Bank regulators worry about risk exposure
In recent years, there has been an increasing demand for financial technology and solutions. Financial institutions have been quick to adopt new technology to meet their customers’ needs. 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 downsides 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 issues.
Michael Hsu, Acting Comptroller of the Currency, has sounded the alarm about the increased role of fintechs that are not well funded and have significantly increased complexity (he calls it de-integration), and increased complexity also increases the risks associated with reliability and security.
Economically, rising interest rates and inflation, combined with reduced consumer spending, can negatively impact fintech funding and revenues; which could accelerate the fintech slide already reported:
“Banks and tech firms, in an effort to provide a seamless customer experience, are joining forces in ways that make it harder for regulators to distinguish where the bank stops and where the tech firm starts,” Hsu said. And with fintech values falling as funding costs rise, bank partnerships with fintech are on the rise, he said.
That can create IT risks around information security and resilience, and also raise issues with customer protection, Hsu said.
“I worry increasingly about the ‘unknowns’ and worry that the lesser-known risks of this digital transition are unmarked and thus unseen. As we learned from the 2008 financial crisis, risks that are unseen tend to grow and later be the source of unpleasant surprises, Hsu said.
In the past, Gene Ludwig, a former comptroller of the currency, has also warned that regulations for fintech are much less stringent than those governing banks.
“The non-banking industry is getting away with murder,” said Ludwig, who is now a managing partner at 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 e-commerce revolution. It takes a look at the biggest trends and how they impact e-commerce, including BNPL, payment options, SMS payments, data-driven marketing and sales, democratization of access to sales, social media commerce and other trends.
Overview after Tim SloaneVP, Payments Innovation at Mercator Advisory Group.
