Risk mitigation in Fintech firms: There is a cost to every new technology that is at its embryonic stage. Such cost is often quantified in the form of risk and the point the merit attention is the way insurance companies can launch products to mitigate the risk emanating from the financial innovations.
The prominent risks that need to be monitored closely are:
- Regulatory authorities are already having difficulty to keep up with the pace of financial innovation. And the areas that merits their attention are:
- Pear-to-peer (P2P) lenders are in the limelight after the attack of San Bernardino, CA as it appears to be funded by P2P loan. The suggestions are being made from the political quarters that P2P lenders need to meet traditional know-your-customer rules similar to traditional banks.
- The use of algorithms in anticipating default ratios is largely in conflict with the anti-discriminatory laws such as U.S. Community Reinvestment Act, even though they produce excellent results.
- Monopolies emanating from the employment of blockchain technologies. Such monopolies go against the anti-trust laws of United States and elsewhere.
- The use of technology in the storage of more data has raised the concerns regarding the security of the data and the protections of the privacy of people. Already the companies are using analytics and other internet based websites for their credit and marketing decisions.
- There is a need to employ young executives for these new start-ups, but a new host of other issues have erupted that are related to these executives. These issues are: harassment, discrimination and wrongful termination in higher numbers than more traditional staffed firms.
- Traditionally, the firms use to look at well-capitalized firms as their vendors. But during this era of fast changing technology, the firms are increasingly integrating their operations with these new young start-up. Thus, the risk has increased due to delicate financial position of these firms.
- In order to guarantee delivery and connectivity, financial institutions need to assure their clients about the timely delivery of their products.