Fintech automation brings speed and innovation, but system failures, outages, and over-reliance highlight the need for strong oversight and planning.
At its heart, fintech is about automation and is defined as the use of technology to transform how financial services and products are presented to consumers. This often means automation, which is why fintech is synonymous with faster services, greater efficiency, and sharper insights.
However, this use of automation fundamentally hinges upon such solutions having the best possible systems. Like with self-driving cars, handing over automation controls means very high levels of trust have to be had in these systems! Unfortunately, fintech automation failures can have real repercussions and expose fintechs to a lack of fallback options and accountability. This can have several negative impacts, such as financial losses for all parties and a loss of consumers’ trust.
Concerns around fintech automation challenges will likely worsen as AI becomes more heavily used in the ecosystem. AI is exciting many people due to how much it can automate more functions. Still, this even greater reliance on technology does threaten to leave fintech solutions even more exposed to errors. For example, banks and other providers increasingly automate fraud detection functions and use advanced systems to identify and flag potentially suspicious activity. However, fraud detection automation errors mean these can arbitrarily flag—and potentially impede—perfectly normal behaviour. Imagine a person who spends little each month, and then they suddenly have to make an emergency £10,000 transfer for a new boiler. Their bank could flag this as suspicious and halt the transfer, stopping this homeowner from getting their heating back on!
The reliance upon automation is also exposed when widespread outages or connectivity problems occur. In recent months, there have been several instances of widespread outages at major banks or other financial institutions where core systems have been rendered useless. At the end of January, Barclays Bank customers could not access app and online banking services following a major IT outage that lasted three days. Then, a widespread outage hit Lloyds Bank, Nationwide, and TSB customers in February.
Such outages are often due to simple system errors or, in a more sinister way, because of bad actors. In fact, in 2024, 65% of financial services firms were hit by cyber-attacks – up from 34% in 2021. Cyber criminals use the chaos from such outages to their advantage and will threaten financial institutions with prolonged down periods unless hefty ransoms are paid. This goes beyond simple inconvenience. In an increasingly cashless society, if people cannot make online transactions or even get cash out of ATMS, they will panic. An outage in financial services can have serious consequences for people and impact their ability to pay their bills and buy food.
Fintech innovation is brilliant, and each firm waxes lyrical about its specific systems and how these have been designed. This is all well and good until they have to work with another system that perhaps isn’t as well designed or compatible!
A growing fintech ecosystem means a greater reliance on interconnection, but a chain is only as strong as its weakest link. This can have real repercussions when payments are made, and 90% of CFOS report experiencing payment problems. Each failed transaction adds to businesses’ costs and creates additional operational burdens as businesses address inquiries, refunds, and disputes. For businesses that rely on manual reconciliation processes, these errors can be costly, straining resources and preventing them from focusing on growth and innovation. Such revenue losses can be even more costly for smaller businesses, and even one-person operations, where the difference between an on-time and a late invoice payment can be extreme.
This puts even greater emphasis on fintech solutions to work, and these are to be backed up with the right technical support. Interestingly, it does not mean fintechs have to be heavily backed with the most resources to work. For instance, a recent and high-profile case was Zing—HSBC’s foray into the fintech world with its own international payments app. Zing launched in January 2024 after years of development and with the support of one of the world’s largest and most established banks. That it struggled to gain traction and was eventually closed a little over 12 months later underscores that success in fintech requires more than just scale or capital.
These fintech automation horror stories highlight an important lesson. Ironically, making these solutions work means stepping away from the technology to get the most out of it.
Though it can be tempting to rely heavily on such automation systems from the outset, it’s important that these complement a fintech’s team and do not entirely replace any core functions. This means not completely abandoning all manual oversights required at fintechs and ensuring enough human input is maintained. Additionally, these systems must be thoroughly tested in a variety of situations.
It is also worth asking bold, essential and inconvenient questions that start with “what if”? If a significant power outage existed, could a fintech’s customers’ money still be protected and accessible? If a specific system were to go down, could enough fintech team members step in to manually provide cover in the interim? Asking these questions and being prepared for worst-case scenarios is vital to ensure fintech horror stories stay rare!
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