Gatekeeping the gatekeepers: when big techs and fintechs own banks – benefits, risks and policy options

Following the 2007–09 financial crisis, big techs and fintechs started to offer financial services without the need for or interest in a banking license. More recently, tech firms have obtained banking licences in several jurisdictions to access low-cost deposits and to gain the credibility a banking licence affords. These developments have been facilitated by a conducive regulatory environment, where some authorities have set aside historical concerns regarding the ownership of banks by non-financial companies (NFCs) and allowed new classes of NFCs – such as tech firms – to own banks, in the hope of improving consumer outcomes.    

This paper assesses the merits of extending a banking licence to tech firms and explores their regulatory landscape in seven jurisdictions. To ascertain their risk characteristics, we categorise the universe of tech firms that provide financial services into three groups: standalone fintechs, large diversified fintechs and big techs. Big techs and large diversified fintechs pose the most significant supervisory concerns, with the former requiring more onerous prudential measures than the latter. To mitigate their perceived risks, authorities impose various quantitative and qualitative requirements during authorisation, but supervision and enforcement may pose formidable challenges. In this context, we outline a range of policy options that are mapped to the risk profile of tech firms seeking a banking licence, to help support the gatekeeping role of prudential authorities.

JEL classification: G20, G21, G28, K20, K23.

Keywords: big techs, fintechs, fintech banks, neo banks, virtual banks, digital banks, challenger banks, internet banks, bank licensing, authorisation, regulation, tech firms, technology companies, non-financial companies, bank ownership.