem — money movers, payment processors, and software technology service providers that operate as conduit channel providers.
The financial technology (FinTech) industry is currently experiencing a Compound Annual Growth Rate (CAGR) of 20.5% and is expected to reach $700 billion in annual sales by 2030.(2)Â Monica Eaton, Founder of Chargebacks911, recognizes the potential within the FinTech space for providers to offer a widening range of applications and services.
Within the broad field of the FinTech industry, there are companies that offer banking and financial services, such as deposit receipt, payment handling, and lending. Eaton maintains: “FinTech companies that are in the business of moving money should be regulated in the same way that banks are regulated, but companies that provide services to those companies are different and should not be subject to the same rules because, candidly, they don’t have the same (or any) control over the money.”
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Service Providers
“There is a distinction that needs to be made,” says Eaton, “The same set of regulations and constraints should not be universally applied to all software companies that serve FinTechs, as many do not move money and play no role in banking activities. Rather, they provide an interface to connect two end-points or a data processing service; examples include AWS, Tableau, and companies similar to DocuSign, which support financial institutions with configurable templates to standardize and streamline data inputs and outputs for the user.” An important differentiation with processing technologies is their role in payment accounts and money movement. For example, there is a significant difference between a payment processor and a service provider or supplier that provides a tool or service that the payment processor uses to support their workflows and business processes.
A technology platform provider like Chargebacks911 does not move money, nor does it have a role in opening or closing merchant or cardholder payment accounts. It specializes in providing solutions that help automate cumbersome workflows, providing configurable interfaces to support the growing needs of chargeback and dispute management. With the growth of eCommerce, there is growing demand for business solutions that streamline processes, unify datasets, and provide scalability — allowing businesses to advance from manual methods or reliance on mainframe environments that were not built to keep pace with today’s digital marketplace. Service providers that provide fraud scoring technology similarly assist financial institutions with scaling constraints — while other types of platforms provide turn-key solutions that allow banks to automate their customer handling processes. Bottom line, service providers have an important role in the framework of commerce and FinTech. Without the ability to leverage solutions like these, the internet would be less secure, and consumer protection mechanisms would fail to deliver assurance and confidence because they would be relying on unscalable systems that were not built for this day and age.
Much like QuickBooks provides accounting software to automate bookkeeping, invoicing, and inventory tracking or ADP provides payroll software and services to manage changing tax rules, employee benefits, and digital paycheck input and output; Chargebacks911 provides chargeback and dispute management software and service to companies that need workflow automation and technology solutions to help manage chargebacks and disputes for their line of business.
The distinction does not exonerate consumer-facing companies that engage in fraudulent activities. A case in point: according to the FTC, starting in 2016, the AH Media Group billed unsuspecting consumers about $90 each for supposedly ‘free’ samples of cosmetics and weight loss supplements and then enrolled them in unwanted subscription plans with additional monthly charges.(5)
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New rules needed
As the FinTech industry continues to redefine itself, understanding the difference between companies using financial technology for moving money and those providing financial technology services will become increasingly important.
“What is needed,” Eaton says, “is a clearer understanding on the part of regulatory agencies as to which is which. Lumping ALL companies that sell solutions supporting a financial service or process or have clients that are FinTech into one group is ‘categorically’ wrong. It is dangerous to the economy and, ultimately, consumers. Managing chargebacks can be a tedious process, similar to processing payroll or compiling data for a unified business report. Solutions that specialize in automating these workflows deliver much-needed scale and, as a result, have grown in response to demand from both retailers and financial institutions. The task of managing chargebacks and disputes will always be an important requirement for businesses. It’s important to ensure that commerce and the mechanisms and policies that govern payments are not hampered by misaligned regulations that treat companies that serve a financial institution or retailer the same as a financial institution or retailer.”
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