The Ethical Implications of Fintech: Balancing Innovation With Responsibility
The advancement of technology in the financial sector raises questions over security, ethics, and data protection. A 2023 Financial Services Global Market report revealed that the fintech market is expected to grow to over $37 billion in 2026. As fintech companies continue to grow and expand in the UK, should venture capitalists continue to use consumer data without a regulating body to monitor their movements?
Fintech (financial technology) is used in applications such as investment apps, and cryptocurrency apps to deliver financial services to businesses and customers in a more efficient manner. Fintech companies are facing more scrutiny as customers demand higher security measures to protect their data.
This article will explore the ethical implications of fintech and whether there is a need for protective regulations and laws.
Old vs New Financial Technology
Traditional banks are regulated and supervised by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) to ensure customers are treated fairly. Although they must comply with anti-money laundering (AML) regulations, there are no specific regulators for fintech companies.
“Traditional banks hold a considerable advantage over fintech companies,” explains Anthony Martin, Founder and CEO of Choice Mutual. “Major banks have decades of experience and knowledge of financial processes that allow them to build trustworthy relationships with their customers. Fintechs do not operate with the same level of security and data protection as brick and mortar banks.”
Despite the lack of regulations, fintech is becoming a popular and convenient choice for banking and shopping. A recent report found that 86% of UK consumers are using fintech to manage their finances.
Advantages of Fintech
The speed and convenience of fintech applications outweigh many of the risks consumers may face. More banks are using fintech to improve their financial functions and increase access for their customers. Catherine Schwartz, Finance Editor at Crediful talked about the importance of fintech in modern society.
“Fintech companies provide powerful tools for new and existing businesses. Financial technology can improve the lives of customers and entrepreneurs by simplifying lengthy processes. The rapid growth and innovation seen in fintech companies are also improving traditional banking methods by providing healthy competition within the financial sector.”
Fintech is continuously growing and solving problems with online trading, mobile payments, and other financial services. Fintech companies are indeed vulnerable to cyber attacks and hackers, but many companies are taking steps to reduce security risks and protect their customer data.
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Speed and Convenience
With fintech solutions, consumers can open a bank account online and connect it to their smartphone without entering a physical bank. Many of the lengthy, strenuous banking processes are shortened or eliminated with fintech applications.
Some examples of convenient fintech products include the following:
- Mobile banking
- Cryptocurrency wallets and trading
- Peer-to-peer payment services
- Digital lending and credit services
At the touch of a button, mobile users can access their bank accounts, pay for products and services, and access their investments.
Personalised Products and Services
Consumers can access a wide range of fintech products to suit their financial circumstances. Fintech companies can also offer cheaper, more affordable deals than traditional banks. As fintech companies collect data on their customers, they can analyze their needs and provide the best options.
Financial companies collect data through mobile apps, social media, and smart devices to understand their customers. Fintech companies can use cryptography, access control, and other security measures to keep customer data safe. Some may argue that the use of customer data is unethical, but the practical applications often out measure the potential risks.
There’s no denying that financial technology is improving the future of customer experiences. However, companies that use fintech applications should question whether embedding consumer data in their products is ethical. Some key points to consider include the following:
- Personal data can be misused for cybercrime
- Consumer rights are more difficult to understand
- Quick financial products can encourage poor decisions
Advanced financial technology also means less face-to-face interaction. Although there are many benefits to the use of fintech, consumers should be aware that their services are largely unregulated.