|
|
Today, a major push for innovation in global finance is coming from ‘big techs’. Big tech companies are dominant platform providers that offer ubiquitous digital services:
The Bank of International Settlements summarised the impact of the big techs in its annual report:
There are aspects of our financial system are inefficient and even outdated. The new entrants—big tech and fintech—represent an opportunity to energise the market for payment services, credit provision and insurance, among other services.
One view is that the entry of new firms in the banking sector is a good thing because it fosters competition. Big techs are often unhampered by legacy infrastructures or by the high costs typical of many incumbent financial institutions. Platforms can be scaled up to offer financing at a lower cost, while gigabytes of financial and consumer insights promise the opportunity of better and more informed lending decisions.
Empirical research by the BIS suggests that big techs’ credit scoring applied to small vendors outperforms models based on credit bureau ratings and traditional borrower characteristics. Moreover, once a loan has been advanced, e-commerce patterns provide big techs an early warning system into future credit difficulties. So big techs big techs can create efficiency gains and can enhance financial inclusion.
At the same time they create a major challenge to regulators, which need ensure to a level playing field between big techs and banks. The big techs have a benefit of wide customer base, access to information. Their business models are also wide ranging. It makes cross-subsidization possible.
Big techs´ entry present new and challenging between financial stability, competition and data protection.