Big tech interdependencies – a key policy blind spot

The increasingly prominent role of large technology firms (big techs) in the financial sector has raised questions about their inner workings and regulation.

Big tech business models are characterised by strong internal and external interdependencies. Intragroup dependencies arise from the common use by big tech entities of a general payment infrastructure, technological platforms and applications; and from sharing data and insights derived from those data across the services they provide. External interconnections arise from partnerships of big tech entities with financial institutions to provide financial services. The financial services industry and regional big techs have come to heavily rely on technological services provided by global big techs, such as data analytics and cloud computing.

Big tech interdependencies come with specific risks, in particular to operational resilience, and may require the development of specific entity-based rules for big tech operations in the financial sector. In the meantime, authorities are searching for interim solutions to counter potential financial stability risks.

This paper assesses the interdependencies inherent in big tech business models based on publicly available information on Alibaba, Amazon, Grab, Jumia, Mercado Libre and Rakuten. It outlines the regulatory implications of how big techs provide financial services and the tools financial authorities have at their disposal now to address related risks.

JEL classification: G18, G21, G23, G28, L41, L51

Keywords: big techs, business model, interdependencies, activity-based regulation, entity-based regulation, operational resilience, financial stability