The rise of financial technology – known as fintech – is seemingly unstoppable. The coronavirus pandemic has led to more people than ever using contactless payments, banking apps and doing their shopping online.
However, a new report ‘Lifting the Lid on Fintech‘, warns that while the industry is bringing speed and convenience to finance, it is also creating new threats to people and the planet.
The study by Finance Innovation Lab finds that fintech is making existing risks to society around democracy, sustainability and equality far worse. It warns, for example, that low-income households are becoming further disadvantaged because they are more likely to rely on cash and lack access to smart phones.
The report questions whether politicians can credibly hold to account the firms that society is increasingly relying upon to run the digital economy.
Fintech is also, the report says, creating new risks through the collection of personal data, as it captures social media activity, browsing history, and data held on mobile phones to predict and even influence people’s behaviour.
“As a result, we are seeing unprecedented levels of corporate power and the establishment of new institutions that are too big to fail,” it reads. “There is little transparency or accountability for the data collected about us. New business models seek to predict and even influence our behaviour. Automation embeds pre-existing inequalities within essential services.”
The report looks at new players entering finance and rapidly rising in dominance. These include start-ups such as Klarna and Revolut, data brokers such as Experian, and payments companies including Visa and Mastercard.
It also examines the growing relationship between fintech and ‘Big Tech’ companies such as Apple, Amazon, Google and Facebook, whose market valuation rose to over $5 trillion (£3.76 trillion) for the first time in the second quarter of 2020. This is equivalent to nearly one fifth of the value of the entire S&P 500 stock market index.
Mick McAteer, founder of The Financial Inclusion Centre, says: “Fintech joins a long list of innovations heralded by promoters as transformative. And there are real benefits. But, this critical report looks beyond the hype, and demonstrates how fintech and big data creates real, unrecognised threats to consumers and society.”
The report offers recommendations for policymakers that it says can counter the risks fintech brings. These include; putting social and environmental purpose at the heart of government policymaking; creating non-market alternatives to Big Tech companies that are run in the public interest; and better regulating data collection.