Fintech Regulation Draws A Fine Line Between Protecting Consumers And Reducing Their Options

The infamous GameStop squeeze that occurred in late January has thrown fintechs into hot water as Robinhood undergoes a series of investigative hearings. With this comes strong indications of big regulatory changes coming for the fintech space, which has been growing at dizzying rates.

Anything that grows at an abnormal rate will raise regulatory eyebrows, and the scrutiny has been on fintech quite intensely over the past few years, especially with growth spurred on by the pandemic. With GameStop being a landmark hearing for Robinhood and, in effect, fintechs in general, there is a lot of concern that the regulatory hearing that follows may put out a light on the magic of fintech.

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Today, fintechs have redefined personal finance, allowing users all the tools they require to effectively manage their money based on their individual circumstances. From insurance, to loans, to budgeting, and payments, there are fintechs for nearly everything. Most importantly to consumers, fintechs make zero-fee trading, instant loans, early income access, and budgeting simple. This is invaluable and impossible by the standards of traditional finance.

Naturally, there are opportunists within the fintech space whose offerings are not as well serviced or well-meaning as others. This is to be true of any competitive market of products and offerings. In the case of Robinhood, users weren’t provided sufficient information to trade responsibly, and there were no security measures in place to help protect retail traders from making disastrous financial mistakes on the market. Regulation that targets consumer responsibility will be important in cases like this.

However, more so than not, fintechs provide an invaluable resource that does more good than bad. Thanks to fintechs, Americans were able to receive access to money when they needed it, budget accordingly, enter the market sooner, and save invaluable funds that normally are paid out as fees to traditional institutions. This helped speed the massive adoption of fintechs during the pandemic as many households were put into emergency mode with restricted earnings.

The possibilities of fintechs are endless and the services are flexible, which is more suited to the modern consumer than traditional banking services. Overregulation will limit fintechs from operating, depriving millions of Americans from the crucial tools they need to financially manage their lives. However, no regulation would also leave Americans financially vulnerable if their chosen services do not provide adequate information, infrastructure, or services to facilitate their financial journeys adequately. While regulation to ensure consumer protection is important, there is a fine line to toe before consumers also lose all the benefits that fintechs have to offer.