OCTOBER 1, 2021
9 min read
How often do you hear about lawsuits filed against big tech companies? If viewed in a vacuum apart from other IT segments, fintech players turn out to be relatively rare guests at courts. Most often, the reasons to be sued encompass privacy issues, frauds, scams, harassment, discrimination, or other ethical implications. In case we look at statistics related to compromised data records as of January 2021, Yahoo proves to be the most insecure system, with 3b user accounts affected during a hack in 2017. The same statistical data reveals only one fintech-related organization to suffer from data breaches — Capital One, which shares the last place in this list on a par with Quora.
But does this mean that companies whose activity touches upon banking operations can relax and forget about fintech privacy lawsuits? Certainly not. Neither should they disregard government regulations because financial technology is an area as much susceptible to strict laws as advertising, healthcare, and gambling. You’ve probably already guessed that data leakage isn’t the worst enemy for the fintech industry. Fraud is. According to Statista, the online banking fraud cases in the UK increased to almost 56k in 2020, which is more than twice as big a figure as it was in 2019.
So what are the primary causes preceding the emergence of a subpoena in your office’s mailbox? Here are the top 5 corporate-level reasons to be mindful of:
- Your company is involved in fraudulent activities;
- You’ve either consciously or unconsciously violated data protection laws;
- Someone from your organization has breached a contract;
- When shareholders agree that your organization has misled the public regarding its financial activities;
- If your company infringes on someone’s intellectual property rights.
Other widespread reasons to be sued may include any form of harassment, discrimination, negligence, human rights infringement, wage disputes, etc.
Most Illustrious Lawsuits in Big Tech
The largest fintech players rarely encounter lawsuits triggered by negligence, human rights infringement, or harassment. What IT organizations should be afraid of is privacy issues and antitrust laws. Now let’s go ahead and shed light on some of the most resonant legal proceedings in the technology industry, inasmuch as these might teach fintech stakeholders a lesson:
The US FTC Against Facebook
In the age of capitalism, antitrust laws are no less important than compliance with privacy and human rights fundamentals. The Federal Trade Commission continues to bombard Facebook Inc. with subpoenas and lawsuits launched against the company’s alleged monopolistic business activity. By violating antitrust laws, they imply that Facebook buys rivals like Instagram or WhatsApp to eliminate competition. There’s no point in additionally referring to the data harvesting scandal that continues to overshadow every step Mark Zuckerberg takes in the media. The famous Facebook privacy lawsuit is still in the limelight, having become a banner of struggle against tech juggernauts’ ubiquitous presence.
The US Justice Department Against Google
Another vivid example of legal proceedings set out against allegedly violating antitrust laws is the famous case DOJ vs Google. However, in 2020, the responsible judge claimed that the lawsuit wasn’t likely to go to trial until 2023. Though hearings go on, the result of a considerable proportion of similar lawsuits isn’t expected to show up in the near future. Previously, the world patiently watched the Google privacy lawsuit being initiated against the monopolist that spied on users even when they turned on the ‘Incognito mode.’ The freshest news indicates that the DOJ continuously files antitrust suits against Google concerning its video advertising activity.
Justice Department Against Apple
If you deal with IOS app development, you might have already stumbled on Apple’s notorious tight rules and commissions on the App Store. Be it the Epic Games vs Apple case (practically failed) or the Justice Department filing lawsuits against the so-called monopolist, the lesson remains the same — if you demonstrate monopolistic behavior, chances are you’ll need to prove them all wrong at court.
Notable Fintech News from the Court
Among the most debated lawsuits initiated against fintech companies, the following cases are worthy of particular attention:
The Wirecard Scandal
To be honest, accounting scandals infrequently go as public as data breaches. But it’s not about the notorious Wirecard case related to one of the most famous German payment processors. With headquarters in Munich, the company is involved in risk management as well as issuing and processing credit cards. Since its incorporation, Wirecard was accompanied by allegations of accounting malpractices. The company was proven to implement fraudulent accounting practices to inflate the profit. Having filed for insolvency after a series of unwelcome events (arrested CEO and magical disappearance of almost €2bn), Wirecard became labeled a world-known trickster.
Plaid and Its Privacy Lawsuit
Did you know that your company can pay $58m to end a much more expensive privacy lawsuit? Sarcastically speaking, that’s what Plaid was trying to do to bury the hatchet. Not all fintech corporations bother about how they inform customers regarding the financial data they collect from their accounts. Interestingly, Plaid’s clients didn’t know they were giving consent to providing their sensitive information while signing up for apps. Since these illegal activities took root in 2013, 98m people from the US have fallen victim to Plaid since then. Hence, remaining in compliance with regulations concerning data exploitation and harvesting is essential to keep your fintech activity away from courts.
Mastercard and CAT
Another curious type of lawsuit filed against fintech competitors is a class action. Being socially responsible is still in trend, so we don’t recommend disregarding this practice. As Reuters reported, MasterCard was recently accused of overcharging 46m customers. So the $14bn-plus class action is waiting for the company’s further actions in response to the lawsuit.
Citigroup Sued for Fraudulent Actions
As already mentioned in another DashDevs article, Citigroup was sued for its risky mortgage investments and fraudulent activities associated with betting against its own portfolio, which had been previously sold to clients. In 2010, the corporation paid $75m to settle federal claims, while in 2011, this sum already morphed into a colossal $285m. Similar conscious machinations always result in gigantic losses of not only financial resources but also reputation, which is a more valuable asset in fintech, isn’t it?
