Our financial data forms the business model of fintech companies
With an opinion piece in the Nederlands Dagblad, Ivo Arnold, Professor of Economics at Erasmus School of Economics, shares his thoughts on the news that the German judiciary raided Wirecard premises in Germany and Austria. An amount of 1.9 billion euros of cash disappeared at this fintech company. The top man has been arrested and the financial expert is on the run.
Arnold describes fintech as the name for a motley collection of companies that use technology to improve financial services. For example, the Wirecard company offers software solutions for digital payments. Often these companies are start-ups, but larger firms such as Apple, Facebook and Google also participate in this market, Arnold points out. These fintech companies are often better at stimulating innovations and productivity improvements than traditional financial institutions are. These innovations are advantageous for consumers and companies, says Arnold. Consider, for example, the way Internet payments are handled nowadays.
Due to these positive contributions, fintech companies are warmly welcomed on the stock exchange. According to Arnold, the enthusiasm of the stock market puts great pressure on young, listed fintech companies to grow quickly and become entrepreneurial. He argues that when many new players with unproven reliability enter a sector like this, a critical attitude of accountants, regulators and business partners is required. In the Wirecard scandal, this was completely lacking. Ivo Arnolds writes that it is staggering how easily the financial world has come to believe in the fintech fairy tale of Wirecard fraudsters.
Model of earnings
The earnings model of the large tech companies is based on scale, market power and the exploitation of customer data, concludes Ivo Arnold in his article. According to him, it is not in the public interest if this revenue model becomes dominant in the financial sector. Companies should be prevented from making money out of consumer payment data, because this data says something about the ability and willingness to spend money. According to Arnold, this kind of information can easily be used against you. In addition, it is undesirable from the point of view of systemic risk if important links in the financial infrastructure are in the hands of a single private party. Regulators should not allow themselves to be carried away by the success of fintech companies, but they should ensure a safe financial system where fraudsters cannot gain a foothold, the market power of companies is limited and payment details are well protected, concludes Ivo Arnold in his opinion piece.