Data-Driven Finance: Challenges and Law regulations
Using technology as an aide to financial services is expected: companies and customers want the latest tools for efficiency, accessibility, and speed.
Now called fintech, short for financial technology, it’s a quickly-evolving aspect of financial services which include software and cloud applications that customers can use for investing or managing accounts as well as to keep company ledgers. It’s more than just using a mobile banking app: fintech is the toolset that will allow individuals and businesses to not only invest and borrow but to reach nontraditional investors and even support new innovative directions for fintech as it expands into untapped third world markets.
Global investment in fintech was reported to be $20 billion in 2015. In the U.S. alone, fintech grew by more than 40 percent in one year, from 2017 to 2018, to over $12 billion.
Regulation is lacking
Trying to catch up with the complexities of fintech’s galloping development into cloud computing and use of customer databases, regulation is not moving as quickly. Some experts are criticizing the U.S. government for not creating regulations that will foster the growth of fintech while supporting it with consumer protections and transparent regulations. Such regulations could support innovation while protecting the role of traditional banks. The only legislation proposed, the Financial Services Innovation Act of 2016, was never voted upon.
The U.S. Commodity Futures Trading Commission reached an agreement with the U.K. Financial Conduct Authority to encourage fintech innovation and expansion by sharing information and reducing barriers to international development and expansion.
Many watching the market say that consumer protections should be a primary goal of regulations developed for fintech applications, particularly as large companies with vast troves of data enter the market. American consumers’ personal and account information is hacked at a high rate, and regulations have few teeth to compel companies to better protect sensitive information.
Innovation in fintech
Technology, globalization, and to some extent, deregulation, are allowing companies to blur traditional lines in new ways. Fintech also includes the morphing of technology companies into the financial services space, which some call “techfin.” Companies like Alibaba have started as e-commerce businesses that expand to offer their customer bases new opportunities and financial services (specifically, Ant Financial). Facebook and other platforms are eyed as potential newcomers to this arena as they develop payment systems.
Data-driven fintech/techfin could take off for companies like Amazon if the right framework were in place. Amazon already provides a variety of cloud computing services and is seeking a $10 billion contract to do the same for the Pentagon. However many are alarmed by the possibilities, not only for companies like Amazon to exploit its data banks to create and expand such a business, but for transparency to regulators. Information sharing is crucial as well, as this emerging technology and emerging market will surely be targeted by hackers and pirates seeking to tap not only any financial gain they can score but the user data as well.
Next step: expansion
Payment systems, mobile banking, investment management, funding start-ups, and applying for loans without visiting a physical bank or speaking to a person are some of the ways that early adopters are using fintech. Artificial intelligence is making strides thanks to fintech and its user’s acceptance of no-contact banking, as most are willing to use chatbots to conduct business. The surge of users and applications threatens to upend traditional banking.
Cryptocurrencies are another form of fintech as they exist outside of traditional systems – even traditional currencies – allowing for anonymous transactions across international borders. Technologies that authenticate the identity of users is promising to be a growth industry thanks to fintech.
A survey shows that in 2015 one in seven consumers using digital applications were involved in fintech, but just two years later the number had increased to one in three. Furthermore, the international rate of usage was 36 percent but emerging markets like Brazil, China, India, and South Africa had a more than 45 percent usage rate. The highest proportion of users is under age 34, making financial technologies an integral part of their lives and allowing start-up companies significant opportunities.
In some less-developed countries, fintech may be an individual’s first opportunity to access any sort of banking or borrowing, potentially unleashing a torrent of entrepreneurship that investors, also driven by fintech, could cash in on.
The top-rated fintech companies in 2019 are lead by several that specialize in peer-to-peer payments, cutting traditional banks out of the most basic equation. Some trend-watchers predict that this development will only enhance the growth of cryptocurrencies, which already use their own transactional systems.