April 3, 2025
Authors
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Associate Director, Financial Services and Human Rights, BSR
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Maggie Paruta
Former Associate, Financial Services, BSR
Key Points
- Fintech is a booming industry, providing more accessible, secure, and convenient ways for businesses and consumers alike to use financial services.
- However, fintech opportunities also pose significant social and human rights risks, with potential negative consequences for people, leading to material risks for companies.
- Fintechs can proactively identify, prevent, mitigate, and account for potential and actual impacts by taking several key steps and developing a tailored approach aligned with the UNGPs.
Financial technology (“Fintech”) refers to technology that financial services companies use to make their products and services more secure and widely available. It has transformed a historically slow, high-barrier industry into a faster and more accessible global financial system through a range of innovations, from mobile applications and payment platforms to digital currency and specialized algorithms to analyze data and insurance risk. The industry exhibited an average growth rate of over 50 percent from 2020 to 2022, with projected strong global growth into the future.
In digitizing the financial services industry, one of fintech’s primary benefits has been increasing financial inclusion. The UN Department of Economic and Social Affairs advocated for digital financial solutions as a method for achieving financial inclusion under the 2030 Sustainable Development Goals (SDGs), given its potential to help eradicate poverty and foster gender equality and economic independence for women.
However, fintech opportunities also pose significant social and human rights risks, which can have negative impacts on people, as well as reputational, legal, and regulatory consequences for companies. In light of fintech’s rise and potential to affect billions of lives, it is critical that fintech companies, or fintechs, evaluate and address negative social and human rights implications associated with its deployment to maximize the societal and economic benefits offered by these new technologies.
Human Rights and Fintech: Key Issues
Discriminatory Products and Services
Fintech is often powered by AI-driven technologies, which can help determine the financial risk of lending to retail customers or small business owners. However, when AI algorithms are trained on historical or unverified data, it can lead to biased, discriminatory, or nonrepresentative outcomes for customers. Unless data integrity is proactively addressed, AI-driven financial models or predictions may become poisoned or corrupted, leading to unfair and harmful outcomes. This includes denying or offering products and services with unfair terms and rates, based on an individual’s race, sex, marital status, or other protected characteristic.
Examples of human rights implicated: Right to be free from discrimination and to enjoy equal rights regardless of nationality, place of residence, sex, gender identity, sexual orientation, national or ethnic origin, color, religion, language, or any other status
Fraudulent or Misleading Marketing and Lending Practices
By expanding access to financial markets, fintechs are engaging new customers who may have lower financial literacy or are more vulnerable to fraudulent, unfair, or deceptive practices. Fintech marketing might promote easy access to capital due to its convenient and quick digital loan application processes, but it can come with hidden fees and exorbitant interest rates that perpetuate cycles of poverty and indebtedness. Without proper internal controls and regulatory oversight, fintech can cultivate an environment where bad actors can fleece and erode fintech’s benefits for customers, including “unbanked” and other people who are historically excluded from the formal financial system.
Examples of human rights implicated: Right to access information and freedom of expression; right to a decent standard of living
Data Breaches
A key element of fintech’s value proposition—the reliance on digital platforms, online applications, and cloud services—can actually increase fintechs’ exposure to cyber threats. Potential vulnerabilities in these tech solutions, combined with the nature and volume of customer data, make fintechs a prime target for cyber-attacks. Hackers can collect highly sensitive financial and other personal information and use this to exploit customers through identity theft, fraud, and other means. Without proper controls and oversight, fintech companies may facilitate the violation of customers’ privacy rights, which may even lead to catastrophic impacts on their financial health and overall well-being.
Examples of human rights implicated: Right to privacy, including protections from malicious and unauthorized use of personal data. Identity theft can also implicate a range of social, economic, cultural, civil, political, environmental, and labor rights.
Corruption, Trafficking, and Other Illicit Activities
Cryptocurrency and other fintech payment platforms with encryption features (typically employed by companies to protect user data) are at risk of being used for illicit transactions, perpetuating human rights risks associated with illegal acts, such as corruption, bribery, and human and other trafficking activities. While corruption and bribery have their own legal and regulatory ramifications, they also have grave social and human rights impacts, often by siphoning off resources from essential public goods and services. In addition, an estimated US$150 billion worldwide is exchanged each year to fund human trafficking activities—often through legitimate financial channels—enabling the exploitation and abuse of vulnerable populations. Mobile payments and cryptocurrency have a high risk of being used for this illicit financial activity because of their often anonymous nature, which makes it harder for law enforcement to detect.
Examples of human rights implicated: Right to be free from slavery, including specific protections related to sex trafficking, debt bondage, and child labor; right to life, liberty and security; right to equal participation in political and public affairs and service; right to a decent standard of living; right to a clean, healthy, and sustainable environment; right to access effective remedy
The rapid and widespread adoption of fintech solutions can compound the risks discussed above, thereby exacerbating and contributing to the further marginalization of individuals traditionally excluded from the financial system. While fintech can expand access to capital and provide innovative financial solutions, it is important that fintech companies address the negative human rights implications associated with their products and services. This is not only beneficial for business and the overall health of the financial system, but also for customers and their communities.
How Fintechs Can Address Actual and Potential Impacts
Based on our work across the financial services and technology sectors, there are some initial steps that fintechs can take to manage these risks and amplify the benefits associated with fintech solutions.
Conduct Human Rights Due Diligence
The UN Guiding Principles on Business and Human Rights (UNGPs) establish the authoritative global framework for business to identify, prevent, mitigate, and account for negative impacts on people and their rights. This framework involves undertaking ongoing human rights due diligence, which can help fintechs more readily identify and address actual and potential impacts associated with the use and deployment of fintech solutions and offer more rights-compatible products and services.
Manage AI-Related Risks and Opportunities through a Responsible AI Approach
Adopt policies, practices, and governance frameworks centered on the ethical and human rights considerations of developing and applying AI technologies. This can include creating internal oversight and review functions related to AI, as well as assessing data inputs, algorithms, and use cases and publicly disclosing use parameters and limitations.
Develop Data Management and Security Measures in Line with “Privacy by Design” Principles
Given the persistence of threats to data security and customer privacy, fintechs should regularly update systems and controls around collecting, storing, using, sharing, or combining customer data using a privacy and data protection by design approach that comports with the highest international standards.
Engage Meaningfully with External Stakeholders
Fintechs can regularly engage with experts, business partners, customers, and communities affected by their products and services to better understand the risks and management gaps and make informed decisions on how to address them based on best practice and emerging regulations.
Enable Access to Remedy
Under the UNGPs and a growing number of regulations, companies are expected to adopt or participate in effective grievance mechanisms that provide a channel for affected stakeholders to report concerns and receive redress for adverse impacts connected to their operations and value chains. These channels provide fintechs with a valuable source of learning that is essential for improved performance, accountability, and social license to operate—the unwritten acceptance and approval by affected stakeholders and the public of a company’s operations and activities.
Contribute to Industry-Level Change
Fintechs can engage in multi-stakeholder platforms and industry dialogues to tackle systemic challenges, such as human trafficking, socioeconomic inequality, and weak regulatory environments that exacerbate financial exclusion and other harmful impacts associated with fintech solutions.
By undertaking these key steps, fintechs can harness the positive potential that fintech solutions offer in a responsible and rights-respecting manner. To learn more about how BSR can help your company manage social and human rights risks associated with its products, services, and business relationships, please reach out to us.
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