Big tech in finance: opportunities and risks

The entry of large technology firms ("big techs") such as Alibaba, Amazon, Facebook, Google and Tencent into financial services, including payments, savings and credit, could make the sector more efficient and increase access to these services, but also introduces new risks, the Bank for International Settlements (BIS) writes in its Annual Economic Report.

In a special chapter on big tech in finance, the BIS notes that these companies offer many potential benefits, including enhanced efficiency of financial services provision, facilitating financial inclusion and promoting associated gains in economic activity.

However, big techs' entry into finance introduces additional elements into the risk-benefit equation. Some are old issues of financial stability and consumer protection in new settings, but a new element is big techs' access to data from their existing platforms. This could spark rapid change in the financial system through the emergence of dominant players that could ultimately reduce competition.

The role of big techs in finance raises issues that go beyond traditional financial risks, according to the BIS. Tackling these requires striking a balance between financial stability, competition and data protection. Regulators need to ensure a level playing field, taking into account big techs' wide customer bases and particular business models.

"The aim should be to respond to big techs' entry into financial services so as to benefit from the gains while limiting the risks," says Hyun Song Shin, Economic Adviser and Head of Research at the BIS. "Public policy needs to build on a more comprehensive approach that draws on financial regulation, competition policy and data privacy regulation."

As big techs' move into financial services accelerates, expanding beyond regulatory perimeters and geographical borders, policymakers will need institutional mechanisms to help them work and learn together. Coordination among authorities - national and international - is crucial to sharpening and expanding their regulatory tools.

The special chapter is released on 23 June, followed by the full Annual Economic Report, and the Annual Report 2018/19, on 30 June.

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