Top

Published in:

2020 | OriginalPaper | Chapter

14. FinTech for Consumers and Retail Investors: Opportunities and Risks of Digital Payment and Investment Services

Authors : Matthias Horn, Andreas Oehler, Stefan Wendt

Published in: Ecological, Societal, and Technological Risks and the Financial Sector

Publisher: Springer International Publishing

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

Payments and investments are part of consumers’ everyday life and vital to society and its economic and social systems. As the evolution of FinTech has laid the foundation for the next generation of technical innovation in the financial service sectors, this chapter discusses examples of FinTech innovation and analyzes their opportunities as well as their ecological, societal, and technological risks from consumer and retail investor perspectives. While FinTech innovation has the potential to make financial services easier, cheaper, and better available, all payment and investment services discussed in this chapter have in common the technological risks arising from the possibility to (mis)use consumers’ and retail investors’ data for price discrimination or identity theft. Cryptocurrencies additionally pose ecological risks due to their enormous energy demand, while the new investment services may help retail investors to decrease the ecological risk of their portfolios. The societal risks of FinTech overlap or coincide with the technological risks, for example, when consumer data is used to discriminate groups of consumers. In addition, the high degree of anonymity in cryptocurrency networks and the lack of centralized supervision can provide an ideal playing field for criminal activities such as money laundering and tax evasion that threaten consumer and retail investor welfare.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

previous chapter An Incentives-Based Mechanism for Corporate Cyber Governance Enforcement and Regulation

next chapter Empirical Modelling of Man-made Disaster Scenarios

However, not all instant or real time payments are necessarily mobile payments.

In the European Economic Area, the Payment Services Directive 2 (PSD 2) allows payment service providers other than banks since 2018 to get access to bank accounts when the account holder gives permission, which enables consumers to initiate payments without the need to additionally log in to their online banking accounts (see https://www.bundesbank.de/en/tasks/payment-systems/psd2/psd2-775954). The concept of providing access to bank accounts is called open banking. A similar regulation to foster open banking in the US is not yet on the way (see https://www.forbes.com/sites/ronshevlin/2019/04/15/open-banking-wont-work-in-us/#754f70691e52).

The analysis in this chapter focuses on consumers in developed countries. Particularly in some developing countries with a weak infrastructure of bank branches and stationary internet, mobile payments and mobile banking solutions are the only possibility for consumers to participate in the financial system. This is, of course, an enormous opportunity for these previously unbanked people. However, as they do not have an alternative when they want to participate in the financial system, the analysis in this chapter hardly applies to their situation.

Cryptocurrencies can be subdivided into different types based on the underlying distributed ledger/blockchain technology (see Hasanova et al. 2019). The details of the corresponding technological differences are of minor relevance to the considerations in this chapter.

See Johnson and Pomorski (2014), Thiele and Diehl (2017), Yermack (2014), https://www.ccn.com/finland-decides-treat-bitcoin-as-a-commodity. The German Central Bank uses the term crypto token (see Thiele 2018).

See Böhme et al. (2015). Contrary to the popular belief, transactions in cryptocurrency are, therefore, not really anonymous but pseudonymous.

https://www.ccn.com/crypto-cooldown-icelands-bitcoin-miners-turn-to-blockchain-enterprise.

https://www.howtogeek.com/349033/why-it%E2%80%99s-nearly-impossible-to-make-money-mining-bitcoin/.

https://www.theguardian.com/world/2018/feb/13/how-iceland-became-the-bitcoin-miners-paradise.

E.g., less than 400,000 transactions are settled in the Bitcoin network per day (see https://www.blockchain.com/de/charts/n-transactions). The number of daily transactions via electronic channels is higher than 270 million in the European Union alone (see ECB (2015)).

https://www.heise.de/newsticker/meldung/Kryptowaehrung-Ethereum-Crowdfunding-Projekt-DAO-um-Millionen-beraubt-3240675.html.

https://www.heise.de/select/ct/2018/14/1530921921642329.

For an overview see e.g., Hasanova et al. (2019).

