Arizona’s financial technology (FinTech) sector has become increasingly prominent over the past few years. While Arizona is no stranger to being an innovator in technology, our state has made a unique push to solidify its leadership in FinTech through creation of its FinTech sandbox, a regulatory sandbox. Arizona is the first state in the nation to enact a sandbox for FinTech companies, allowing the United States to join nations like the United Kingdom, Singapore and Australia in fostering FinTech innovation. This sandbox, which became effective Aug. 3, provides Arizona companies with a framework that enables them to thrive. FinTech innovations are altering business models to prepare for the future, and our state is helping to lead the change.
Arizona’s FinTech sandbox allows anyone from a single entrepreneur to an established company to temporarily release products for testing purposes without a high cost burden. This helps innovators move forward without the weight of legal fees, compliance fees and other monumental expenses that would otherwise be required to participate in the market. Because FinTech evolves more rapidly than most other industries, allowing these companies to test their products outside traditional confines is critical to their success.
While this regulatory sandbox grants FinTech companies a higher degree of freedom, there are still compliance standards that should be mentioned. Participating companies are subject to Arizona’s jurisdiction, must provide the Attorney General’s office with detailed product information and can only have access to the sandbox for up to 24 months after their approval. However, an extension for up to one additional year can be filed through the Attorney General’s office if needed. Companies can also expect to receive limitations on the number of people who can participate in a particular sandbox agreement and on the amount of loans that can be issued.
Earlier in October, Omni Mobile became the first participant approved for Arizona’s FinTech sandbox. The company leverages blockchain technology in the form of a digital wallet to promote quicker and more cost-effective payment transfers. Because of the sandbox, Omni Mobile will be able to test its platform by handling guest payments at Westward Look Wyndham Grand Resort and Spa in Tucson. The goal of the sandbox is to allow FinTech companies like Omni Mobile and others to better transition from prototyping to production by giving them the space necessary to move forward.
While Arizona’s sandbox is still in its infancy, an increasing number of local companies are incorporating FinTech into their innovations. Acronis recently announced that it is doubling its research and development investment from $10 million to $20 million to focus more heavily on blockchain technology. Additionally, there’s been a shift in companies in cloud service, insurance and finance to focus on blockchain as well. With companies beginning to add blockchain to their operations, the need for a regulatory sandbox will become even more apparent.
Even though blockchain technology is a dominant force in FinTech, the state is also home to companies operating in other areas of the sector. Companies like BillingTree, InfusionSoft, PayTech and AmCheck are dedicated to applying FinTech to improve payroll, credit transactions and customer relationship management (CRM) software. Similarly, another key opportunity is through the Internet of Things, which is helping to power FinTech innovations like contactless payment systems, point of purchase services and certain smartphone apps.
FinTech is among the most promising and fastest growing segments of Arizona’s technology community.
With such a wide array of applications, Arizona is smart to invest heavily in the sector. Our state’s robust FinTech community offers a diverse range of products with the potential to completely disrupt the way we approach financial services. By continuing to break down barriers that inhibit FinTech innovation, Arizona is not only securing its leadership in the arena but also positioning itself for long-term economic prosperity.
Steven G. Zylstra is president and CEO of the Arizona Technology Council.