Financial technology can solve a lot of problems that exist in the financial sector with respect to both consumers and firms. For example, it can help those who don't have access to the traditional banking sector be able to get access to financial services at lower costs than expensive alternative providers, and from the perspective of entrepreneurs and firms, it can help new businesses who might not have access to sources of funding from traditional financial institutions be able to crowd fund at relatively low cost in order to fund their new enterprises, but that's not to say that there aren't also problems that exist with respect to financial technology service providers and new challenges for regulators as they think through how best to intervene and to help facilitate the growth of these markets. The potential for a data breaches and cybercrime attacks is one area in which financial technology fields especially vulnerable. According to the FBI's Internet crime report in 2017, cybercrime cost the US almost $1.5 billion. As more consumer information is stored on the Cloud and more financial technology is happening, and services are being provided to consumers on their personal electronic devices like their smartphones, concerns about cyber hacking dominates significantly. As the technology innovators have at their disposal to try to better the lives of consumers improve significantly, so too does the technology that hackers and cyber criminals can rely upon to prey on consumers' information and regular use of financial technology innovations. One case study that's quite helpful to see the issues posed by data breaches and potential cyber criminality is of course, Equifax is recent exposure to hackers of its customer's personal information. Equifax technology allows consumers to interface what their credit scores online, and stores personal and consumer information on its web-based platform service. The enterprise technology that Equifax relied upon how to vulnerability which was identified months before the breach but not fixed, and so hackers were able to steal personal information of approximately half of the United States population. That means that hackers were able to get access to social security numbers for around a 143 million US citizens. The regulatory response to the Equifax data breach was quite swift. Senator Elizabeth Warren co-sponsored a bill that would try and give the Federal Trade Commission more direct supervisory power over credit reporting agencies like Equifax and the ability to levy fines. The Equifax example is the salient one, both because it's a very large data breach the implicates around half of the population of the United State and because it was relatively easily avoidable data breach given that this vulnerability was known but not fixed for months leading up to the hack. However, this is far from the only instance of the cyber criminality and fraudulent stealing of consumers personal information that is made available by financial technology service providers. Large financial institutions are often the targets of these Internet hacks, those like JP Morgan Chase and eBay and T-Mobile, and online payment structures like, Target and Apple, and there's a question for how regulators should think about harnessing the power of technology, and allowing for innovation in these new sectors while simultaneously being cognizant of the fact that protecting consumer information is a difficult and important task, and so if consumers transacted less online, there would certainly be less ability and less concern that their personal information could be so easily stolen by those with expertise in cyber criminality but on the other hand, financial services provision would be less efficient and less able to serve a large swath of the population both here in the United States but much more globally as well, and so the inherent question here is how to weigh the benefits of innovation and the benefit of broads financial inclusion through financial technology service providers against the nature of criminal threats that will inevitably occur as more and more of our personal transacting is happening online. The idea of data breaches or cyber criminality while heightened in the context of financial technology are not really new problems. It's always been a concern that individuals could get access to personal information in ways that are undesirable and likely to harm consumers, but financial technology also creates a set of problems that are really quite unique to these new innovative platforms and pose a special confusion for regulators who have yet to have to deal with the concerns that are being implicated in these markets. So for example, recently, cryptocurrency investors were locked out of a $190 million after the founder of a particular Canadian exchange died prematurely without making provisions for the future viability of this particular cryptocurrency. Now, the main idea of a crypto asset is its a de-centralized ledger to allow for anonymous transacting, and while this creates tremendous benefits for consumers and makes financial intermediation much more decentralize, it also creates quite unique problems that wouldn't occur, for example, if Jamie Diamond passed away, the CEO of JP Morgan Chase, perhaps there will be turbulence at the firm but the bank would roughly continued to function as normal, and instead, the death of a cryptocurrency exchange founder unexpectedly practically means that large sums of money can effectively disappear. There would be no such concern at a bank that deposits of individuals or of firms would magically disappear even if the founder of one of these large financial institutions was to pass away prematurely. Another divergent example involves peer-to-peer lending schemes. The nature of peer-to-peer lending is individuals apply for a loan and that loan is given to them by the peer-to-peer lending platform, and then repackaged and sold to the other side of the platform which the nature of peer-to-peer lending makes it sound like it's another peer of yours, but in reality it tends to be large institutional investors, and in this particular context, the loans that were being resold didn't meet the buyer's criteria. The buyer in this case was Jeffrey's bank but they were doctored by the peer-to-peer lending platform to make it appear that they did, and this became a cause for concern of the FTC in their context of Lending Club, and eventually led to the resignation of Lending Club CEO. One very interesting case study that illustrates the unique problems posed by financial technology has to do of course with Bitcoin and particularly this Silk Road. The idea behind Bitcoin is it allows for anonymous and fast transacting between consumers for a variety of goods, essentially any kind of good that you could conceive up. The anonymity is quite desirable to those who value their privacy, and would prefer that their exchange happen on a de-centralized ledger. The concern though with such technology is that it can be used for nefarious activities as is the case with the Silk Road where transactions would occur. For example, illegal drugs on what is called the dark net through the use of Bitcoin and other crypto assets. Estimate suggested that around 70 percent of the transactions that occurred on the so-called Silk Road involved illegal activities such as drug trading. This suggest the need for more regulation and also more direct intervention in this space, and points to the idea that it is important for us to develop use cases or think through what the use cases for crypto assets maybe that simultaneously improve the lives of consumers and allow us to transact more easily, more quickly, more efficiently, but also preserve a role for and provide a venue for appropriate regulation, and control over activities that we may be concerned might happen outside of the traditional financial space.
