What role can governance play in the fintech sector?

FinTech Graphic

By Alissa Kole – Managing Director of GOVERN Center & Aiaze Mitha – Lead of the Dialogue on Global Digital Finance Governance for UNDP/UNCDF


Big Tech has been under a spotlight on both sides of the Atlantic with a US Department of Justice investigation of Google and a congressional inquiry in the impact of Big Tech, as well as the European Commission’s work on the Digital Services Act. 

Concerns are mounting worldwide about the disproportionate cognitive influence of Big Tech firms, their political influence and their social and fiscal impact – notably in terms of taxation, with a debate led by the Organisation for Economic Co-operation and Development (OECD) on its minimum tax proposal under discussion in the G20.

The fact that regulators are increasingly looking at the impact of Big Fintech as a specific category of Big Tech should be of little surprise. Over the last decade, digitalisation has driven the emergence of a new generation of global digital finance players, merging finance and technology to achieve scale.

Some are originating from social media, e-commerce and technology companies providing regulated financial services; others from non-tech industries, existing financial institutions, or large data, telecoms and infrastructure providers to the financial sector, native fintech companies, and incumbent financial institutions seeking to transform into tech companies.

While there is little doubt that the emergence of these companies has improved lives in many ways, from supporting remote payments to allowing millions in lockdown to buy household essentials online during the Covid-19 pandemic, it is equally fair to say that Big Fintech firms have benefitted, having increased their size and influence during the crisis. For example, Amazon published a record profit in the first three months of 2021, up 220 per cent compared to the same period last year.

Indeed, as the world shifts towards digital, Big Fintech commands a privileged market position. Most of these companies are uniquely placed to harness a large number of users, have unparalleled access to data and sophisticated algorithmic and technology-driven approaches to building financial ecosystems in order to address customer needs more holistically, all the while fending off competitive pressures.

Through their fintech offerings, but also through their core business operations and extended ecosystems and value chains, Big Fintech companies are having significant impacts across a range of social, economic and environmental outcomes, both in their home markets and abroad. Yet, most regulators are looking at mitigating the potentially adverse impacts of Big Fintech through anti-trust regulation.

What role can governance play in the fintech sector? Ethical Boardroom

From the EU’s new Digital Services Act Package that fosters competitiveness among digital services providers and protects digital consumer rights, to the UK’s new Code of Conduct to govern dominant tech platforms, and the US Department of Justice’s antitrust lawsuit against Google to China’s move on Big Fintech platforms and e-commerce, the dominant regulatory angle is competition.

Yet, this is not the only solution. In a forthcoming paper on the topic authored by us for the United Nations Development Programme (UNDP) and United Nations Capital Development Fund (UNCDF), we suggest that corporate governance innovations can address some of the impacts of Big Fintech operating globally, and, in particular, in developing economies where they wield an outsized influence. Indeed, some Big Fintechs have already implemented voluntary mechanisms which, if enhanced, could provide an interesting blueprint for how to address their impacts on sustainable development goals (SDGs). 

For example, in an important step towards relinquishing some of its decision-making power, Facebook’s CEO established the Facebook Oversight Board. Others, such as Apple and Ant Group, have respectively advanced self-governance rules on issues related to data governance and responsible lending.

These largely experimental measures serve as examples for the sector to consider in order to address a range of preoccupations about its social, competition, fiscal and other impacts. For now, they have been adopted by individual companies, at times in a self-serving way, in the vacuum of international or national regulatory frameworks specifically addressing Big Fintech governance. 

Considering the systemic political, social and economic importance of these firms, they require tailored standards and solutions – an argument we have already advanced in prior contributions.[1]

While specific enterprises, such as insurance companies, banks, and state-owned companies, are subject to custom governance regimes, so far no consensus has been reached on this for the Big Fintech sector. This is precisely the gap that the Dialogue on Global Digital Finance Governance, jointly managed by UNDP and UNCDF, is working to address by facilitating a dialogue between the industry and stakeholders in the least developed countries where these firms are most likely to generate negatively externalities and, hence, where stakeholder engagement is critical.

“We suggest that corporate governance innovations can address some of the impacts of Big Fintech operating globally, and, in particular, in developing economies where they wield an outsized influence.”

Indeed, a number of governance issues in the Big Fintech sector merit being addressed. Fundamentally, the ownership structure of these companies, often underpinned by multiple class share structures and voting rights, represents a challenge. While it is effective at providing businesses with room for critical agility and innovation in fast-moving markets, it is limiting accountability to minority shareholders and preventing required adjustments in corporate governance structures over time. 

The use of artificial intelligence (AI) applications by Big Fintechs is another important matter. Indeed, the process by which data is harvested by Big Fintechs and, more broadly, corporate AI applications, continues to be of interest to both regulators and civil society stakeholders. While progress has been made in the potential of AI applications to harvest data for new types of information-based, collateral-free financing, voices have been raised around its failings, notably the implicit gender, race and other biases.

But these are not the only concerns. Big Fintechs’ societal impact are under the microscope – from tax base erosion in countries where economic value is extracted through tax arbitrage, to digital governance concerns such as data governance, personal privacy and biases in algorithms, to negative effects on quality of work and sustainable livelihoods, through to effects on freedom of choice through behaviour manipulation. How the sector calibrates its corporate governance in response to emerging challenges and concerns will determine how it is perceived by the public and treated by regulators going forward.

In the context of fragmented regulatory space and lack of comprehensive approaches to Big Fintech governance, the industry has a unique opportunity to be on ‘the good side of history’ by advancing voluntary mechanisms that help maximise their positive impacts and mitigate their negative externalities, particularly in countries where regulatory frameworks are weaker. 

At the same time, international organisations involved in creating governance standards must also consider Big Tech, and Big Fintech in particular, as an industry where tailored governance solutions are needed to drive more accountability.


About The Authors:

What role can governance play in the fintech sector? Ethical BoardroomAlissa Kole is a senior advisor to government and private sector leaders, leveraging her experience as an internationally recognised expert specialising in economic and corporate governance. She is the founder and director of a think-tank and advisory firm GOVERN Center, based in France and the United Arab Emirates, awarded for its work with governments and companies on the design of custom governance regulations and frameworks, as well for its work in defining governance frontiers globally. Alissa is a prolific author of numerous books and articles on corporate governance, capital market development, sovereign governance and related topics. She holds a business administration degree from York University in Canada and a degree in political economy from the London School of Economics in the UK.

What role can governance play in the fintech sector? Ethical BoardroomAiaze Mitha has led digital finance projects in 40+ countries and advised many international organisations, such as the World Bank, IFC and CGAP. He is a digital ambassador to UNCDF and is leading the dialogue on governance of Big Fintechs. Aiaze was also senior advisor to the UNSG Task Force on Digital Financing of the SDGs. Prior to that, Aiaze was chief officer at Tiaxa, a digital lending fintech. He also directed the roll-out of M-Paisa in Afghanistan and led Mobile Money Guyana. Aiaze is the vice-chair of GIFT, a global impact fintech forum, and sits on the board of several fintech startups. He holds a MSc. from University of Quebec and is a graduate of Telecom Paris.