The Bank for International Settlements (BIS), often described as a central bank, publishes its annual report for 2019, expressing concern about the expected disruption, as big tech companies like Facebook enter the financial space. the report looks at the risks and challenges of companies such as Alibaba, Amazon, Facebook, Google and Tencent, and rather deeply recognizes the potential benefits of this revolution in building fintech.
These companies have developed huge client bases, say BIS, and benefit from the "network data networking cycle", which gives them "the potential to become dominant."
While the entry of such companies into payments, money, insurance, and lending has just begun, it has the potential for major changes in the financial industry.
On the benefits, BIS writes:
They can easily be increased to provide basic financial services, especially in places where a large proportion of the population remains without banking services. Using large data and network structure analysis on their established platforms, large technology can assess the risks of borrowers, reducing the need for collateral to secure payouts. As such, major technologies aim to increase the efficiency of the provision of financial services, promote financial inclusion, and enable contiguous profits in economic activity. "
However, this change brings new risks, according to the report. As well as the old problems of financial stability and consumer protection, "big technology has the potential to rise very quickly as systemically relevant financial institutions." At this point, BIS explicitly raises the latest reports on the new Libra project on Facebook that sees the giant of social media "is considering the offer of payment services to its clients on a global scale."
There are also "important new and unknown challenges" which, according to the BIS, go beyond the scope of the current regulations. The report says that "big technologies have the potential to become dominant through the benefits of cycles of data and networking activities, raising competition and data privacy issues."
As such, policies will are needed for a "holistic approach" on financial regulation, competition policy and data privacy regulation
"The aim should be to respond to the penetration of major technology into financial services so that profits from limiting the risks. As large technology operations are located on regulatory perimeters and geographical borders, coordination between authorities ̵
With such large companies that have the ability to work across borders, international coordination on rules and standards is needed to overcome the potential change in the "risk-benefit balance", says BIS.
As stated in the report, the crypto Facebook project may not have an easy way with global regulators, as the company seeks to launch financial services for its billions of consumers.
France has already moved on to create a task within the G7 to look at the issues raised by Libra, while US legislators have also voiced concerns about the project.
Image of the BIS headquarters via Shutterstock