Bigger technology companies are stepping into the FinTechs market to improve revenues and broaden financial inclusion using upgraded technologies like AI and Big Data.

The entry of technology giants into financial services promises efficiency, gains, and enhanced financial inclusion. Regulators maintain a level playing field between big techs and banks nurturing their broad customer base, information accessibility, and broad-ranging business models. Leading technology firms, including Amazon, Alibaba, Facebook, Tencent, and Google, have ventured into payment gateways, financial services, insurance, money management, and lending.

The size and customer reach of the financial market have encouraged big tech brands to enter into this industry to spark a rapid change. It offers numerous potential benefits like- analyzing the network structure with already established platforms, reducing the need for collateral for loans, and auto-assessing the riskiness of borrowers. Innovation and investments are now happening in that direction.

However, historically, the activities of big techs companies concern broader public interest that goes beyond the immediate circle of users and stakeholders. Public policy that governs them should be based on a comprehensive approach drawing on financial regulation, competition policy, and data privacy regulation.

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As per a survey conducted on the revenue model of the leading tech enterprises – the core business (e.g., cloud computing and data analysis) accounts for approximately 46% of their revenues. Financial services, regardless of the legacy of the venture, represent almost 11% of their total revenue. The move of tech giants into the financial sector has given most extensive results in China, along with commendable expansion into other emerging market economies (EMEs) in Southeast Asia, East Africa, and Latin America.

Building on the e-commerce platforms, some big techs have ventured into lending, mainly to SMEs and consumers. While the total FinTech credit per capita is high in China, Korea, the United Kingdom, and the United States, big techs plan to capture the smaller market in countries like Argentina and Korea as well.  Their DNA lowers the barriers to the provision of financial services by reducing transactional costs and information transfers to enhance financial inclusion.

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Though the new business and financial markets foray of big tech brands is within the scope of traditional financial regulation, they do require special compliances for financial management, competition, and data privacy objectives. The mapping process between policy tools and the ultimate welfare outcomes is more complicated in the case of big techs these brands. That is where the Bank for International Settlements (BIS) has stepped in to build an innovation hub based in the Swiss city of Basel, Hong Kong, and Singapore, to work closely with central banks. This is to identify and develop insights into the revolutionary trends in technology affecting central banking.

With Facebook launching Libra cryptocurrency, central bankers have agreed on the urgency of coordinating regulatory responses to financial technology trends. The hubs will focus on helping central banks to identify trends and developments in technology, keeping abreast of regulatory requirements to safeguard financial stability. Basel-based BIS has already called on politicians to closely scrutinize Big Tech’s incursion into finance, questioning data privacy, competition, markets, and banking. The Hong Kong Monetary Authority, Swiss National Bank (SNB), and the Monetary Authority of Singapore have all signed up to support the initiative. Foreign exchange interventions guided by the macro-prudential policy will monitor the money flow across economies. Macro-prudential measures across the last two decades have improved the trade-offs monetary policy faces, including those in connection with capital flow and associated exchange rate fluctuations.

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