FinTech is understood to be a technology-based financial innovation that enables the creation of a new business model or a new manner of the application thereof, a new process or a service that changes the current approach. At the same time, financial innovation cannot be an end in itself or look like artificial product differentiation. It should be aimed at promoting competition, providing a better, more efficient, faster, and more advanced service to the customer.
An obviously complex legal or technical solution designed to circumvent any existing regulation or gain self-benefit (such as setting up of financial pyramids) might hardly be viewed as a financial innovation. Similarly, an innovative solution would not be a service where the role of the financial technology in providing a service has been reduced, thus promoting payment in cash.
An innovative service in the field of electronic payments means a new or significantly improved electronic payment or electronic money service on a national scale. Also, the term “innovative service in the field of electronic payments” can be extended to the account information services and payment initiation services, as currently there are no such nationals services in Latvia. Such a service must be aimed at clearly contributing to the users of the service directly or indirectly, and the candidate must be able to prove this contribution. The contribution to the consumer might manifest itself as:
-higher competition in the sector; a more advantageous (i.e. cheaper or simpler) service; exclusion of an intermediary stage from the normal service chain (such as exclusion of the involvement of the card scheme);
-market impact, triggering the response reaction by improving other services or adopting the innovative business model;
-providing access to the market or a part of it to consumers and non-professional customers, who have not had that before.
When developing an innovative financial service solution, it should be understood whether it is a financial service or just an ancillary service to the existing financial service providers. An ancillary service will be such a service, which is not considered a regulated financial service under the laws and regulations, therefore an FCMC permits for the ancillary service provision would not be required. However, an ancillary service can play an important role in the provision of a regulated financial service.
On the one hand, a service or a product that is not directly linked to the operations with the customers’ funds in order to gain them monetary benefits may be considered an ancillary service. However, data processing services such as the account information service and the payment initiation service will be considered as regulated financial service, for the provision of which the FCMC’s permission will have to be obtained. Also, providing advice on investments in financial instruments (in accordance with Section 3 of the Financial Instruments Market Act) will be considered a regulated financial service rather than an ancillary service.
On the other hand, such auxiliary services, which are related to financial services, might exist independently of the regulated financial services, such as credit information services. Whereas, the financial institutions might use auxiliary services such as the assessment of customer compliance through outsourcing such a service.
A virtual currency service provider is a party who provides virtual currency services, including providing users with an opportunity to exchange the virtual currency to another virtual currency charging a commission fee for this or offer to buy and repurchase the virtual currency using a recognised legal tender. As of 1 July 2019, the duty to register and supervise such service providers will be transferred to the State Revenue Service.