For the following see Oehler et al. (2016b); see also Oehler et al. (2018a) and Oehler and Wendt (2018).

For the following<?IndexRangeStart ID="ITerm34"?><?IndexRangeStart ID="ITerm33"?> see Oehler et al. (2016a); see also Wendt (2016) for a more detailed analysis of crowdfunding also covering crowdlending in addition to crowdinvesting.

One exception may be bonds of SMEs that are tradable over exchanges.

E.g., in Germany investments are limited to a maximum of 10,000 Euros per retail investor and crowdinvesting project.

https://data.worldbank.org/indicator/CM.MKT.LCAP.CD.

See Oehler et al. (2018b) for an assessment regarding sustainable investments.

For a more detailed analysis of the automated rebalancing services, see Horn and Oehler (2019). They find that automated rebalancing is hardly beneficial for retail investors; these results support the findings of Hilliard and Hilliard (2018).

See https://www.metatrader5.com/en/terminal/help/signals.

E.g., Knight Capital in 2012 or the Flash Crash of the Dow Jones in 2010 (see, e.g., https://www.bbc.com/news/magazine-19214294).

Ali, S. T., Clarke, D., & McCorry, P. (2015). Bitcoin: Perils of an unregulated global P2P currency. In Revised Selected Papers of the 23rd International Workshop on Security Protocols XXIII, Vol. 9379 (pp. 283–293). New York: Springer.

Arner, D., Barberis, J., & Buckley, R. (2016). The Evolution of Fintech: A New Post-Crisis Paradigm? University of Hong Kong, Faculty of Law Research Paper No. 2015/047, UNSW Law Research Paper No. 2016/62.

BaFin. (2016). Die Technologie hinter den virtuellen Währungen am Beispiel der Blockchain [Distributed ledger: The technology behind virtual currencies using the example of blockchain]. Retrieved May 8, 2019, from https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Fachartikel/2016/fa_bj_1602_blockchain.html.

BaFin. (2017a). Crowdinvesting. Retrieved from https://www.bafin.de/DE/Aufsicht/FinTech/Crowdfunding/Crowdinvesting/crowdinvesting_node.html.

BaFin. (2017b). Robo-Advice und Auto-Trading – Plattformen zur automatisierten Anlageberatung und automatischem Trading. Retrieved from https://www.bafin.de/DE/Aufsicht/FinTech/Anlageberatung/anlageberatung_node.html.

Ben-David, I., Franzoni, F., & Moussawi, R. (2018). Do ETFs Increase Volatility? Journal of Finance, 73(6), 2471–2535.CrossRef

Bitz, M. (1993). Grundlagen des finanzwirtschaftlich orientierten Risikomanagements [Fundamentals of financial risk management]. In G. Gebhard, W. Gerke, & M. Steiner (Eds.), Handbuch des Finanzmanagements – Instrumente und Märkte der Unternehmensfinanzierung (pp. 641–668). Munich: Beck.

Böhme, R., Christin, N., Edelman, B., & Moore, T. (2015). Bitcoin: Economics, technology, and governance. Journal of Economic Perspectives, 29(2), 213–238.CrossRef

Brühl, V. (2017). Bitcoins, Blockchain und Distributed Ledgers: Funktionsweise, Marktentwicklungen und Zukunftsperspektiven [Bitcoins, Blockchain and Distributed Ledgers]. Wirtschaftsdienst, 97(2), 135–142.CrossRef

Chaum, D. (1983). Blind signatures for untraceable payments. In D. Chaum, R. L. Rivest, & A. T. Sherman (Eds.), Advances in cryptology: Proceedings of Crypto 82 (pp. 199–203). New York: Plenum Press.CrossRef

Dai, W. (1998). B-money. Retrieved April 5, 2019, from http://www.weidai.com/bmoney.txt.

Directorate General for Internal Policies. (2015). Challenges for competition policy in a digitalised economy. Study for the ECON Committee.

