The Bank for International Settlements (BIS), often described as the bank for central banks, has issued its annual report for 2019, expressing concerns over the expected disruption as big tech firms like Facebook enter the financial space.
While titled “Big tech in finance: opportunities and risks,” the report looks at the risks and challenges posed by companies such as Alibaba, Amazon, Facebook, Google and Tencent, and rather pays lip service to the potential benefits of this building fintech revolution.
These firms have developed huge customer bases, says BIS, and have the benefit of a “data-network-activities loop” which gives them ” the potential to become dominant.”
While the encroach of such companies into payments, money management, insurance and lending has only just started, it brings the potential for major change in the finance industry.
On the benefits, BIS writes:
“Big techs’ low-cost structure business can easily be scaled up to provide basic financial services, especially in places where a large part of the population remains unbanked. Using big data and analysis of the network structure in their established platforms, big techs can assess the riskiness of borrowers, reducing the need for collateral to assure repayment. As such, big techs stand to enhance the efficiency of financial services provision, promote financial inclusion and allow associated gains in economic activity.”
However, such change brings new risks, according to the report. As well as the old issues of financial stability and consumer protection, “big techs have the potential to loom large very quickly as systemically relevant financial institutions.” At this point, BIS specifically raises the recent reports of Facebook’s new Libra project,