Building FinTech castles in the sand: insights on collaboration innovation

Sandboxes featured as a common refrain at the Innovate Finance Global Summit 2017, cropping up as routes to success in FinTech innovation in various guises. Innovate Finance and MIT Connection Science joined forces to lead a workshop at IFGS17 on Constructing Successful Sandboxes and the concept received honourable mentions in many of the panels, workshops and roundtables over the content-rich two days, enhanced by perspectives from over 2,000 attendees from across the globe.

Addressing a packed Great Hall at the Guildhall on the opening day Christopher Woolard, Executive Director of Strategy and Competition at the UK's Financial Conduct Authority, reported on progress in the FCA's first-of-a-kind Regulatory Sandbox in his keynote speech on Innovating for the future: the next phase of Project Innovate announcing that they had chosen 31 firms for their second cohort, nearly double the number of firms currently testing in its first cohort. Woolard also commented that it was great to hear of the progress being made on the working group which the FCA had invited Innovate Finance to lead to explore options for an industry-led virtual sandbox (the Industry Sandbox Consultation).

At the joint Innovate Finance/MIT workshop, Dea Markova, Head of Programmes at Innovate Finance, presented the initial findings of the Industry Sandbox Consultation referred to by Woolard with the full report to be published in early May. Having been supporting Innovate Finance on the consultation report at Hogan Lovells, with Rachel Kent our Global Head of the Financial Institutions Sector also being a member of the steering committee, it was great to see the enthusiastic engagement from a diverse range of participants and geographies reinforcing the value of undertaking the consultation. 

David Shrier gave an overview of the work which MIT has been doing on "field-testing innovation" across various sectors through their Living Labs initiative, highlighting a key difference from scope of the Industry Sandbox Consultation, which is focussed on off-market sandbox structures, in that Living Labs involves trialling products on "live subjects" adopting an "informed consent" approach similar to that taken in clinical trials in the pharmaceutical industry. They have been able to demonstrate very impressive improvements in product and performance outcomes through this "Real people. Real data. Real world applicability." process which has smoothed the path to market.

In the best tradition of a sandbox, participants were then invited to pick up a virtual bucket and spade and get hands-on in the construction process. The room was divided into four design sessions tasked with exploring different elements of a successful sandbox structure and feeding back to the main group:

(a) attracting critical mass led by Jess Williamson from TechStars;

(b) data is the fusion of technology and interoperability with Winston Young of IBM;

(c) the role of regulators led by Eva Gustavsson, Head of UK & Ireland Government Relations at PayPal; and

(d) defining success criteria facilitated by Suchitra Nair of Deloitte. 

With a certain law-geek inevitability, I joined the group focussing on the role of the regulator where we had the benefit of insights from the FCA as well as regulators from other market and a very diverse range of market participants from around the globe, expertly marshalled by Eva. Discussion was engaging with a very genuine focus on understanding how regulators can best support innovation whilst managing risk and balance time commitments against limited resources. The FCA was generally held up as an example of excellence for its proactive support for innovation and a comment was made that the FCA is unique amongst financial services regulators in having promoting competition as one of its objectives. There was clear demand for regulators to be involved in industry sandboxes but there was also recognition of the risks that involvement could create a perception that it constituted endorsement of potential solutions without the full regulatory context having been properly assessed  - whilst there was no appetite for "death by waiver"  or stifling innovation by being overly prescriptive. This led to the conclusion that the optimum role for a regulator in an industry sandbox is relatively passive giving insights on policy, but not comfort, and bringing insights on market developments back to the regulator to complete the feedback loop. There appeared to be value in an educational role as well so sandbox participants learn who the regulator is, their role and how best to engage with them. The concept of a "regulator in residence" was felt to be a good way to do a lot fast. Reflecting the range of geographies represented and also a common theme across IFGS2017, it was felt there could be real value for regulators to align efforts across jurisdictions and in stepping out of a regulator's home silo to act as interlocutors both domestically and internationally.

Each of the design groups had useful insights to contribute from their break-outs – for critical mass, an example was that it was felt there is a need for there to be a defined problem which requires collaboration; for data, discussion had considered whether data should be structured or unstructured and if it should be allowed to be used by all, arriving the conclusion that it should be but that there should be the concept of an explore who would create a map to be used by others; in terms of designing success criteria, participation by representatives of all elements of the ecosystem would be a key element.

The original sandbox concept focusses on supporting the development of innovative FinTech products for financial services but as this session and the Industry Sandbox Consultation itself has highlighted the benefits are also extending to delivering innovation in collaboration mechanisms themselves. In an era where progress is increasingly driven by collaboration, there may be lessons for all to be gained from understanding how to build a sandbox.

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