The march on the banking sector by major technology companies could throw up risks for financial stability according to a global regulatory body.
“Vigilant monitoring” will be be required, the Financial Stability Board says, as the likes of Google, Facebook and Amazon line up ways to use their size and funding power to enter the world of financial services.
The FSB report noted that while “nascent” in most of the developed world, from services to lending, insurance and investment management, major tech companies were beginning to gain a foothold in regions like southeast Asia, east Africa and Latin America.
While Facebook recently hit headlines for attempting to launch its own digital currency, Libra, Apple has already entered the credit card market, while Google and Amazon are reportedly in discussions around current account launches with Citigroup and JP Morgan Chase respectively.
The regulatory body, on which the likes of the Bank of England, the European Central Bank and the US Federal Reserve sit, noted that fair competition should be upheld through agreements on data sharing across financial technology groups, banks and major technology companies, for example.
The FSB writes: “The entry of Big Tech firms into finance has numerous benefits, including the potential for greater innovation, diversification and efficiency in the provision of financial services. They can also contribute to financial inclusion, particularly in emerging markets and developing economies, and may facilitate access to financial markets for small and medium-sized enterprises.
“However, Big Tech firms may also pose risks to financial stability. Some risks are similar to those from financial firms more broadly, stemming from leverage, maturity transformation and liquidity mismatches, as well as operational risks.
“The financial services offerings of Big Tech firms could grow quickly given their significant resources and widespread access to customer data, which could be self-reinforcing via network effects. An overarching consideration is that a small number of Big Tech firms may in the future come to dominate, rather than diversify, the provision of certain financial services in some jurisdictions.”
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