Consumer access to capital in the age of FinTech and big data: The limits of EU law
| DOI | 10.1177/1023263X18794407 |
| Published date | 01 August 2018 |
| Date | 01 August 2018 |
| Author | Federico Ferretti |
| Subject Matter | Articles |
Article
Consumer access to capital in
the age of FinTech and big data:
The limits of EU law
Federico Ferretti*
Abstract
There is much hype about the potential for technological innovation (FinTech) and big data to
transform and deliver financial services to consumers. The aim of this paper is to analyse, from the
perspective of financial inclusion and consumer protection, the extent to which the current
European Union legal framework is prepared to respond to the challenges posed by such inno-
vation in the context of the prospective opportunities and detriment for consumers. Departing
from an assessment of the already problematic and jeopardised uses of traditional credit data in the
Member States, it concludes that the risks are likely to contrast or outweigh the benefits, but the
legal framework does not seem fit for purpose despite the enactment of brand new legislation.
Keywords
EU law, big data, FinTech, consumers, credit
1. Introduction
Consumer data processing is the instrument most extensively used by the lending industry to
underwrite financial decisions. It is used for risk analysis and management in the private interest
of lenders or as a practice of creditworthiness assessment of borrowers. The virtues of data in
financial services include more efficient processes and decision-making, or improved management
of financial risks or fraud situations.
Data processing for risk analysis is also capable of transforming the way financial products and
services are provided. The more data are available, the more the lending industry is able to profile
customers and assess risks. As the financial services industry embraces digitalisation, traditional
lenders and other emerging financial services firms (for example peer-to-peer lending platforms)
*Associate Professor in Economic Law and Financial Markets, University of Bologna, Italy
Corresponding author:
Federico Ferretti, Department of Sociology and Economic Law, University of Bologna, Italy.
E-mail: fed.ferretti@libero.it
Maastricht Journal of European and
Comparative Law
2018, Vol. 25(4) 476–499
ªThe Author(s) 2018
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DOI: 10.1177/1023263X18794407
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use increasing data analysis to target customers and offer them customised products with perso-
nalised risk pricing. Technological innovation is becoming the key aspect for new models in the
provision of personal finance. Technologically enabled financial innovation in financial services to
consumers (‘FinTech’) capable of making use of large datasets from various unrelated sources
(‘big data’) are one important facet of late innovations that is generating significant interest in
retail financial markets for its possible disruptive effects in the sector.
1
The growth and develop-
ment of lending to consumers via these new technologies are expanding significantly in the
European Union (EU),
2
although their volume varies across jurisdictions.
3
At the same time, the processing of large amounts of diverse data in finance raises policy and
legal issues. The aim of this work is to investigate some of these in the context of the opportunities
and risks that these new business models may present for consumers. It assesses the extent to which
the current EU legal framework is prepared to respond to the new challenges posed.
Particular focus is placed on the extent to which FinTech and big data may be in the interest of
consumers to facilitate access to capital and address financial inclusion or, rather, they represent an
innovation that can be detrimental to consumers or their needs. Ultimately, it questions whether the
current law is fit for purpose or it requires renovated attention for the protection of consumer
borrowers. In the analysis, the magnifying glass is placed on the several aspects that all together
make the dividing line between inclusion and exclusion – financial, economic and social.
To investigate these issues, Section 2 provides the framework of the traditional data processing
practices within which the new models intervene. The aim is to show an already controversial and
jeopardised state of affairs across the EU even before the diffusion of FinTech and big data.
Section 3 digs into the evolution and practical functioning of the new technologies and uses of
big data in consumer finance. Examples are provided to illustrate the variety of datasets, sources
and emerging practices used by the different traditional and non-traditional supply-side actors. The
opportunities and risks for consumers of FinTech and big data are examined in Section 4, where the
possible detrimental effects are presented vis-a-vis beneficiary claims. Finally, Section 5 analyses
the applicable legal provisions available to consumers to outline major weaknesses incapable of
protecting them from the identified risks.
1. European Banking Authority, ‘Discussion Paper on Innovative Uses Of Consumer Data By Financial Institutions’,
European Banking Authority (2016), http://www.eba.europa.eu/news-press/calendar;jsessionid¼A9DCA8C5A7A78
75BAEC4FE6004FDB5 6D?p_p_auth¼QsY4kTYE &p_p_id¼8&p_p_life cycle¼0&p_p_state¼normal&p_p_mode¼
view&_8_struts_action¼%2Fcalendar%2Fview_event&_8_eventId¼1455505; European Banking Authority, ‘EBA
Guidelines on Creditworthiness Assessment’, European Banking Authority (2015), https://www.eba.europa.eu/docu
ments/10180/1162894/EBA-GL-2015-11_EN_GLþonþcreditworthiness.pdf; The Financial Inclusion Centre, ‘Fin-
Tech – Beware of the ‘‘Geeks’’ Bearing Gifts?’, Financial Inclusion Centre (2018), http://inclusioncentre.co.uk/word
press29/our-work/publications/fintech-beware-of-geeks-bearing-gifts.
2. E.g. according to B. Zhang et al., ‘Sustaining Momentum – the 2nd European Alternative Finance Industry’, Cam-
bridge University (2015), https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/sus
taining-momentum/#.W0yqh9hKg5s, the total European online alternative finance market, which includes crowd-
funding, peer-to-peer lending and other activities, grew by 92%to reach €5,431 m in 2015.
3. Financial Stability Board, ‘FinTech credit, Market Structure, Business Models and Financial Stability Implications’,
Financial Stability Board (2017), http://www.fsb.org/2017/05/fintech-credit-market-structure-business-models-and-
financial-stability-implications/.
Ferretti 477
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