Summary

This article explores the phenomenon of TechFins, large technology and e-commerce companies that venture into the financial services industry (think Google Pay, Ant Finance, Amazon Pay, etc). Due to their already large customer base and, with that, huge amounts of data, TechFins are having a huge impact on the world of finance. This article focuses on the regulatory challenges arising from this phenomenon. The key problem the authors have identified is the fact that Techfins don’t start as financial service providers and thus aren’t subject to the vast array of financial regulations in the early stages. Only when they are already huge and have large customer bases and tremendous amounts of data, will they become subject to financial regulations, resulting in (amongst other issues) limited customer protection, practically unlimited data gathering and an unfair advantage versus traditional financial institutions (TradFi).

Key points

  • TechFin is a major development and must not be overlooked due to datafication.
  • TechFins represent a new type of market participant. They originate from tech/e-commerce and gradually (in different stages) move into financial services.
  • TechFins, due to their data models, can provide enhance financial services and promote inclusion.
  • TradFi regulations often fall short due to the staged entry of TechFins into financial services, causing systemic problems.
  • TechFins have an unfair advantage as compared to TradFi since they do not have to abide by strict financial regulations in the early stages (buildup).
  • TradFi regulations “follow the money” and don’t “follow the data”, which should change since data is (becoming) more valuable than traditional products and services.
  • Regulators should consider gathering financial data as a regulated activity in the event that financial data-gathering activities exceed certain thresholds. The threshold should be tailored to the specifics of the market that is being regulated.

Authors

Dirk A. Zetzsche
Universite du Luxembourg – Faculty of Law, Economics and Finance; Heinrich Heine University Dusseldorf – Center for Business & Corporate Law (CBC); European Banking Institute

Ross P. Buckley
University of New South Wales (UNSW) – Faculty of Law & Justice

Douglas W. Arner
The University of Hong Kong – Faculty of Law

Janos Nathan Barberis
The University of Hong Kong – Faculty of Law; Founders Taboo

Published in …

New York University Journal of Law and Business, Forthcoming

European Banking Institute Working Paper Series 2017 – No. 6

University of Hong Kong Faculty of Law Research Paper No. 2017/007

University of Luxembourg Law Working Paper No. 2017-001

Recommended citation

Zetzsche, Dirk Andreas and Buckley, Ross P. and Arner, Douglas W. and Barberis, Janos Nathan, From FinTech to TechFin: The Regulatory Challenges of Data-Driven Finance (April 28, 2017). New York University Journal of Law and Business, Forthcoming, European Banking Institute Working Paper Series 2017 – No. 6, University of Hong Kong Faculty of Law Research Paper No. 2017/007, University of Luxembourg Law Working Paper No. 2017-001, Available at SSRN: https://ssrn.com/abstract=2959925 or http://dx.doi.org/10.2139/ssrn.2959925