Fintech is short for financial services technology and can be defined as a business providing financial services by making use of modern technology and software. These types of companies are often start-ups and are competing with financial institutions such as banks to offer financial services to clients/consumers. In general, Fintech transactions are done via smartphone applications or through a company’s website. Fintech has many benefits for consumers such as processing data in real-time, options for funding, improved working capital management, student loans, cash flow, peer to peer, robot advisors lending and easy mobile payments.
Besides these benefits, there are also risks. With Fintech services, consumers can get funding via online investments. Unlike with traditional financial institutions, consumers often do not have a face to face meeting with the company offering these services. Everything happens online. The consumer is asked a few questions and based on algorithms an appropriate type of investment is selected. Often an account is not required.
These online transactions, which are being made via online banking and cloud servers via various computer networks, are very transparent and may be hacked. People can also use these transactions for illicit activities, fraud or even extortion, as most of the transactions are done in anonymity.
Consumer protection
Fintech is changing the traditional work of financial institutions. Regulators should ensure that consumers are protected from unfair practices. Protecting consumers is very important. Ensuring consumer protection against the risks can be done by securing data. Fintech companies can create pre-tested applications or products which are not harmful to consumers. Further, Fintech companies can comply with consumer protection by monitoring and analysing customer services, fair lending systems, mitigating fraud and abuse, and implementing mandatory account registration. It is noteworthy to mention that adequate consumer protection is not only needed for the sake of consumers but also for Fintech companies. Violations of consumer protections can have major implications for a company such as loss of clientele, difficulty in finding bank partnerships or large fines.
Insurance
Fintech enterprises should comply with regulatory and legal requirements to ensure that their websites, personal and company data and applications are up to date and protected. Protection is needed to avoid breaches of cybersecurity. When there is a breach of cybersecurity, both consumers and Fintech companies should have adequate protection. Breaches of cybersecurity can result in the loss of intellectual property (IP), identity theft, confidential data and information. Insurance coverage could cover loss of data or liability such as punitive damages but also costs for arbitration or litigation.
Fintech in Spain
Fintech is growing in Spain. Not only start-up companies, but banks and other financial institutions are also setting up Fintech ventures. Spanish law firms need to be aware of the new developments of Fintech to successfully assist their clients. Good regulations and security are needed. Businesses should improve their data and analytics to monitor and evaluate transactions and to mitigate risks for consumers.
Conclusion
Fintech offers new opportunities for consumers. However, it also offers risks and challenges. To mitigate these risks and challenges, regulation of financial technology is needed and consumers should be protected. Fintech companies need to ensure that their applications and websites fulfil legal requirements. Further, consumers should also protect themselves by obtaining insurance against breaches of cybersecurity. Furthermore, as Fintech disrupts the traditional financial sector, updated laws and regulatory measures should be created. Governments and law firms should also provide adequate protection to their citizens and clients.
Charline M. Hoever & Karl H. Lincke
For further information on Fintech and consumer protection in Spain,
Sources
http://www.pymnts.com/news/international/2016/madrids-dark-horse-in-europes-fintech-race/
https://www.reedsmith.com/Consumer-Protection-Regulation–FinTech-Friend-or-Foe/
https://media.crai.com/sites/default/files/publications/Thoughts-on-cyber-security.pdf
