TECH4GOOD
Monchito Ibrahim
Today, the global economy has a digital heartbeat, and many countries are beginning to grapple with the complexities of digital economy regulation. Digital applications now permeate all aspects of society and the economy. They now enable everyone to access services including that of the government, conveniently make online financial transactions, shop using mobile phones, travel more efficiently, make hotel and dining reservations, and so on using online platforms. These online platforms are changing the business landscape by disrupting traditional business models and driving growth and innovation in this new economic order. However, most of them play by a different rulebook. And that is what makes regulation today more complicated.
The digital transformation of traditional business models is turning industries upside down causing rapid changes in society and the economy. We are now beginning to enjoy the benefits of digital innovation, including convenience, flexibility, and efficiency. For business, digital technology is emerging to be a potential tool for achieving inclusivity. It offers MSMEs, for example, an opportunity to reach large audiences without difficulty even going beyond the territorial boundaries of the country, easy access to essential information, giving them a fighting chance against large and well-established corporations.
And certainly, for most regulatory bodies, these are new spaces whose characteristics are too different from the usual models they are used to dealing with. The biggest challenge for most regulators today is understanding what these innovations are all about and identifying potential issues that could relate to protecting the citizens and promoting competition. They need to answer questions like: “What are the areas in the business model that may potentially bring harm to the public?” “How can we make sure that we do not stifle innovation with over-regulation?” Careful analysis is required and sweeping generalizations should be avoided.
Innovations are happening so fast today. Online platforms that started as ride-hailing services regulated by the LTFRB have now morphed into very complex business entities where they now operate as digital banks, online retail shops, courier services providers, and much more. Because of this, several government bodies may have to be involved in regulating them. Take the case of their e-wallet products that allow financial transactions to be done between these platforms and their customers (read: payments and refunds), all of these will have to be done within the guidelines of the Banko Sentral ng Pilipinas. This means that customers will have to go through the BSP-mandated Know-Your-Customer process before they are allowed to transact using the e-wallets. In a way, the use of e-wallets should help reduce the number of unbanked Filipinos, and going through the BSP-mandated requirements should help build trust in the ecosystem.
Given the speed at which new business models, services, players, and industries can appear or disappear in a digital economy, regulators must first understand the emerging trends in the market. Recently, BSP has institutionalized a regulatory sandbox intended to allow limited operating room for transformative and game-changing technologies under the “test and learn” approach. A common practice now among regulatory bodies in other countries, this is going to foster an enabling environment for responsible innovation and at the same time, provide BSP with a learning laboratory to better understand emerging innovations in the digital financial ecosystem. This strategy may be a good way for other regulatory bodies to investigate to help them better understand the nuances of new digital platforms that they are supposed to regulate. Regulatory regimes should be forward-looking, encourage innovation and investment, and be flexible enough to adjust to rapidly evolving markets and business models.
In the process of regulatory policy development, close consultation with the digital players and other stakeholders is very important to avoid inadvertent consequences of new policies. Such consultations will help provide the right level of protection for consumers while fostering competition and innovation.
The former US Secretary of State Madeleine Albright once said “We face the task of understanding and governing 21st century technologies with a 20th century mindset and 19th century institutions. Institutional change is therefore critical to overcoming these challenges. But so is a mindset adapted to the 21st century challenges we face.”
The complexity of regulating the digital economy will grow significantly and become a continuing governance challenge. Regulators must strive to continuously understand how the digital economy beats, including the knowledge of key platforms and technologies to assess the need for regulation. They must realize that digital innovations are taking place at a much faster pace than that which they legislate. So far, we are seeing the efforts being done on regulating the financial sector, but I am sure that regulating the digital ecosystem will be an even greater challenge. The internet has no borders and a lot can still be done anonymously. And a holistic approach to modernizing regulatory frameworks across the digital ecosystem will help promote trust and innovation.