EU’s first Payment Services Directive (PSD1), initialised in 2009 in order to increase market competition and transparency in the EU market. It gave an entrance to Fin-Tech companies to be included in the financial services branch by being bale to enter the payments market and carrying out financial transactions. Most importantly, PSD1 allowed the Fin-Tech firms to be able to see all the information such as services and fees, including maximum payment execution times and so on. Following PSD1, PSD 2 was created in order to facilitate “open banking” which also breaks up banks information monopoly forcing them to reveal even more customer payment data. However, these initiatives bring a huge advantage to the Fin-Tech industry. However what are the potential dangers of this?
The Fin-Tech industry is of absence of multiple regulations. Banks as an example have multiple; Basel I, Basel II, Basel III and even SIFIs. Thus banks are very well regulated and will prevent any default however the regulations do limit them. Additionally, Fin-tech companies’ have an technological structure, thus are able to get more big data in general, thus are already held at an informational advantage over banks. Another problem with Fin-Techs such as peer-to-peer lending to cryptocurrencies is that the credit risk can be very high. Due to the fact that the borrowers have low credit ratings or lack of credit history, will not give them access to apply for a conventional loan. Furthermore, the riskiness is also on the lender in the case of peer-lending, as there are limited insurance or government protection in the case that the borrower defaults. However, both of these risks are in the hands of the borrower and lender, but not to the platform.
