Could the big tech companies launch an assault on the financial sector? For several years now, there have been clear indications that the group known as the GAFAs are interested in this business, but they still haven’t gone after it.
One of the reasons is its strict regulation. The world of finance must comply with security standards and regulations that are, comparatively speaking, much tougher than in other sectors of activity, which is understandable given its systemic nature.
In this world, guarantees of solvency are needed for entities, deposits and accounts, there’s monitoring of fiscal compliance, and mechanisms to fight laundering of funds obtained in the trafficking of arms, drugs, or people, etc. In short, this bears no resemblance to what happens, for example, in the world of social media, where companies like Facebook have had data breaches that have affected more than 500 million people. And nothing happened.
Moreover, banks have a series of very high requirements when it comes to transparency. They are obliged, for example, to explain the operations’ ‘fine print’, an area where they have progressed in recent years following the financial crisis of 2008 and, in Spain, the scandal with preference shares.
The annual conference organised by Asufin (an association specialised in the protection of financial users), which took place on November 25, 2021, was a good occasion to discuss these issues. The European Association for Digital Transition (EADT) took part through its vice president and spokesperson, Ana Caballero.
FinTech vs. Big Tech
Caballero stressed the importance of clarity and transparency in the business model of the different actors joining the financial business world in recent years, among which stand out the FinTechs – startups that apply technological solutions to financial management – such as Coinbase, Ripple, or Square. According to a recent McKinsey report, FinTech companies have already captured, thanks to their competitive prices and fast services, between 3% and 5% of bank revenues in the United States and United Kingdom.
As innovative companies, these FinTechs can be developed in what is known as the ‘sandbox’, test fields where they can adapt to the different, strict regulations of the financial sector without limiting their growth. In her talk, Caballero highlighted their differences from the big tech companies, who have always shown a great ability to disguise themselves as something they aren’t and thus benefit from more lax regulatory conditions.
The EADT also stressed the need to be very demanding in regard to consumer protection, in this case in the financial realm, in line with the Association’s campaign ‘You are a digital consumer: You have rights’. “The position of the consumer in respect to the GAFAs is totally unbalanced, and that means they can abuse us. They do this primarily through data”, stated Caballero, who used an example from the financial sphere: the free comparison sites for insurance or mortgages. “They seem to be free but they aren’t, because we’re paying with our data”, she explained.
In the financial field, the EADT is also calling for an orderly digital transition that very much takes into account the value of data and consumer rights, and defends the capacity for innovation and possibilities for growth of European companies, both in FinTech and the large banks.