Geraldine Fabre, Partner and Head of French Group at Sherrards, considers how start-ups have become regulatory reformers in the disruption economy.
Since the last global financial crisis, start-ups which solely focus on sharing services have been on the rise. The ever-growing use of smartphones means that people are now able to rent out their apartments, cars or even household appliances with just a few taps. However, as is the case with most start-ups, this sudden rise of popularity has not been without hurdles. Some services have been under the spotlight for falling foul of regulations of the industries that they operate in.
By far, the most prominent sharing services are those based around money (Bitcoin), financial services (P2P, or peer-to-peer, lending), accommodation and cars. Concerns have been raised in relation to tax and whether all the income received is being declared, as well as general regulatory issues such as insurance and legal liability.
Over the past 10 years, the cost of development and investment has fallen, allowing smaller firms to enter the market. In addition, the UK P2P lending industry has also benefited from a unique level of government support. The gain in popularity and use of P2P lending and investing services marks a wider divergence from traditional banking infrastructure.
The collaborative economy is not just disrupting traditional industry, it is disrupting traditional regulation. The rise of those disruptive services, which are based on ratings and trust, require the provision of secured platforms for financial transactions. Generally, it is said that the self-policing approach has worked well so far. However, things can and do go wrong occasionally and this has forced those economies to take steps to protect themselves and their users to ‘get around’ the tissue of legislation which was aimed at more traditional economies.
However, regulators are not always impressed. The main issues are that often those economies appear to benefit from unfair competition if they do not have to abide to the rules applicable to traditional market players. For example, there is the controversy created by Airbnb around the world with rules taxing tourism, safety rules and requirements limiting zones where those short-term accommodations are authorised. Even if it is true that regulatory development has lagged relative to the speed of development of the collaborative economy, they have been kept busy with legal battles.
For example, Uber fought over 40 legal battles across the world in 2014. While in 2015, the EU was paying close attention to the collaborative economy, larger conglomerates are now acquiring those start-ups and what initially looked like a disruptive new model will probably end up being mixed into existing models and embraced by incumbents. On the regulatory side, some industries are pointing the way by remodelling the definition of consumer protection, and finding ways to reduce the need for state intervention.
As more people participate in networks of sharing, the cost for this may well be the sharing of our personal data on networks (such as Facebook) and to providers that will become more and more concentrated.
The anticipated level of innovation in the next decades makes it increasingly less likely that regulators will be able to protect the public effectively. Significant growth in areas such as robotics, virtual reality, nanotechnologies and biotechnologies will make it difficult to ascertain a position against the negative impacts of the disruptive economies, and even more than before, the timing of the regulations will be a primary concern for policy makers as well as entrepreneurs.
Guest blog by Geraldine Fabre, as featured in INFO Magazine.