Banks, tech firms battle over consumer data

Global financial laws must create a level playing field between banks and the large technology firms who hold big data like Google as they increasingly move into financial services. 

Speaking at a recent seminar organised by law firm King & Wood Mallesons, fintech expert Professor Dirk Zetsche (pictured), outlined the case for better regulation as technology firms continue to leverage their big data to support their entry into financial services. 

Alibaba’s Ant financial, Vodafone’s m-pesa, Google Pay and Apple Pay have provided a myriad of opportunities as well as threats to the financial sector. These firms now hold and control massive amounts of consumer data making them “systematically important.” 

According to Zetsche, these firms have their origin in the big data environment rather than the customer relationship. Most avoid financial regulation until they have reached an enormous scale. 

“Data and analytics is the key to everything. It’s not that those firms start out as financial services but they have so much data that they see that market as a good profit opportunity," he said. “They have licked the cream from the bank’s cake but they don’t want to serve the waiter who brings the cake.”

Preparing for failure

Zetsche holds the ADA (Appui au Développement Autonome) chair for financial law at the University of Luxembourg. He has also served as an advisory to and participated in working groups initiated by public institutions such as the European Commission, the European Parliament, European Securities & Markets Authority, the German Ministry of Justice, and the German Ministry of Finance as well as the Liechtenstein Government. 

He argued that a systematically important financial institution (SIFI) treatment needs to extend to those large tech firms entering financial services. A SIFI is identified as a financial firm who could trigger a financial crisis if it fails – in other words they are “too big to fail”. 

"No one believes Google may fail. It might not but who would have ever thought Lehmann Bros would collapse. If a business like Google does fail and is under the SIFI treatment, regulators would then be able to takeover and limit the impacts of its failure.” 

Zetsche also believes that these firms should pay tax in the “jurisdictions where they generate data". By paying their tax obligations they will be able to support taxpayers in the event of a bailout. He argued that laws should also extend to protect consumers in instances such as a denial of service. 

Racially-profiled data could be an issue and is prohibited under current international banking laws. However, these laws don’t apply to large data firms. 

“Who holds the influence of financial services? Is it the banks or data firms? I believe it is the data firms that have the true power because whatever data is sent to the bank determines the products and services,” Zetsche said. 

“Core of it all is that these entities are not fiduciaries. There is no legal obligation to consider their client’s interest. The clients are just another piece of data for them.”  

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