A two-sided affair: banks and tech firms in banking

Tech firms, including big techs and fintechs, now deliver various financial services traditionally provided by banks, often by obtaining licences or forming partnerships with banks. In such partnership arrangements, the bank provides its infrastructure (such as the ability to access the payment systems) to operationalise the tech firm's offering of financial services, while the tech firm engages directly with the customer.

This involvement of tech firms has transformed the structure of the banking value chain, presenting both opportunities and challenges for banks and supervisors. Big techs, due to their size and negotiating power, present unique challenges.

To address these developments, authorities have implemented various policy responses, including initiatives to gather more information; adjust prudential and conduct requirements or clarify supervisory expectations in areas like operational resilience, financial soundness, consumer protection, AML/CFT and competition, and reassess their regulatory perimeter and supervisory approach.

Given the market share of more dominant tech firms and their potential for rapid expansion, a disruption in their financial service offerings could have significant implications for public trust and financial stability.

Therefore, additional actions at the national level, supported by international policy cooperation, could be warranted. This could involve introducing specific entity-based rules for big tech operations in finance to address risks arising from new corporate structures that are not covered by current regulatory frameworks.

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

Keywords: tech firms, fintechs, big techs, banking, partnerships, banking-as-a-service, deposits, credit, payments, regulation, consolidated supervision, conglomerate supervision, financial stability