When we have component-based banking, what happens to the regulator?

I often talk about component-based banking, most recently in this four-part series in August:

• Part One: Banking on Demand - the Bank in the Cloud
• Part Two: Banking on Demand - the Open Sourced Bank
• Part Three: Banking on Demand - the Customer Focused Bank
• Part Four: Banking on Demand - the Component-Based Bank

but I had a new realisation today.

It’s one that is obvious when you say it but if you haven’t noticed or bothered, it’s a stunning thought and it’s already out there in the wild, running amok, and causing bankers headaches globally.

What is it?

Well, as we move to component-based finance, we will also create a new component-based regulatory regime and it’s already happening.  Think about what is happening in payments.  At the European level, Third Party Account Access under the Payment Services Directive 2 will allow non-banks access to all the bank’s data to enrich transactions with knowledge.  Banks may want to hold back some of the data, as these are just non-bank payments institutions, but they can’t.  The hordes will have access and, when they do, they will leverage that access.

In other words, we have non-bank payment institutions who will have open access to all the bank data about customer transactions and, because they are new and different, they will leverage that capability.  Just look at Holvi or ipagoo if you want an example.

Then we have the regulatory regime in the UK which is also separating payments from banking.  Traditionally, to organise payments, you need a banking licence.  That’s why Google and PayPal got banking licences.  Now you just need an e-money licence, hence Facebook just got an e-money licence.  In fact, you need not even have a licence as the UK has separated payments from banking.  It is creating a new regulator – the payments regulator, formerly the payments council – and forcing banks to sell their stake in their processor, VocaLink, to ensure the whole system becomes detached and independent from the banking system.

Then we have new start up markets, like the crowdfunding and peer-to-peer lending markets, and guess what?  They have their own regulations too.

And then, just yesterday, the UK introduced regulatory controls on the payday loans market, yet another independent component in the ever growing sphere of bank competition.

In other words, as we move to component based finance and deconstruct our banks into the pieces that relate to the new world of digital, the regulator will follow our movements and do the same.  In fact, they already are.