Fintech Horror Stories: When automation goes wrong

At Cardaq, we’re often writing about the new and wonderful ways fintech is bringing innovation to our lives and changing the way in which we use money – however it’s only fair we also cover the dark side of fintech automation too. This digital transformation of how we use our money, and how our money works for us, is fantastic but it’s also worth covering the fintech horror stories.

Fintech automation cautionary tales

At its heart, fintech is about automation and is defined as the use of technology to transform the way in which financial services and products are presented to consumers. This often means automation which is often 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 the controls of automation means very high levels of trust have to be had in these systems! Unfortunately, fintech automation failures can have very real repercussions and leave fintechs exposed to a lack of fallback options and accountability. This can have a number of negative impacts, such as financial losses for all parties and a loss of consumers’ trust.

Concerns around fintech automation challenges are likely to worsen as AI becomes more heavily used in the ecosystem. AI is exciting a lot of people due to how much it’ll be able to automate more functions, but this even greater reliance on technology does threaten to leave fintech solutions as even more exposed to errors. For example, banks and other providers are increasingly automating fraud detection functions and using 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 very well flag this as suspicious and halt the transfer, stopping this homeowner from getting their heating back on!

Fintech automation disaster examples

The reliance upon automation is also exposed when there are widespread outages or connectivity problems. 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, customers of Barclays Bank were unable to access app and online banking services following a major IT outage that lasted three days. And then in February, a widespread outage hit customers of Lloyds Bank, Nationwide and TSB.

Such outages are often due to simple system error 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 are unable to 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 automation business mistakes

Fintech innovation is brilliant and each specific fintech firm will wax lyrical about their specific systems and how these have been designed. This as 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 for when payments are made and 90% of CFOs report experiencing problems with payments. 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 that these are to be backed up with the right level of technical support. Interestingly, there does not mean fintechs have be heavily backed with the most resources to work. For instance, a recent and high-profile fintech disaster 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 did so with the backing of one of the world’s biggest and most profitable banks. The fact this failed to gain traction and was forced to close a little over 12 months later highlights that it takes more to make fintech work.

Learning from fintech’s mistakes

These fintech automation horror stories highlight an important lesson. To make these solutions work ironically means stepping away from the technology in order 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 that enough human input is maintained. Additionally, these systems must be thoroughly tested in a variety of situations.

It is also worth asking bold, important and inconvenient questions that start with “what if”? If there was a major power outage, could a fintech’s customers’ money still be protected and accessible? If a specific system were to go down, could enough of a fintech’s team member step in to manually provide cover in the interim? Asking these questions, and being prepared for worst case scenarios, is important to ensure fintech horror stories stay rare!

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