Data and technology are power. Especially when this ‘power’ is wielded by heavyweights in the financial sphere. In this introductory event, Domenico Piers De Martino, former President of the Oxford Fintech and Legaltech Society (“OFLS”) and currently a Legal Engineer at the Oxford Deep Tech Dispute Resolution Lab, provided an overview of the fintech industry, explaining the bedrock technologies on which fintech products and services are based, as well as the status and significance of the fintech market as a whole. Additionally, Domenico explored fintech’s implications for the regulatory landscape with our current President of the OFLS and and Partner at Cyril Amarchand Mangaldas, Vardaan Ahluwalia.
Defined as “financial activities enabled by technology” (Schueffel, 2017), fintech is being driven by an increasing number of modern technologies. Domenico noted that momentum has been particularly driven through four principal technologies. Firstly, artificial intelligence, and its subset machine learning, are facilitating expedited data analysis within the financial system. This is demonstrated through such technology’s contributions to customer profiling. The new technology benefits investors, consumers and debtors due to the lower fees and borrowing costs, as well as the ex-ante increased availability of finance.
Through the process of Big Data Analysis, computers can now find patterns and metrics that would otherwise be lost in the mass of information from many and diverse sources. With its diagnostic and predictive functions, big data analysis can in turn optimise models for business decision-making, risk-management and stress-testing.
Cloud Computing is innovative in the sense that processing capacity and storage infrastructure has shifted to a network of remote servers hosted on the internet, as opposed to a local server or a personal computer. The ensuing dramatic fall in costs associated with storage of data have played a key role in the rise of Big Data-drive business models and application.
Finally, Distributed Ledge Technology (DLT) systems are records of electronic transactions which are maintained by a shared or “distributed” network of participants, thereby forming a distributed validation system, that make extensive use of cryptography and hash functions. So far, DLT has been principally employed in crypto-currency based activities. Other applications include its potential to speed up settlement systems, as well as its ability to provide for the automatic execution of agreements (i.e. smart contracts).
Domenico noted that the fintech industry is estimated to grow at a phenomenal 25% over the next 4 years. The driving forces behind this include: (1) an expanding customer base due to incremental growth in understanding the underlying technologies; (2) a global upsurge in government support such as sandboxes and tax incentives; (3) greater funding from institutional investors and private equity firms and (4) fintech’s potential to deepen financial inclusion within markets, particularly within developing countries.
Nevertheless, regulatory risk presents significant issues for the industry, particularly as governments step-up their efforts on data protection. The effects of the Revised EU Payment Services Directive or future amendments in the EU General Data Protection Regulation (GDPR) will inevitably affect the cost and availability of data to the industry. Additionally, this space is potentially at risk to challenges from competition policy, as lawmakers seek to fend against the formation of detrimental oligopolies as seen in BigTech. Finally, fintech faces the pervasive threat of cyber risks, which threaten the reliability, reputation and trust in new services.
Undeniably, the new services brought to the scene by fintech will spark controversies of systematic risk, consumer and investor protection requirements, as well as competition law and data protection issues. Legislators need to devise regulatory frameworks that will regulate while, at the same time, promoting practices deriving from the fascinating intersection between new technologies and traditional financial services.