What harms could fintech bring?

What harms could fintech bring? is profiled by BTW Media because published evidence links it to internet infrastructure, governance, operational dependencies, or market visibility.

• Fintech companies deal with large amounts of sensitive data, including personal identification information, financial transaction records, and other private data.
• Different countries and regions have different regulatory standards and requirements, posing complex compliance challenges for fintech companies operating across borders.
• Many services provided by fintech companies are prone to credit risks.

OUR TAKE
Everything has their advantages and shortcomings. Our perspectives viewing it matters. Despite the dangers of tech finance, that doesn’t mean we should totally resist it all. Instead, we should look for solutions to address these challenges, including establishing a more robust regulatory framework, strengthening data privacy protection, providing consumer education and protection, and promoting fair competition.
–Miurio Huang, BTW reporter

With the rise of emerging information technologies such as big data, artificial intelligence, blockchain and cloud computing, new forms of financial business continue to emerge. However, fintech has not changed the nature and risk nature of financial business.

Cybersecurity and data privacy risks

Fintech companies deal with large amounts of sensitive data, including personal identification information, financial transaction records, and other private data. If this data is stolen or misused by hackers, it can lead to serious privacy breaches and financial losses. Network attacks and data breaches not only cause direct economic losses to individuals but can also have negative impacts on the stability of the entire financial system. Furthermore, fintech companies are at risk of data privacy breaches if they do not have sufficient security measures in place when handling and storing data. While more data can improve the efficiency of credit assessment, excessive data collection by big tech companies can potentially infringe on customer privacy. For example, the Facebook data breach incident demonstrated this possibility, and in China during the period of rapid growth of cash lending from 2016 to 2017, cases of buying and selling borrower information occurred.

Additionally, the risks of anti-competition and data monopolies should be of concern. Tech companies not only collect large amounts of data through social media and gaming but also continuously expand new sources of data, using big data technology to analyse customer preferences, habits, and needs, and provide customised financial products. In comparison, traditional banks have limited customer scale and product types and weaker abilities to gather and utilise information.

Moreover, generally speaking, regulatory authorities pay more attention to the customer information requirements of traditional financial institutions while ignoring or neglecting tech companies. Once tech companies establish a dominant and monopolistic position in the field of data and use customer personal information for credit assessment, they can engage in price discrimination, affecting the fairness of credit.

Also read: Understanding the impact of data leakage

Regulatory and compliance risks

Fintech companies typically operate in a rapidly changing and still evolving regulatory environment. Different countries and regions have different regulatory standards and requirements, posing complex compliance challenges for fintech companies operating across borders. Failure to timely comply with new regulations or adapt to regulatory changes may result in fines, business restrictions, or even closure. Furthermore, a lack of clear regulatory frameworks may also lead to inadequate investment in compliance and risk management by some fintech companies, thereby increasing legal and operational risks.

Also read: China Unveils Stricter Regulations for AI Training Data

Market and credit risks

Many services provided by fintech companies are prone to credit risks. P2P lending, crowdfunding, and online payments, for example, inherently carry high market and credit risks. Borrower defaults, market volatility, and investment risks can lead to significant financial losses for investors on the platforms. For instance, on P2P lending platforms, if borrowers fail to repay on time, investors will directly bear the losses. At the same time, market fluctuations and economic uncertainties can also have negative impacts on the business of fintech companies, rendering them unable to maintain normal operations.

Operational risks

Fintech companies rely on complex technological infrastructure to provide services, and any system failures, technical errors, or operational mistakes can have significant impacts on their businesses. For example, interruptions in payment systems can result in transaction failures, preventing customers from engaging in normal financial activities. Operational risks also include human errors, internal fraud, and poor process management, which, once they occur, not only damage the company’s reputation but may also lead to legal litigation and financial losses.

Consumer protection and insufficient education

Although fintech provides convenient financial services, many consumers lack sufficient financial knowledge and risk awareness, making them vulnerable to misinformation or unwise decisions. For example, complex financial products and services can make it difficult for consumers to understand their risks and terms, leading to investment failures or overwhelming debt. Additionally, if fintech companies fail to adequately disclose product risks or engage in misleading marketing and promotion, it can further exacerbate consumer protection issues.

The lack of appropriate consumer education and protection mechanisms can result in widespread harm to consumer rights, affecting public trust and acceptance of fintech.

Ethical risks

Finally, there are ethical risks associated with fintech, such as bias in algorithms or discriminatory practices. It is important for fintech companies to prioritise ethical considerations in their products and services to ensure fairness and avoid harm to consumers.