By Rutendo Mugadza-Mugwagwa
FINANCIAL Technology (also called “FinTech”) is a rapidly growing sector that makes use of technology for enhancing financial services unleashing a new stream of innovations in this sector, thereby leading to the creation of new services and products, which disrupt traditional financial industry models.
FinTech innovators are leveraging the use of FinTech to:
- address the complexity of the traditional financial regulatory environment, (ii)
- provide greater speed, accuracy and efficiency in analysing data and making real-time financial risk decisions, and
- enhance financial security to keep up with a market that is rapidly evolving in terms of customers’ financial needs and expectations. Financial institutions, as well as technology giants and start-ups, are competing or collaborating with one another in this emerging sector.
INNOVATION, IP AND FINTECH
Both innovation and intellectual property play an important role in the competitive landscape of the financial sector and a strong understanding and adoption of these assets will provide those bearing them with a competitive advantage.
The adoption of innovations reduces market entry barriers by incumbents such as tech giants and start-ups and increases their bargaining power as new suppliers of substitute financial services, whereby secured intellectual property rights (“IPR”) serve to strengthen the position and bargaining power by way of securing the inventive features in their products and providing them with a legal monopoly to exploit these.
There are many ways in which financial institutions can acquire fintech: via in-house development, from third party vendors, through collaborations with vendors and competitors, or by acquiring businesses involved in the development of fintech. Each scenario gives rise to its own set of issues with respect to IP rights.
FinTech innovations can be complex in nature, as a single solution may be comprised of various interrelated hardware and software components with complex mathematical algorithms, some of which may run at a backend server and certain others at the user device. Various IPRs including patents, trademarks, copyright, designs and trade secrets may co-exist in the same solution, depending on the nature of the technology and innovation involved.
Copyright is an important instrument for protecting intellectual property for Fintech businesses, particularly when the proposed program ensures high computing performance and utility. Copyright protects the program’s code, visual interface features, audio and video guides, application programming interface (API) and similar R&D solutions. Companies in the Fintech sector should provide suitable protection for programmers’ work as they may inadvertently and without permission use third parties’ source codes in their work, which may have an adverse effect on the ownership of the technology and the organisation’s freedom to operate. While copyright will automatically subsist in works such as computer code, financial institutions developing fintech need to consider the use of patents, registered designs and confidentiality regimes also to retain control of their fintech.
Patents provide a mechanism for excluding other businesses from creating, using and selling patented technologies for a period of 20 years. This allows businesses to gain or maintain market share and protect the investments made into research and development. Patents ensure a competitive advantage and are used as a tool in negotiations. Each development strategy should take into account whether patent protection is available for innovations in basic technologies. Due to Fintech’s rapid pace of development, obtaining an early filing date is crucial due to the nature of the patent system.
Fintech companies are strongly advised to invest in the reputation of their trademarks as they ensure high quality of customer service. A strong trademark allows Fintech companies to set their product apart from their competitors’ products. Bearing in mind that Fintech companies often manage financial assets of crucial importance, a recognisable trademark may be particularly important for their clients such as VISA, PayPal. A financial institution needs to consider early in the development stage whether its fintech will be branded and to whom that brand will be facing. Brands can be registered as trademarks but there will be challenges if similar brands are already in use, or the brand is descriptive.
Trade secrets do not require formal registration, but companies must take adequate measures to keep them in confidence. The advantage of this form of protection is that it guarantees indefinite protection of secret information as long as sufficient confidentiality measures are in place. Relying on confidentiality regimes may be suitable where there are key aspects of the technology that cannot be reverse engineered and can be kept secret. One advantage to relying on confidentiality regimes is that they can protect information for far longer than a patent or registered design.
Industrial designs may be used to protect the “appearance and aesthetic features of physical items such as electronic cards, transaction devices, computer interfaces and icons. Industrial designs protection may be a valuable asset, particularly if a particular feature helps to promote the distinctiveness of the trade mark, products or service or increases the utility of a product.
Due to the advanced pace at which the FinTech industry is evolving and the importance of IP rights pertaining to this sector, financial institutions and tech companies should develop a comprehensive understanding of IP rights pertaining to this sector, put in place suitable IP policies within their organisations, ensure proper IP agreements executed with their employees, consultants and commercial partners, and implement suitable mechanisms to ensure comprehensive protection of IP rights pertaining to their innovation projects and tackle any potential areas of IP disputes with a preparation in terms of proper protection of IPRs and solid contractual provisions, which should be strategically and carefully considered by an IP expert in the IT field. As the FinTech landscape continues to evolve into areas such as artificial intelligence and machine learning, a number of important issues should be analysed by counsel with specialized knowledge and experience in devising IP strategies that align with business objectives.7 https://www.mondaq.com/trademark/912306/protecting-ip-in-the-fintech-industry-