A Major new report from the Finance Innovation Lab reveals a clear need for change of direction in financial technology, for the sake of people and planet

The Finance Innovation Lab’s latest report, ‘Lifting the Lid on Fintech,’ examines the acceleration of technology-driven innovation in finance – fintech. It looks beyond industry-led hype and specific products to explore how fintech is transforming finance on a systemic level, uncovering the new data, business models, and businesses underpinning the speed and convenience of 21st century finance.

The report finds that technology is exacerbating existing risks for democracy, sustainability, justice, and resilience in finance. It is also creating new risks, as finance learns from Big Tech and adopts platform business models enabled and powered by the mass acquisition and manipulation of data.

As a result, we are seeing unprecedented levels of corporate power and the establishment of new institutions that are too big to fail. There is little transparency or accountability for the data collected about us. New business models seek to predict and even influence our behaviour.  Automation embeds pre-existing inequalities within essential services.

It is not inevitable that fintech will continue along this trajectory – an alternative approach is possible. There are major opportunities for innovative policymaking and regulation to help realise fintech’s positive potential. The report proposes seven principles** to guide financial policymaking and regulation for better social and environmental outcomes, and proposes that a multi-stakeholder commission is established to take this important agenda forward.

Mick McAteer, founder and co-Director of The Financial Inclusion Centre, said, “Fintech joins a long list of innovations heralded by promoters as transformative.  And there are real benefits.  But, this critical report looks beyond the hype, and demonstrates how fintech and big data creates real, unrecognised threats to consumers and society. The Lab’s robust framework principles would help policymakers and regulators protect citizens and society from the more dystopian aspects of fintech, and promote the socially useful benefits.”

Reema Patel, Head of Engagement at the Ada Lovelace Institute and Senior Fellow at the Finance Innovation Lab, said, “This thoughtful report argues for levelling the playing field in a context where there are stark asymmetries of power – working to empower and protect vulnerable consumers. To do that, we need an evidence base independent of government and industry that understands what the impacts, risks and benefits are; and to engage citizens in an informed dialogue on their expectations for fintech that works for people and society.”

Read the full report “Lifting the Lid on Fintech”.

** Report recommendations:

1. Put social and environmental purpose at the heart of policymaking – ahead of competitiveness and growth. For example, the Fintech Strategic Review, currently underway, should have included an objective from the Treasury to maximise the social and environmental benefits of fintech, ahead of the stated objectives of growth in the sector, increased consumer adoption, and advancing the UK’s global reputation for innovation.
2. Develop fintech in a way that is transparent and accountable to citizens. Key decisions that will shape the future of finance are being determined by new forums, infrastructure bodies and policy initiatives. Members of the public and their representatives should be included and supported to participate in these so that fintech is ultimately shaped by society’s needs – not just the interests of tech firms and financial institutions.
3. Create non-market alternatives to Big Tech, run in the public interest. We need to disentangle fintech and finance from Big Tech. It is not safe for essential services like finance to be heavily reliant on media and advertising companies for critical infrastructure. Alternatives to for-profit corporate-owned cloud computing, hardware, algorithms – and more – must be created and supported to flourish.
4. Rebalance the playing field in favour of purpose-driven fintech. Support and incentives should be provided for purpose-driven fintech led by organisations that embed social and environmental purpose in their mission, culture, business models, and governance and ownership structures.
5. Moderate data’s potential to undermine financial service provision and create vulnerability. Data collection should be better regulated to ensure that it leads to service improvements (especially for the most marginalised people) and does not undermine access to essential services such as insurance.
6. Protect and empower consumers and citizens, especially those facing the greatest risk of discrimination and vulnerability. The public must be protected from the increasing and unprecedented power of fintech through commensurate regulation.
7. Build and draw upon an independent evidence base. There is an urgent need to fill the research and evidence gap about the impacts of fintech on people and planet. The Treasury should work with the Bank of England and FCA to commission independent research and ensure that any claims made about the benefits of fintech (eg that it promotes financial inclusion) are backed up by evidence.