What Facebook’s downfall means for the future of fintech

The headlines at the start of this year predicted the entrance of Google and Facebook into the banking market, following the introduction of new Open Banking rules which forced banks and payment firms to share data with third parties if customers agreed. The changes were meant to boost account switching and improve price comparison, but some speculated that an unintended consequence of the new rules would be to lure the tech giants into mainstream finance in the UK.

Facebook’s Pay by Messenger and Google Wallet struggled to gain headway in the UK, but this was predicted to change.

Some commentators at the time wrote about Facebook becoming the first “big-brand bank”, describing it as “the future of banking”. A global survey at the beginning of 2017 by Accenture found that roughly a third of banking and insurance customers would consider switching their accounts to Google, Amazon or Facebook if they offered financial services.

But the fall of the British data analysis firm, Cambridge Analytica, has changed the views. The recent revelations of Cambridge Analytica rapidly brought crisis for Facebook, resulting in its stock price plummeting.

In the case of Cambridge Analytica it appears that the masses of data it gathered was neither permissible nor ethical and was used to socially engineer and, ultimately influence millions.

Meanwhile, Facebook failed to protect its users by allowing the company to collect data.

The question is, what can be done to preserve privacy amid the unending stream of information that has been, either willingly or involuntarily posted on the Internet?

The introduction of the European General Data Protection Regulation (GDPR) this month will bring into force tougher and more stringent rules on the handling and storage of personal data.

Digital services firm Atos recently published a useful opinion paper on its Digital Vision for Financial Services.

With over 100,000 employees in 73 countries and an annual revenue of 13 billion euros, it is a global leader in digital transformation and a catalyst for fintech across the world.

At the launch of the report, there was a consensus around the importance of fintech and a genuine excitement about its potential.

According to government figures, it currently contributes £6.6bn annually to the UK economy, and artificial intelligence alone could add a further £630bn by 2035.

But, as the senior political adviser to the firm Share Capital, Matthew Elliott says, to protect this jewel in Britain’s crown, one has to recognise and respond to the threat posed by the Facebook scandal, which emerged after the Atos report was sent to the printers.

The impact on fintech will be of longer lasting importance than the political fallout which currently dominates the headlines.

Not surprisingly, trust in Facebook collapsed.

According to a 2017 survey of US users for the Ponemon Institute — the parent organisation of the Responsible Information Management (RIM) Council — 79 per cent agreed with the statement “Facebook is committed to protecting the privacy of my personal information”. This dropped to just 27 per cent and as Elliott says, the UK results would be similar.

So the prediction by ratings agency S&P in January that the likes of Google, Amazon and Facebook will not pose a threat to global banks in the short term will now undoubtedly prove to be accurate.

But the forecast that “they could leverage their strong customer bases and networks to potentially constrain traditional banks’ payment services revenues in the longer term” will surely

THE QUESTION IS, WHAT CAN BE DONE TO PRESERVE PRIVACY AMID THE UNENDING STREAM OF INFORMATION THAT HAS BEEN, EITHER WILLINGLY OR INVOLUNTARILY POSTED ON THE INTERNET?

depend on how successful the tech giants are at rebuilding their data privacy credentials.

The overall damage to the fintech sector will depend on the extent to which people’s specific concerns about the Silicon Valley giants tarnish their view of fintech more generally.

Elliott feels it will hit startups harder than the established banks, which are slowly beginning to take fintech more seriously and enjoy greater levels of trust.

Another Accenture survey, from back in October 2017, found that privacy concerns would prevent a majority of Britons (53 per cent) from changing their banking habits to take up more open services, but it is also suggested that established banks were best placed to capitalise on fintech, based on their higher trust scores from customers.

What is clear after the Facebook scandal is that fintech needs to redouble its efforts on data privacy.

The main objective for fintech must be to rebuild trust.