Report Expresses Concerns Over Big Tech Firms’ Entry into Finance

BASEL, Switzerland—The Bank for International Settlements (BIS) has issued its annual report for 2019, expressing concerns over the expected disruption as big tech firms like Facebook enter the financial space.

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“Titled “Big tech in finance: opportunities and risks,” the report looks at the risks and challenges posed by companies such as Alibaba, Amazon, Facebook, Google and Tencent, rather than paying lip service to the potential benefits of this building fintech revolution,” Yahoo Finance said.

These firms have developed huge customer bases, said BIS, and have the benefit of a “data-network-activities loop” which gives them ” the potential to become dominant.”

While the encroachment of such companies into payments, money management, insurance and lending has only just started, it brings the potential for major change in the finance industry, Yahoo Finance noted.

Easy to Scale Up

“Big techs’ low-cost structure business can easily be scaled up to provide basic financial services, especially in places where a large part of the population remains unbanked,” the report stated. “Using big data and analysis of the network structure in their established platforms, big techs can assess the riskiness of borrowers, reducing the need for collateral to assure repayment. As such, big techs stand to enhance the efficiency of financial services provision, promote financial inclusion and allow associated gains in economic activity.”

Additional Risks

Not surprisingly, the changes also bring risks, according to the report. In addition to the old issues of financial stability and consumer protection, “big techs have the potential to loom large very quickly as systemically relevant financial institutions.”

As an example, BIS pointed to Facebook’s new Libra project, which sees the social media giant “considering offering payment services for their customers on a global basis,” Yahoo Finance explained.

There are also “important new and unfamiliar challenges” that, BIS suggests, go beyond the remit of current regulations. The report says that “Big techs have the potential to become dominant through the advantages afforded by the data-network-activities loop, raising competition and data privacy issues.”

As such, policies will be needed for a “comprehensive approach” on financial regulation, competition policy and data privacy regulation,” the report states, adding, “the aim should be to respond to big techs’ entry into financial services so as to benefit from the gains while limiting the risks.”

 

Section: Standard
Word Count: 472
Copyright Holder: CUToday.info
Copyright Year: 2019
Is Based On:
URL: http://www.cutoday.info/Fresh-Today/Report-Expresses-Concerns-Over-Big-Tech-Firms-Entry-into-Finance