The march of so-called Big Tech into financial services could pose a bigger threat to banks than upstart fintech specialists, warranting scrutiny for threats to financial stability, a global regulatory body said on Thursday.
While the report by the Financial Stability Board (FSB) stops short of recommending specific regulatory reform, it adds to widening scrutiny of Big Tech players, such as Alibaba , Google and Amazon, already under the gun from politicians over their market clout and use of consumers’ data.
Regulators have been tracking the rise of financial technology businesses, which offer services that were previously the preserve of mainstream banks, and are checking for changes in market concentration and competition.
However, a broader view may be needed, said the FSB, which comprises regulators, central bankers and government officials from the Group of 20 Economies (G20).
“The competitive impact of Big Tech may be greater than that of fintech firms,” the report said.
“While the financial stability implications of fintech have generally been judged to be small because of their relatively small size, this could change quickly with deeper involvement of the large technology providers.”
Big Tech, along with other outsourcing developments such as cloud computing, may warrant vigilance of how heightened competition affects profitability, lending standards and resilience to cyber attacks, the report said.
Fintech firms, typically companies that offer payment services, have generally not had sufficient access to cheap money or a big enough customer base to pose a serious competitive threat to banks, the FSB said.
The Big Tech sector, meanwhile, has established customer networks, brand recognition and access to cheap funding, which would help them to achieve scale very quickly in payments, lending and potentially insurance, the report said.
The FSB highlighted the growth and reach of Alibaba as an example of how Big Tech can expand rapidly in financial services.
Alibaba affiliate Ant Financial operates Yu’e Bao, the world’s biggest money market fund with 170 million customers and 1.5 trillion yuan in assets. Baidu, China’s biggest Web search engine, has also expanded into banking and financial products.
There is less evidence, however, that other Big Tech companies could replicate the Ant Financial model and no evidence they are seeking to compete with incumbents in such a wide range of sectors, the report added. (Reporting by Huw Jones Editing by David Goodman)