The Finance Innovation Lab’s latest report, ‘Lifting the Lid on Fintech,’ examines the acceleration of technology-driven innovation in finance – fintech. It looks beyond industry-led hype and specific products to explore how fintech is transforming finance on a systemic level, uncovering the new data, business models, and businesses underpinning the speed and convenience of 21st-century finance.
Fintech has directly touched most people’s lives in the UK. A majority use online banking, there is a long-term trend to pay via ‘contactless’ or other digital means and rising numbers are aware of new finance apps, such as Monzo, Klarna, Revolut and Starling Bank.
But many people feel uncomfortable about the pace of change underway. Three quarters think a move towards a cashless society is happening too fast, and low-income households are particularly at risk – the strongest predictor for reliance on cash is poverty.
The report finds that technology is exacerbating existing risks for democracy, sustainability, justice, and resilience in finance. It is also creating new risks, as finance learns from Big Tech and adopts platform business models enabled and powered by the mass acquisition and manipulation of data.
As a result, we are seeing unprecedented levels of corporate power and the establishment of new institutions that are too big to fail. 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.
Marloes Nicholls, author of the report and Head of Programmes at the Finance Innovation Lab said, “The digital revolution in finance has been praised for bringing better products to consumers and supporting financial inclusion, but these claims are largely unevidenced and ignore the major risks posed by fintech. The dominance of platform, surveillance-based business models in Big Tech, and now finance, is enabling a major and dangerous accumulation of corporate power. It is high time for a proper review of the role that fintech could and should have in building a financial system that better serves people and planet.”
It is not inevitable that fintech will continue along this trajectory – an alternative approach is possible. There are major opportunities for innovative policymaking and regulation to help realise fintech’s positive potential. The report proposes seven principles to guide financial policymaking and regulation for better social and environmental outcomes and proposes that a multi-stakeholder commission is established to take this important agenda forward.
Mick McAteer, founder and co-Director of The Financial Inclusion Centre, said, “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 Lab’s robust framework principles would help policymakers and regulators protect citizens and society from the more dystopian aspects of fintech, and promote the socially useful benefits.”
Reema Patel, Head of Engagement at the Ada Lovelace Institute and Senior Fellow at the Finance Innovation Lab, said, “This thoughtful report argues for levelling the playing field in a context where there are stark asymmetries of power – working to empower and protect vulnerable consumers. To do that, we need an evidence base independent of government and industry that understands what the impacts, risks and benefits are; and to engage citizens in an informed dialogue on their expectations for fintech that works for people and society.”