Dorfleitner, G., Fischer, L., Lung, C., Willmertinger, P., Stang, N., & Dietrich, N. (2018). To follow or not to follow – An empirical analysis of the returns of actors on social trading platforms. Quarterly Review of Economics and Finance, 70, 160–171.CrossRef

Dorfleitner, G., & Hornuf, L. (2016). The Fintech market in Germany. Retrieved June 18, 2019, from http://www.bundesfinanzministerium.de/Content/EN/Standardartikel/Topics/International_affairs/Articles/2016-12-13-study-fintech-market-in-germany.pdf?__blob=publicationFile&v=2.

ECB. (2015). Virtual currencies – A further analysis. Frankfurt am Main: European Central Bank.

FATF. (2014). Virtual currencies: Key definitions and potential AML/CFT risks. Retrieved April 11, 2019, from https://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf.

Fischer, R., Öztürk, G., Weimert, M., & Lammer, D. (2019). Mobile Payment in Deutschland – Letzte Chance für Banken, ihre strategischen Fehler der Vergangenheit zu korrigieren [Mobile payment in Germany – Last chance for banks to correct their strategic mistakes of the past]. Retrieved June 18, 2019, from https://www.oliverwyman.de/content/dam/oliver-wyman/v2-de/publications/2019/mai/20190509_OliverWyman_POV_Mobile_Payment.pdf.

Hameed, S., & Farooq, S. (2016). The art of cryptocurrencies. International Journal of Advanced Computer Science and Applications, 7(12), 426–435.CrossRef

Hasanova, H., Baek, U., Shin, M., Cho, K., & Kim, M. (2019). A survey on blockchain cybersecurity vulnerabilities and possible countermeasures. International Journal of Network Management, 29(2), 1–36.CrossRef

Hilliard, J., & Hilliard, J. (2018). Rebalancing versus Buy and Hold: Theory, simulation and empirical analysis. Review of Quantitative Finance and Accounting, 50(1), 1–32.CrossRef

Horn, M., & Oehler, A. (2019). Automated portfolio rebalancing: Automatic erosion of investment performance? Working Paper, Bamberg, presented at 88th International Atlantic Economic Conference, Miami, October 17–20, 2019; 2019 Annual Meeting of the Academy of Financial Services, Minneapolis, October 15–16, 2019; 30th European Conference on Operational Research, Dublin, June 23–26, 2019; 2019 European Conference of FMA, Glasgow, June 12–14, 2019.

Hornuf, L., & Schmitt, M. (2016). Success and failure in equity crowdfunding. In CESifo DICE Report 2/2016, pp. 16–22.

Johnson, G. and Pomorski, L. Briefing on digital currencies. Briefing to the Senate of Canada, Ontario: Bank of Canada, (2014, April).

Keatinge, T., Carlisle, D., & Keen, F. (2018). Virtual currencies and terrorist financing: Assessing the risks and evaluating responses. Retrieved April 11, 2019, from http://www.europarl.europa.eu/RegData/etudes/STUD/2018/604970/IPOL_STU(2018)604970_EN.pdf.

Lerch, M. (2015). Bitcoin als Evolution des Geldes: Herausforderungen, Risiken und Regulierungsfragen [Bitcoin as evolution of money: Challenges, risks and regulatory issues]. Journal of Banking Law and Banking, 3, 190–204.

May, T. (1994). Cyphernomicon. Retrieved April 5, 2019, from http://www.cypherpunks.to/faq/cyphernomicron/cyphernomicon.html.

Münzer, J. (2014). Bitcoins: Aufsichtliche Bewertung und Risiken für Nutzer [Bitcoins: Supervisory assessment and risks for users]. BaFin. Retrieved April 11, 2019, from https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Fachartikel/2014/fa_bj_1401_bitcoins.html.

Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. Retrieved April 11, 2019, from https://bitcoin.org/bitcoin.pdf.

Oehler, A. (1990). Konsequenzen der Selbstbedienung für die Vertriebspolitik [Consequences of self-service for sales policy]. geldinstitute 1(2), 4–12.

