Why do you go on holiday? Perhaps it’s to take in the culture, sights and foods of a whole new country. Maybe you go for some proper downtime; days spent on the beach reading and evenings at a seafront bar sipping cocktails until the early hours. Or possibly you go to argue with a Fintech company about your P60.
Unless your holiday goals are vastly different to ours, we’re betting it’s not the last on that list, and yet this is precisely the kind of holidays that some vacationers have found themselves “enjoying”.
You may have seen in the news late last year how Fintech company Resolut decided it was high time for a clampdown on money laundering through its free currency card services. Unfortunately, this purge left hundreds locked out of their accounts while out of the country. To add insult to injury, in order to regain access the company requested copies of bank statements, P60 forms and so on, documents that, unless you have a very special love of paperwork, you’re unlikely to have packed in your suitcase alongside your flip flops.
What followed was a social media storm of hate and vitriol against the company’s customer services and their apparent lack of care or warning about how the clampdown might affect customers.
The question we need to ask ourselves is: how are Fintech firms regulated and are they under any obligation towards their customers?
Asking this is to open a whole can of worms, so many worms. You can’t simply answer yes or no to the question of regulation. It really isn’t a black or white or even a grey kind of response that’s required. Instead, we need to first take a look at what Fintech is and how it’s exploded over the last 12 months.
Do you remember the good old days of 2018 before you’d heard of this supersonic collision of Finance and Technology? That’s because 2018 was THE year for Fintech development. Sure, tech and finance have strolled casually together side-by-side for years but this application of technology to finance went all out with huge deals between the two sectors taking place and the emergence of dozens of firms keen to cash in. Firms such a Resolut.
Fintech is an incredible thing. With applications such as Crowdfunding, small business owners no longer have to sit nervously in the waiting room of banks to see if they qualify for a start-up loan. You just find your backers online from a local investor to a global concern and off you go. Payments have been made quicker, easier and more secure, with just an email address needed in the case of payment services such as PayPal and Payoneer.
There are literally hundreds of these firms making the lives of entrepreneurs easier. Giving them exposure on a global platform and oiling the wheels of commerce. But they are, by and large, unregulated.
Thanks in part to the super quick way Fintech has emerged, the regulation of the industry is still playing catch-up. In part there are already self-regulatory elements to Fintech that flow from data protection (GDPR) but, honestly, an awful lot of it is still very confusing and is left in the hands of the companies themselves to establish and set out in their terms and conditions, which may or may not be accountable to regulatory bodies.
In a white paper on Fintech regulation, on behalf of the World Economic Forum in 2016, authors Peer Stein and Reena Aggarwal, said: “As discussed in detail, regulators differ in their approach: they either provide reactive regulations that cover portions of the industry, or codify the rules proactively to encourage FinTech’s development. This creates a complex regulatory environment for MPLs [marketplace leaders] to navigate, and provides an uncertain future for SME [small and medium enterprise] lending.”
In short, regulations differ from country to country and are either borne out of a reactive approach to a problem (or potential problem) or created to allow Fintech companies to work and thrive. The issue of regulation is not going away and will evolve along with the development of Fintech institutions over the coming months and years. In the meantime, we are left with the companies themselves to act within our expectations or face the wrath of the customer. And that’s precisely what seems to be happening.
At the end of the day Fintech, like any other industry, relies on the simple equation of having customers pay for its services. It’s a buyer’s market. If we don’t like how we’re treated by one online financial App, we’ll simply delete it and take our custom elsewhere. That’s why it remains in the industry’s best interests to operate within acceptable boundaries. The real issue comes from areas such as how our data is stored and used. You only need to do a quick Google search of data breaches to bring up companies such as payday lender Wonga, which had hundreds of thousands of customer files breached exposing sensitive data including names, addresses and bank details. The company collapsed one year later.
These breaches are where the real concern is and with them comes the potential for criminal activity such as money laundering and so on.
The test for Fintech companies across the globe will come when regulation starts moving in real time and demanding more and more compliance. Complicated? Yes. Necessary? Undoubtedly. But that’s the price we pay for having it all at our fingertips and the growing demand for right here, right now financial services.