Data Protection and the Fintech Disruption

The global fintech industry is expected to grow gradually and reach a market value of US$305 billion in the next five years. That accounts for a massive 22.17% compound annual growth rate.

The fintech sector aims to transform financial services by integrating cutting-edge technology. It is affecting the finance sector in every aspect, from credit and lending to insurance, and even the future of money. Fintech is effectively disrupting the financial industry. Most of the changes introduced by fintech provide more convenience and ease by digitising financial services delivery. However, the changing finance sector landscape is also leading to concerns about privacy and identity.

Advancing technology is disrupting our lives beyond the finance sector. We are constantly producing more and more data and uploading it online. There is a digital identity for each individual, created using the data we publish online.

The General Data Protection Regulation

Introduced on May 25, 2016, the EU’s General Data Protection Regulation (GDPR) came along to offer significant protection to individual data and how it’s used by third parties. It effectively helped return the control of personal data back to the people.

The European Commission set out plans for data protection reform across the EU to equip Europe for the digital age. The GDPR applies to organisations in the member states, and it has implications for individuals and businesses across the continent and beyond.

The GDPR is essentially a new set of rules designed to provide EU citizens with better control over their personal data. It is simplifying the regulations regarding the use of data so that both businesses and individuals can leverage the new digital economy.

GDPR introduced regulations that reflect on the world as it is now. The entire world is connected by the internet, and it addresses major concerns regarding personal data, privacy, and consent.

Every aspect of our lives revolves around data. Our personal data has become a vital asset. From social media platforms to the fintech sector, every service we use relies on the collection and analysis of our personal data. So much of our data is collected by stakeholders for analytics and stored by them.

Under the terms of GDPR, organisations need to ensure that they gather personal data legally. Additionally, those who collect it are responsible for protecting it from exploitation and misuse, and for respecting the rights of data owners. Failure to protect the data and comply with GDPR can result in dire consequences.

GDPR and Fintech

The GDPR’s introduction has had a substantial impact on the finance sector than any other industry in the global economy. The Department for Digital, Culture Media and Sport (DCMS) surveyed in 2019 to understand the impact of GDPR on cybersecurity outcomes for UK-based organisations. The results were published on August 28, 2020, and revealed that the fintech sector appears to have had a significant change due to GDPR. Respondents from the finance and insurance sectors said that all of the changes in their organisations’ cybersecurity infrastructure in the last three years were at least partially due to GDPR.

The GDPR has resulted in a more demanding regulatory landscape for the finance sector. The financial sector is dependent on consumer trust. In an increasingly digitised sector, the aspect of data protection in the finance sector today is more critical.

The introduction of GDPR has led to the rise of data protection in a few crucial areas.

1.    Encouraging open banking

The GDPR pushed the already-high standards of data handling and security procedures higher. It emphasised greater customer control over personal data, shifting power in favour of the consumer. Open banking came along with the implementation of GDPR, paving the way for new fintech products and services.

Consumers can choose which fintech providers have access to their data under GDPR, how much information is shared, and how long their data can be accessed. Open banking and GDPR combined to put consumers in a position where they can protect data and share it voluntarily with fintech providers and third parties that offer more innovative financial services.

2.    More opportunities for innovation

The public concern regarding GDPR reinforced data protection as a pivotal issue in the finance sector. Top-level professionals understand the value of personal data for consumers and businesses. With privacy and security widely considered as a leading issue, business leaders are taking a more proactive stance on how they think about data.

Firms working in the financial sector can consider GDPR as a strategic advantage. Integrating data protection in their development strategies can allow them to make more innovative decisions. The finance sector is taking more measures to increase its data expertise and focus on integrating the latest technology.

3.    Ethical data

The consumer data protection laws are empowering consumers. Many younger customers emphasise on ethics when they consider purchasing goods and services. The focus has resulted in many organisations making commitments to corporate social responsibility. Additionally, they are taking a proactive stance on social and governance issues and their environmental impact.

Maintaining an ethical approach to data is a significant advantage for the fintech industry. Financial institutions are responsible for important and sensitive customer data. Operators in the industry are more adamant on complying with GDPR and prioritise the ethical handling of data. It is boosting customer trust and improving the reputation for financial services firms.

4.    Improvement in focus on cybersecurity

Cybercriminals are becoming more sophisticated in their approach to breaching organisations to gain access to sensitive consumer data for their advantage. Fintech companies are aware of the impact of any hack or cyber breach when it comes to their reputation. The GDPR has reinforced data processes and procedures to follow for financial institutions in case of a breach.

Fintech firms have a renewed focus on turning the high standards for regulatory compliance due to GDPR into an asset that is driving their digital defence. The marketplace is becoming increasingly competitive for the fintech sector. The firms that can offer more security are likelier to succeed.

Final Thoughts

Cybersecurity is an increasing concern in the world today. Instead of looking at it as a problem that needs to be addressed, the fintech industry is benefiting from it by letting it drive innovations for the sector.

Data protection is becoming far more important, and the fintech sector is using GDPR as a means to improve its cybersecurity measures and how it handles personal data. It remains to be seen how the fintech landscape develops in light of the dynamic changes in threats to consumer data and the increasing digitisation of financial services.