Oehler, A. (1992). POS-Banking. Südwestfälische Wirtschaft, 3, 32–34.

Oehler, A. (2015). Alles digital? Innovative Geschäftsmodelle im digitalen Zahlungsverkehr und Verbraucherpolitik [All digital? Innovative business models for digital payment and consumer policy]. Wirtschaftsdienst, 95(12), 817–821.

Oehler, A. (2016a). Digitale Welt und Finanzen. Formen des Crowdfunding: Handlungsbedarf für die Verbraucherpolitik? [The digital world and finance. Types of crowdfunding: Do consumer policy makers need to act?] Veröffentlichungen des Sachverständigenrats für Verbraucherfragen, Berlin 2016.

Oehler, A. (2016b). Digitale Welt und Finanzen. Zahlungsdienste und Finanzberatung unter einer Digitalen Agenda [The digital world and finance. Payment services and financial advisory under a digital agenda]. Veröffentlichungen des Sachverständigenrats für Verbraucherfragen, Berlin 2016.

Oehler, A. (2017). Der technologische Wandel: Herausforderungen in der Digitalen Welt [The technological change: Challenges in the digital world]. In P. Kenning, A. Oehler, L. Reisch, & C. Grugel (Eds.), Verbraucherwissenschaften – Rahmenbedingungen, Forschungsfelder und Institutionen (pp. 69–80). Wiesbaden: Springer.CrossRef

Oehler, A., Herberger, T., Höfer, A., & Wendt, S. (2015). Risk assessment and risk management in economics. In H.-W. Micklitz & T. Tridimas (Eds.), Risk and the EU law (pp. 33–48). Cheltenham: Elgar.CrossRef

Oehler, A., Horn, M., & Wendt, S. (2016a). Benefits from social trading? Empirical evidence for certificates on wikifolios. International Review of Financial Analysis, 46, 202–210.CrossRef

Oehler, A., Horn, M., & Wendt, S. (2016b). Digitale Zahlungsdienste: Chinese Walls 2.0 oder Trennung? [Digital payment services: Chinese Walls 2.0 or separation?] DIVSI Magazin, pp. 23–25.

Oehler, A., Horn, M., & Wendt, S. (2016c). [Was taugt die Finanzberatung durch Robo-Advisors wirklich?] What are the real benefits of Robo-Advice? Der Neue Finanzberater, 2016(2), 28–29.

Oehler, A., Horn, M., & Wendt, S. (2018a). Neue Geschäftsmodelle durch Digitalisierung? Eine Analyse aktueller Entwicklungen bei Finanzdienstleistungen [New business models as result of digitalization? An analysis of current developments in financial services]. In F. Keuper, M. Schomann, L. I. Sikora, & R. Wassef (Eds.), Disruption and transformation management (pp. 325–341). Wiesbaden: Springer.CrossRef

Oehler, A., Horn, M., & Wendt, S. (2018b). Why self-commitment is not enough: On a regulated minimum standard for ecologically and socially responsible financial products and services. In T. Walker, S. Kibsey, & R. Crichton (Eds.), Designing a sustainable financial system: Development goals and socio-ecological responsibility (pp. 405–421). Cham: Palgrave Macmillan.CrossRef

Oehler, A., Horn, M., Wendt, S., Reisch, L. A., & Walker, T. J. (2018c). Young adults and their finances: An international comparative study on applied financial literacy. Economic Notes, 47(2–3), 305–330.CrossRef

Oehler, A., Horn, M., & Wendt, S. (2019). Information illusion: Placebic information and stock price estimates. Conference Paper presented at 88th International Atlantic Economic Conference, Miami, October 17–20, 2019; 2019 Annual Meeting of the Academy of Financial Services, Minneapolis, October 15–16, 2019; 2019 IAREP/SABE Conference, Dublin, September 1–4, 2019; 2019 Behavioural Finance Working Group Conference, London, 6–7 June 2019.

