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Is FinTech as Sturdy as It Purports to Be?

FinTech refers to "financial technology". It encompasses everything from the online banking app on your smartphone to Disney Theme Parks "Magic Band". Essentially, any piece of technology that is intended to make our financial lives a little easier and help us transfer money where we need it to go can be thought of as being a piece of Fintech.  

There are plenty of exciting advances that this particular industry has made. Indeed, a whole host of startup companies have jumped on the bandwagon to launch their FinTech products. However, there are now some major vendors that are taking a step back from acceptance of all of the latest Fintech products. Their reasoning? It seems that there is a creeping amount of fraud in some of these products. 

Scammers View FinTech as a Buffet of Opportunities

Fraudsters and scammers are practically licking their lips each time a new Fintech product is launched. What they know is that there are always vulnerabilities with these products. They also know that people don't keep their information as protected as they should. Builtin.com describes how much of a threat fraudsters are to a new Fintech product: 

Fraudsters love fintech as an industry: As much as 85 percent of financial institutions experienced fraud in the process of account opening. Scammers steal personal information and credit card details by breaking anti-fraud systems to use a victim's bank account and online wallet or by buying an existing account on the black market. (Existing bank accounts are available for as little as $100 on the dark web, which is cheaper than purchasing someone's passport information.)

Compounding the problem is the fact that many Fintech companies and products are so new. The average age of a Fintech company is only about 5-6 years old at this point (data as of 2017). This means that many of these companies have not suffered enough losses to know just how badly some of their customers could get hurt. They haven't had enough time or experience to build in some additional protection against the scams. 

Ease-of-Use Makes Many of These Products Bigger Targets

 

Making a Fintech product easy for the consumer to use is essentially the first thing that company founders think about. They understand that their users are looking for something that will help simplify their lives. This is why so many of these companies create revolutionary technology that can be accessed with a few clicks. They call it a "frictionless transaction", and it is all the rage when it comes to this type of technology.  

A frictionless transaction looks like this:  

  • Transferring money to a friend via a money storage application such as Venmo or PayPal 
  • Use the Magic Band at Disney World to pay for all of your fun without ever taking out your wallet 
  • Using the chip on your credit card to make a payment rather than swiping the card 
  • Transferring your money into and out of a cryptocurrency at will 

All of these items can be squarely placed into the category of a frictionless transaction. However, that doesn't mean that they come without risks. One of the first things that a financial criminal looks for is ease-of-access points to hack. Anyone who puts their personal information into a piece of technology takes a major risk with that valuable information. 

Vendors Back Away From FinTech Products After Fraud Claims

Initially, many companies were very eager to get on board with the idea of accepting FinTech payments. It almost felt like a competition to see which company was the most flexible when allowing payments. It was seen as a sign of being flexible and open to the way that the world was changing. All of that has changed now.  

Despite its surging value in the market, there are serious concerns about the security of a FinTech product known as Chime. What this company does is power the services necessary to get various banking services onto mobile phones. While this has worked well for many users, there are an increasing number of instances of fraud that have some vendors concerned. They don't want to take a chance on accepting a product that could end up with the customer being defrauded.  

Some customers of the company report that they have had their identities stolen and/or that fraudulent charges have shown up on their accounts. Worse yet, some say that they have had trouble getting the fraudulent charges reversed. That is a major red flag for any company. When you consider all of this, it is hardly any wonder that there are so many companies that are taking a second look at the number of FinTech products they are willing to work with. 

Learn More About FinTech with H&CO

Perhaps it is time for the market to re-evaluate how they have treated various FinTech products that have emerged. There is no doubt that these products are exciting and often easy for customers to use. However, that doesn't mean they are perfect. Right now it seems to mean that they are the prime target for people who would like to commit criminal acts against others. As such, maybe it is a good idea to allow these products to mature for a while before they are accepted. Establishing a track record of success and handling customer concerns may be necessary before large vendors resume acceptance of some of these products.

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