I’d like to start with two commonsensical observations: bad stuff slips through cracks, and bad surprises come from where you aren’t looking. Those are the substance of my particular concerns about big data in financial services.
The biggest risk, to my mind, doesn’t come from big tech companies – the established technology giants, especially the public-facing ones. This is despite scare headlines such as “How Big Tech’s disruption of finance is a threat to us all” in MarketWatch and “Big Tech and Big Finance Breed Hubris” from The Wall Street Journal.
Yes, big tech is a huge producer and user of big data. But I strongly suspect that given the current regulatory climate in the US and Europe, big tech companies are going to be subject to strong, and moderately effective, regulatory scrutiny. Facebook, Amazon, Google and others have won themselves few friends in the aftermath of the US presidential election debacle, and this perception of risks on the political side comes on top of existing concerns about monopoly, market overreach, current levels of access to private data, and so on. Look at the recent backlash against Facebook when it tried to change the terms of service of its social media messaging unit WhatsApp in order to get greater access to user data.
Big tech offers big enough targets for regulators, and inevitably is slower moving compared to smaller enterprises. My concern is more with the proliferation of smaller big data aggregation collectors, sifters, managers, storers, evaluators, and any number of bolt-on third-party outsourced service providers jostling to offer the larger traditional financial services giants their secret sauce. Here’s another headline that skewers the problem, from the July 17 issue of The Economist: “The funding frenzy – Investment in fintech booms as upstarts go mainstream”.
Venture capital dollars raised in the fundraising frenzy that has lately been pumping up private markets are now being funnelled into new financial technology big data startups and high-growth companies. Many of these are aiming to bring the established financial services incumbents up to speed in the new realm of big data handling – or to leapfrog them.
I fear that regulators will continue to keep their crosshairs trained on big tech without paying enough attention to this lemming frenzy sweeping past them. Once in operation, the big data fintech startups will lack both sufficient regulatory coverage of the interaction between their operations, and the internal culture needed to police themselves.
If you think the entitled, overbearing behaviour of big tech is bad enough, wait till you see those same businesses in their venture capital-pumped, ambition-heavy, less regulated, high-growth stage. I foresee huge data leaks and a field day for bad actors in the open spaces between those new big data operators.
