In recent years, there has been a growing demand for financial technology and solutions. Financial institutions have been quick to adopt new technologies to meet the needs of their customers. In particular, products and services have been used to streamline the process of opening and closing accounts, transferring funds, and making payments, including B2B payments. Fintech has also been used to develop new products, such as mobile banking apps and contactless payment methods. However, there are also some potential drawbacks to consider. One of the biggest concerns is that fintech solutions are often untested and unproven. This can lead to reliability issues, as well as security concerns.
Michael Hsu, Acting Comptroller of the Currency, has sounded an alarm over the increased role of fintechs that are not well funded and have greatly increased complexity (he calls it de-integration), and increased complexity also increases the risks associated with reliability and security.
Financially, rising interest rates and inflation, combined with decreased consumer spending may negatively impact fintech financing and revenue; which could speed up the fintech slide that has already been reported:
“Banks and tech firms, in an effort to provide a seamless customer experience, are teaming up in ways that make it more difficult for regulators to distinguish between where the bank stops and where the tech firm starts, said Hsu. And with fintech valuations falling as financing costs rise, bank partnerships with fintechs are increasing, he said.
That could create IT risks around information security and resilience, and also raises customer protection issues, said Hsu.
“I worry increasingly about the ‘unknowns’ and am concerned that the less familiar risks of this digital transition are unlabeled and thus unseen. As we learned from the 2008 financial crisis, risks that are unseen have a tendency to grow and later to be the source of nasty surprises,” said Hsu.
Earlier, Gene Ludwig, a former Comptroller of the Currency, also warned that regulations for fintechs are much less strict than those that govern banks.
“The non-banking industry is getting away with murder,” said Ludwig, who is now a managing partner of Canapi Ventures, a venture capital firm.
Ludwig predicted non-banks “will get us into the next financial crisis if we don’t do something about it.””
We have another article on the fintech ecommerce revolution. It takes a look at the biggest trends and how it is influencing eCommerce, including BNPL, payment options, SMS payments, data-driven marketing and sales, democratizing access to sales, social media commercem and other trends.
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group.
