For fintechs to thrive in such a way that they remain meaningful to economies, a synergy between them and regulatory bodies is inevitable. However, the challenge has always been establishing connections with central banks, which remain majorly rigid and slow to catch up with changes in the financial technology space.
It is this missing connection that Emtech, a central bank digital infrastructure provider, is looking to fill through its digital regulatory platform, which aims to fast-track the reach of fintech products to market.
Emtech targets emerging markets where payments infrastructure needs aligning with digital innovations -- to improve efficiency, introduce new products and services that are likely to promote financial inclusion, and ensure the secure movement of money. Emtech’s solutions also enable collaboration among multiple regulators for an integrated regulatory environment that is key to the opening of cross-border innovations and opportunities.
The startup, which carried out a successful pilot in Africa, has signed five agreements with central banks in the continent and the Caribbean region. Emtech has now moved into production following the successful pilot in Ghana last year. This next stage of growth comes against the backdrop of a recent $4 million seed funding from several investors.
“We started 2021 with one central bank and we ended with five regulators signing up for pilots and onboarding. In 2022, we have officially launched the digital regulatory platform,” Emtech founder and CEO Carmelle Cadet told TechCrunch.
Investors who participated in the round include Noemis Venture, Octerra Capital, Consonance Invest, XFactor ventures, 500 Global, Canaan Partners, and Andrew Lundsten (formerly of Stripe), who also serves as the startup’s adviser.
Emtech’s digital regulatory platform includes the innovator’s center, which helps fintechs to prepare and test the requirements for multiple regulators and/or countries and test regulatory reporting APIs for pre-market technical integration, as well as the regulatory sandbox, a fintech launchpad based on regulator limits and the live reporting of data. The sandbox helps the regulatory authorities base their response to innovations on the outcomes of live experiments.
Cadet, a former IBM employee, founded Emtech in 2019 driven by her passion to build the infrastructure needed for stronger financial markets through the closure of financial exclusion gaps and helping people create wealth.
“If we can modernize financial infrastructure, central banking is where we can probably have the most impact. And that's where my passion and my skills came together … to bring together innovative technology to address financial inclusion by working with central banks,” she said.
The Central Bank of Ghana’s sandbox pilot covered new digital businesses not under any regulation in the country and new and innovative digital financial service technologies with the potential to address financial and economic inclusion challenges.
Emtech’s collaboration came shortly after Ghana established a fintech and innovation office in May 2020, as the regulator sought to “understand and supervise [the sector] effectively.” This is following the emergence of fintech solutions that had “introduced significant complexities to the industry. The office is mandated to introduce policies that “promote fintech, innovation and interoperability” in the country.
But how does Emtech navigate the bureaucratic environment that most central banks work in?
“We don't ask them to approve a new solution, or something they don't know. We come in and say your ecosystem is changing; the financial market is transforming right under your eyes and regulatory innovation is key to you maintaining consumer protection,” said Cadet.
By end of the year, Emtech plans to be working with at least 10 central banks. It also plans to introduce its first version of a Central Bank Digital Currency (CBDC) platform for regulators, tapping the growing digital currency wave.
“We've taken a really strong partnership with a digital ledger technology company called Hedera Hashgraph, with whom we have partnered to build a highly performant enterprise and energy-efficient CBDC platform,” said Cadet.
Already, CBDCs are taking off in Africa, with Zambia and Kenya being the latest countries to test their viability. Last year, Nigeria became the first country in Africa to introduce its digital currency (E-naira) while Ghana is said to be in the final stages of launching E-cedi.
“When we look at the future, we see every central bank requiring a digital regulatory sandbox, which allows them to continue to be innovative not only with their fintechs and with their ecosystem, but for them to be able to introduce innovations like CBDCs, they're going to need a digital currency platform," Cadet said.