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New trends in the financial sector - What regulatory framework for digital retail financial services (data protection, new entrants)?
Technology to the rescue?
By Van Elsen Greg - Senior Financial Services Officer, The European Consumers Organisation (BEUC)
Enter ‘Fintech’ into your favourite search engine. You will discover a whole universe of new technologies, companies and services, all set to revolutionise the way consumers manage their personal financial life. Smart apps and on-line platforms offer consumers tailored banking, insurance and investment solutions at low and transparent costs, free from hassle and always at the click of a few buttons. But is it too good to be true?
Retail finance services usually rank rock-bottom in every consumer satisfaction scoreboard. Change is therefore welcome for consumers who, at best, can take advantage of improved access to cheaper and better financial products. On the flipside, innovative models carry a new set of risks, which will call for upgrading financial consumer protection.
What is changing for consumers?
Financial services are increasingly bought online, through bank websites but also through comparison websites or via specialised niche platforms. On-line distribution can dramatically lower distribution costs, increase comparability of products and drive down prices for consumers.
Another feature of digitalisation is 24/7 availability, giving consumers non-stop access to their financial tools, transforming their day-to-day usage of financial services. Making payments, checking savings and investments or budgeting a holiday will become effortless manoeuvres on any smartphone.
But there are dangers too. Consumers could find themselves taking poor investment decisions or signing up to unsuitable consumer more easily. Those of us who are digitally illiterate could find ourselves barred from accessing the best-value products. And the algorithms which drive these tools don’t tend to be sensitive to consumer complaints. The same app warning you about stretching your monthly budget could also be luring you towards a costly credit scheme at a nearby store.
Privacy and cyber security risks are also likely to increase tremendously.
While big data could bring some benefits to consumers, such as receiving more personalised information and offers, there will be major concerns regarding how it is being used. Will the average education level of my Facebook friends impact on my credit rate? Will consumers need to disclose their fitness data in order to get favourable health insurance?
Digital upgrade of financial consumer protection
Both the traditional players and the new challengers in retail finance are promoting digitalisation. The likes of P2P-lenders, robo-advisers, price comparison websites, innovative (forex) payment schemes or crowdfunding platforms are all welcome to give the market a wake-up call. Consumers badly need an upgrade in retail finance.
Digitalisation could bring about simpler, more transparent & more cost-effective products.
In order for consumers to fully reap the benefits of digitalisation, financial consumer protection will need an upgrade too. The current rules were not written with apps in mind. Supervision and enforcement is lacking across the EU. Algorithms deserve regulatory scrutiny in the same way on-line platforms and comparison websites do. Not to mention privacy and personal data risks.
If all this is done well, digitalisation could bring about simpler, more transparent & more cost-effective products to consumers across the EU. By then nobody will be talking of Fintech anymore. They will call it finance.