Oehler, A., & Stellpflug, J. (2015). Daseinsvorsorge in der Digitalen Welt: Der Staat für alle oder jeder für sich? [Services of public interest in the digital world: Should the state do it for everyone or everyone on his or her own?] Stellungnahme der Verbraucherkommission Baden-Württemberg, 41. Stuttgart.

Oehler, A., & Wendt, S. (2018). Trust and financial services: The impact of increasing digitalisation and the financial crisis. In T. O. Sigurjonsson, D. L. Schwarzkopf, & M. Bryant (Eds.), The Return of Trust? (pp. 195–211). Bingley: Emerald.

Raina, V. (2014). Overview of mobile payment: technologies and security. In F. Liebana, F. Munoz-Leiva, & J. Sanchez-Fernandez (Eds.), Electronic payment systems for competative advantage in E-Commerce (pp. 186–222). IGI Global.

Scardovi, C. (2016). Fin Tech innovation and the disruption of the global financial system. In C. Scardovi (Ed.), Restructuring and innovation in banking (pp. 21–49). Cham: Springer.CrossRef

Smith, C., & Kumar, A. (2018). Crypto-currencies – An introduction to not-so-funny moneys. Journal of Economic Surveys, 32(5), 1531–1559.CrossRef

Slade, E., Williams, M., Dwivedi, Y., & Piercy, N. (2015). Exploring consumer adoption of proximity mobile payments. Journal of Strategic Marketing, 23(3), 209–223.

Statista. (2019). FinTech report 2019 – Alternative financing. Retrieved June 18, 2019, from https://de.statista.com/statistik/studie/id/47351/dokument/fintech-report-alternative-financing/

Swammy, S., Thompson, R., & Loh, M. (2018). Creation of a distributed ledger. In S. Swammy, R. Thompson, & M. Loh (Eds.), Crypto uncovered (pp. 133–148). Cham: Palgrave Macmillan.CrossRef

Taylor, E. (2016). Mobile payment technologies in retail: A review of potential benefits and Risks. International Journal of Retail & Distribution Management, 44(2), 159–177.CrossRef

Thiele, C.-L. (2018). Digitales Geld – Gefahr oder Chance? [Digital money – Threat or Opportunity?] Retrieved April 11, 2019, from https://www.bundesbank.de/de/presse/reden/digitales-geld-gefahr-oder-chance—724694.

Thiele, C.-L., & Diehl, M. (2017). Kryptowährung Bitcoin: Währungswettbewerb oder Spekulationsobjekt: Welche Konsequenzen sind für das aktuelle Geldsystem zu erwarten? [Cryptocurrency bitcoin: Currency competition or speculative asset: Which consequences can be expected for the current monetary system?] Ifo Schnelldienst 22, pp. 3–6.

Wang, Y., Streff, K., & Raman, S. (2012). Smartphone security challenges. Computer, 45(12), 52–58.CrossRef

Wendt, S. (2016). Geld anlegen mit und im Schwarm – Chancen und Risiken für Verbraucherinnen und Verbraucher [Invest with and within the crowd – Opportunities and risks for consumers]; in: Studien und Gutachten im Auftrag des Sachverständigenrats für Verbraucherfragen, Berlin 2016.

Wendt, S., Horn, M., & Oehler, A. (2018). Robo-Advisors: The future of financial advice? Tölvumál, 2018, 20–21.

Xu, J. (2016). Are blockchains immune to all malicious attacks? Financial Innovation, 2(1), Article 25.

Yermack, D. (2014). Is Bitcoin a real currency? An economic appraisal. In S. Chuen (Ed.), Handbook of digital currency (pp. 31–43). London: Elsevier.

Title: FinTech for Consumers and Retail Investors: Opportunities and Risks of Digital Payment and Investment Services
Authors: Matthias Horn
Andreas Oehler
Stefan Wendt
Publisher: Springer International Publishing
Book: Ecological, Societal, and Technological Risks and the Financial Sector
Print ISBN: 978-3-030-38857-7

Electronic ISBN: 978-3-030-38858-4

Copyright Year: 2020
DOI: https://doi.org/10.1007/978-3-030-38858-4_14