Amit Sharma

May 8, 2020

8 min read

Practical Public-Private Partnerships (P4) — Collaboration Unhindered by Process

This piece is part three of a series on the role that financial and regulatory technology (FinTech and RegTech) can play in addressing systemic financial inclusion challenges and assist in the response to COVID-19 and our economic recovery. See Parts 1 and 2 here.

As we enter the third month of the pandemic’s mitigation effort, what began as an initial wave of layoffs or furloughs in a few sectors has turned into a new epidemic of job losses with more than 33 million people filing for unemployment. This crisis is overwhelming unemployment insurance and public benefits systems that are used to processing several hundred thousand claims in the worst of times. Meanwhile, federal policymakers debate a fourth recovery bill as more reports reveal growing needs of state and local unemployment and worker protection programs to ensure at-risk small businesses — the intended relief recipients — actually receive needed support over more established organizations with greater financial resources.

Independently, federal and state governments are ill-equipped to respond and manage recovery. Public sector institutions need to partner with and enable private industry to implement the technology applications needed to modernize and digitize recovery processes.

The good news is, prior to the start of the COVID-19 pandemic, there had been a decades-long broader strategic shift in the business community. More companies are now committed to solving societal challenges in tandem with driving financial performance and their customers, employees, partners, and investors are increasingly demanding this strategic focus. Similarly, innovative startups have expanded beyond servicing lower-risk sectors to addressing the needs of some of the most sensitive and highly-regulated industries, such as health, education, and finance, where inclusion is needed most.

However, the regulatory and legal environment is not keeping pace. Despite small businesses comprising the majority of American businesses, new companies often face overly rigid legal frameworks that stifle innovation, delay market entry, and are economically debilitating to their operations. Smaller organizations seeking regulatory compliance are forced to show how ‘corporate’ they are (e.g., 3+ year audited financials) even though their businesses are too new and lack the resources and reach of larger companies. Practices that present a barrier to entry for small businesses are detrimental to building trust in government. Correspondingly, governments need this trust because private sector cooperation is crucial to the success of pandemic mitigation and recovery. Our economic policies, regulatory frameworks, and business governance rules must reflect a more modern and digitized approach that enables these companies to stay compliant and secure yet still able to grow.

The age-old ‘friction’ between regulators, lawmakers, and industry must give way to proactive collaboration between private and public interests.

This coupling of socially-oriented private enterprise, new technology committed to inclusion challenges, and current crisis management gives us a unique opportunity to create a more practical public-private partnership (P4) model. Now is the time to:

1. Enable more companies — especially small businesses — to collaborate with government directly with these shared interests;

2. Align public policy and regulatory oversight goals with the commercial interests and incentives to innovate, helping drive impact and financial growth in tandem;

3. Modernize the government in ways that more efficiently and effectively engage community members and delivers value through human-centric technology applications; and

4. Apply essential risk and governance protocols in ways that encourage and facilitate inclusion.

While much of the pandemic’s intended government relief plans have rightly targeted small to medium enterprises (SMEs), few have been directly engaged in either the delivery of government services or the strategies related to reopening the economy. Though startups and SMEs have been the creators of more than two-thirds of net, new private sector jobs in recent decades, they are largely excluded from the president’s Great American Economic Revival advisory effort. We cannot “chart the path forward toward a future of unparalleled American prosperity” without engaging the largest segment of the marketplace.

Follow-on relief and stimulus bills ought to include online-SME investment support and engagement. These should be directed towards the thousands of startups actively working to streamline government processes, including both day-to-day services and critical regulatory oversight and supervision infrastructure. Modernizing the licensing process would allow new payment services and other FinTech companies to expand their operations and support their local economies.

Partnership with SMEs and startups as solutions providers — not just as recipients of support — would set a new and sustainable precedent in rebuilding our economy. This would not only demonstrate to SMEs that state and federal authorities need their help, but it would also facilitate a realistic avenue by which to solicit and receive that help from the SMEs, and reestablish trust between industry and government.

Governments are charged with ensuring the safety and security of their citizens and enabling marketplaces that foster competitiveness and fairness. However, innovative tools like blockchain that could be valuable for our national security are often misunderstood and unfairly labeled “illicit.” Often, new FinTech companies must explain to multiple state and federal regulators how their activities resemble antiquated, legacy architected bank processes and 1960s-era technology infrastructure and how they fit within an outdated regulatory framework.

Complex licensing, consumer protection, and transparency rules would benefit from modernization, and should reflect new data management systems, value transfer mechanisms, and risk management practices. Financial connectivity is no longer jurisdictionally bound, but regulatory oversight remains so. From the start, FinTech companies are being built with global and direct connectivity in mind and regulators must adapt. Sadly, U.S. regulators remain averse to regulatory “sandboxes” or “laboratories” that allow innovators to test new products and processes in controlled environments with regulators, while many of our international counterparts — and an increasing number of U.S. states — have implemented them, recognizing that the future of financial innovation is already here.