Allan Flynn Against ANZ and Westpac
Today no one will be shocked when they hear about a business powered by cryptocurrency. Recently, Allan Flynn filed a lawsuit against two leading Australian banks ANZ and Westpac for having been discriminated against for his engagement in cryptocurrency. What did they do? These two banks closed Mr Flynn’s accounts. In turn, he claimed that his once flourishing business had been damaged as a result of this crucial decision. Now Mr Flynn demands compensation of AUD $250k. And it’s not just the case with Australian banks and their lack of desire to deal with cryptocurrency. Serving firms built over Bitcoins or its alternatives isn’t appreciated in most corners of the world.
Binance, Bithumb, and Lawsuits
Lexia Avvocati announced that they would take legal action against the largest crypto exchange platform Binance. Having lost money on futures, inventors blame the cryptocurrency platform, setting the groundwork for legal proceedings operated by the aforementioned law firm. Another crypto giant, Bithumb, received a subpoena for a civil lawsuit for having breached the contract concerning opening a cryptocurrency exchange. Plus, the firm’s Thailand partner has brought criminal charges of fraud. These and other similar allegations prove that crypto banks are unlikely to appear as official institutions in the short run.
Future of Fintech: What to Expect and Beware
There’s no denying that fintech has been gaining traction since the beginning of the COVID-19 pandemic. Even the invasion of privacy lawsuit cases in the big tech industry is unlikely to impede the parallel process of fintech innovation. Sufficiently recently conventional banks shunned away from partnering or cooperating with financial technology companies.
The same picture nowadays relates to cryptocurrency, which can indeed become one of the significant development vectors in the sector. But, in essence, what is fintech? When you and your friends want to split the tab in a restaurant by using an app Venmo? Or whenever you refer to Mint to reevaluate your monthly budget? Maybe it’s Apple Pay when you raise your wrist with a smartwatch to pay for a cocktail? Fintech stocks are already inflated with startups going public and firms facing the IPO landscape.
Would you be astonished if you heard that the international fintech industry was worth $127bn in 2018? If not, be ready to learn that business experts predict this global market to grow to an almost $310bn-worth technological colossus. Given an emphasis on customer experience, loyalty programs, convenience, partnerships, and speed of services, there’s no need to be a genius to foresee a never-before-witnessed thriving of the future fintech stock.
Fintech vs Banks — A War or Evolution?
Whereas the history of traditional banking dates back to Sumeria, India, and Ancient Greece, the first fintech players emerged during the inception of e-commerce — in the 1990s. Beyond question, conventional banking systems view big tech as primary and direct competitors because these provide customers with more valuable assets. Between 2015 and 2019, about 75% of global customers became clients of at least some fintech services.
If examined from a global perspective, banks and fintech organizations do wage a silent war. Yet it chiefly presupposes a fight for customer convenience and quality of services because the competitive advantage here will be in the hands of those who can leverage new tech. Unfortunately, many developing countries cannot offer advanced alternatives to traditional banks with the obsolete software. But when it comes to developed regions, a lot of banks have already adopted new technologies to ensure a top-notch service quality. These can undoubtedly compete with fast and furious mobile apps launched by fintech giants.
So is there any fintech vs banks game either at court or outside it? We all know that it’s a part of an evolutionary process and a matter of time when these two merge together to form a solid financial ecosystem.
Truce: Banks Partnering with Fintech
The future of fintech no longer depends on the competition with conventional banks. What’s the new normal? The answer is a partnership. Collaboration always implies new horizons and markets for both parties. Here’s a shortlist of the most famous banks partnering with fintech players:
- Bank of Montreal and Blend
This promising relationship is expected to provide the BMO with an accelerated digital strategy in the US. This bank has successfully communicated with its audience to learn that users need more innovative digital solutions. The two now work together to provide digital mortgage as well as home equity services.
- Wells Fargo and The Climate Service
The Climate Service, Argo, and other startups from the accelerator portfolio only benefit from similar cooperation. Since a single company with large-scale ambitions is unlikely to actualize all its plans, Wells Fargo elaborates on a strategy of uniting stakeholders to build cutting-edge technology that will revolutionize the industry.
- Barclays and Flux
Barclays had no scruple in partnering with a fintech startup Flux already in 2017. The bank resolved to incorporate new digital solutions into its loyalty program. Barclays noticed that a significant proportion of its 24m audience used debit cards in an online mode. After the 2020 pandemic, this trend has only intensified, so the bank is in need of Flux’s fintech solutions to ensure more online conveniences for loyal customers.
- TD Bank and Flybits
TD Bank Group is another institution to have an agreement with Flybits that offers its cloud-based software program to enrich customer experience for both parties. While conventional banks usually have broader audiences, fintech startups can provide more intuitive and personalized experiences, which is a crucial aspect of modern banking.
So How to Run a Fintech Business Without Being Sued?
Before stepping into the highly regulated world of financial services, be sure to:
- Hire a good lawyer to consult regarding each critical (or not very) decision;
- Ensure a multifaceted insurance portfolio as a backup;
- Find loyal and reliable partners;
- Implement ethical and up-to-date HR practices;
- Avoid engaging in risky machinations proposed by third parties;
- Incorporate end-to-end encryption or tokenization;
- Guarantee data protection and cybersecurity.
But if you’re still confused and uncertain, feel free to initiate communication with our DashDevs team. We’re eager to provide any fintech-related assistance!