According to recent developments, Bank for International Settlements (BIS) has published its latest report for the year 2019. The report revolves around the risks and opportunities related to the entry of “big techs” into the financial space.
The Bank for International Settlements (BIS) is an international financial institution with sixty central Banks as members, and a mission to serve central banks to gain financial stability and promote international cooperation.The report, “Big Tech in Finance: Opportunities and Risks” tends to explore the impacts of entry of large technology firms such as Amazon, Alibaba, Tencent, Google and Facebook into financial services.
The business model of these companies is based on enabling direct interaction among users. So, these companies get hold of a vast stock of user data as a by-product, which is then utilized to offer various services and consequently generating more activity. Due to this data-network-activity loop, some of these big techs have ventured into providing services related to finance such as money management, payments, lending, and insurance.
So far, these financial services account for only a small portion of their businesses, but keeping in mind the customer reach and size of these companies, a lot of things ought to change in the finance industry. These established platforms can readily scale up to provide basic financial services, as they already have the advantage to reach places where most of the population is unbanked, hence, tapping into new markets using the big data that they already possess.
Although big techs’ entry into financial space may increase efficiency in the provision of financial services, enable gains in economic activities, and foster financial inclusion, this new entry also introduces an element of risk-benefit balance into the finance industry. Hence, the same old issues of consumer protection and financial stability, but in modern settings.
Furthermore, some of the risks and challenges are new and yet unknown, probably extended beyond the realms of financial regulations. As these big techs have the advantage of the data-network activities loop; the raising competition among these companies could potentially lead to some data privacy issues. However, issues of these sorts could be sorted out by proper policy making with the aim to regulate data privacy and competition privacy.
Lastly, the report stated that as the world is changing at a fast pace, every aspect of human life is digitizing, including the economy. There is a dire need for policymakers to keep themselves abreast of the developments and to be open to new learning and coordinating with each other. Big techs’ entry into financial services should not be seen merely as a risk but an opportunity that would bring benefit to everyone while limiting the risks.