Sandboxes/laboratories serve both as important market intelligence for regulators and market validation for companies. Collaboration in this way would also facilitate regulatory oversight and rule modifications, benefiting both the industry and regulators by significantly reducing the existing months or years-long processes for regulatory approvals and the development of new policies. Proactive industry players are already translating bank-centric regulatory compliance guidelines into practical applications that are more relevant to emerging FinTech and nonbank entities to help drive comprehensive compliance and self-governance within the sector. These initiatives should be embraced. With greater cooperation, regulators and legislators would no longer be required to react to innovation or new commercial activities, but rather would play an essential role in their creation. At the same time, more direct engagement with new companies would also inform government authorities of how investors evaluate new initiatives and deploy capital, and would facilitate the processing of intellectual property filings that are beneficial to new technology initiatives and emerging start-ups.

Interaction with government, especially at the local level, is often paper-based, complex, and generally requires legal and technical assistance to navigate. Emerging startups and SMEs often lack the time and financial resources to interface with government agencies, limiting their ability to legitimize and register their business, seek essential certifications or licenses, or engage essential public business support. These antiquated processes also hurt government agencies, denying them the critical capabilities that would allow them to evaluate and integrate new technology faster, including innovations that would enhance internal operations and the delivery of public services.

Moreover, as accessibility is a matter of equity, the digitization of government would allow agencies to assist constituents in more practical ways while saving money. Many day-to-day services at the state and local government level must be conducted in-person, making it harder for low- and medium-income (LMI) individuals with job or transportation constraints to access them. With social distancing measures in place, the inability to engage online means services are not available for disenfranchised populations. Vital services, such as SNAP and EBT, have applications that require hundreds of questions and hours of processing, which mobile/online services could streamline for both applicants and administrators. This practical public-private partnership would contribute to needed modernization of the government ‘stack’ as well as commercially engage new technology companies in meaningful collaboration.

Risk-managed solutions through public-private sector partnership are the only sustainable solution to the societal challenges that disproportionately impact underserved and excluded communities.

The CARES Act and follow on $480 billion relief bill recently passed by Congress illustrate this important point. While thousands of banks (and new nonbank lenders) scramble to implement the Paycheck Protection Program, many have met their funding capacity and claim more funds will be necessary to meet small business needs. With limited funding and continual processing challenges, millions of small businesses have been unable to get their loan requests funded.

Federal regulators have emphasized that lenders must ensure appropriate controls are in place to evaluate businesses, prevent fraud, and ensure secure and quick application turnaround and delivery. Yet, legacy technology has challenged an already stressed and under-resourced system; the Small Business Administration’s (SBA) electronic processing systems have been plagued with problems and outages. Even if lenders can process these loans, the SBA will likely continue to struggle to approve them. New rules have allowed FinTech company lenders to participate, but regulatory approval of these lenders continues to lag.

Despite the urgency, lenders cannot afford to take shortcuts; proven technology and services will be necessary to assist institutions through this process. Secure online account onboarding, automated business due diligence, and background screening could facilitate thousands of small business loan applicants. Stimulus programs would also benefit as these technologies would enable many un/under-banked individuals to directly receive their checks. Many FinTech and RegTech companies have already surpassed many banks in process and delivery speed, and their services should be equally integrated into government programs and supporting technologies. Importantly, new technology applications that embed essential consumer protection and risk management controls will serve both the industry and the government equally and facilitate much needed inclusion.

Systemic issues cannot be solved by government programs alone — socially-oriented companies and innovative technologies play an important role.

We must demand a more practical public-private partnership model, and the pandemic recovery offers the perfect opportunity to build it. All that is needed is the political will and a persistent commercial sector. Doing so now would disrupt the norm of multi-trillion-dollar bailouts that address risks after the fact, and give way to commercially sustainable solutions that private industry can help solve without the risk of spiking deficits that unduly burden taxpayers for generations into the future. Innovation that proactively addresses both risk and opportunity is a shared value of a more inclusive economy that pays civic and economic dividends.

Amit Sharma is CEO of FinClusive, a hybrid fin-/reg-tech company that provides a full-stack financial crimes compliance platform that facilitates inclusion via access to secure accounts and payments for the world’s financially underserved and excluded. Follow FinClusive and Amit on Twitter: @FinClusiveCap and @ASharma_VT. Learn more at

Akmal Ali is the Founder and CEO of Aluma, a risk management and security advisory firm that specializes in the SAFETY Act, a U.S. Department of Homeland Security program that provides critical third-party liability protections to companies that deploy effective anti-terrorism measures. Learn more at

Laura Biddle is a Partner in Venable LLP’s Financial Services Practice. For more than 20 years she has been providing federal and state regulatory advice to banking organizations of all sizes as well as nonbank financial services companies, particularly in the FinTech and RegTech space. Connect with Laura at or on LinkedIn. Learn more at

Notes & Disclosures

The information contained in this article is for informational purposes and should not be construed as investment advice or an offer, solicitation, or recommendation to purchase any security. The views are as of the date of this article and are subject to change.