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BigTech financial services: trends and potential growth
BigTechs have the potential to win market share in financial services because they enjoy competitive advantages such as economies of scale, vast customer networks, access to cheap funding and proprietary data that powers personalised services. They may have different core services, but all use the same key raw material – Big Data. Like smaller FinTech firms, the entry of BigTechs into finance is smoothed by the wider digitalisation of the financial sector. Firms have ‘digital proximity’ to clients, reducing the advantage of established branch networks as people manage their finances online at the touch of a button.
Benefits and risks of BigTech in finance
BigTechs in finance may bring benefits such as efficiency gains and personalised services, but also risks. Their data-based business model raises issues around privacy and could facilitate price discrimination. And if competition suffers in the long run, consumers may lose out and markets may face concentration risk.
Distributed Ledger Technology (DLT)
I now turn to DLT, an area that has promised much but has not yet delivered projects on a grand scale. For example, DLT is being considered to upgrade legacy systems of trading venues and banks. But we have not yet seen a DLT-based system emerge to handle any major component of the global financial system. As yet, there is no ‘killer app’ for DLT.
Will the arrival of BigTechs on the scene allow DLT to scale up? Just like in the days of the early internet, when several of today’s BigTechs were still start-ups, we must wait to see how the market unfolds. [...]
In my view, the EU needs a common, holistic approach to the regulation and supervision of crypto-assets. We need a regime that ensures the right level of protection without stifling innovation. I look forward to seeing how the Commission will proceed after the consultation concludes.
Global stablecoins: BigTech meets DLT
I need to start off with an important caveat. We are yet to see a detailed proposal for a global stablecoin, let alone see one operate in practice. The Libra White Paper only sets out the broad features of a proposal for such a project, which may evolve in response to regulators’ concerns. But even broad proposals in this area suggest there is potential for radical BigTech projects in future in some form.
A possible benefit from global stablecoins is to make cross-border payments easier, cheaper and quicker. They may also promote financial inclusion, especially in developing markets.
A coordinated approach
To conclude, we may soon see financial innovation on a grand scale. BigTechs operate not only across borders but across economic sectors, and their entry into the financial sector may change profoundly the risks and benefits around financial innovation.
BigTechs may allow DLT applications to reach critical mass, but we will have to see. Regulators need to stay alert to these new developments and make sure that our rules remain fit for purpose. This involves a risk-based approach to innovation, whatever the technology or the business model.
Now more than ever, we need a coordinated approach to digital finance at European and global level. Last April, the Commission and the ESAs launched the European Forum for Innovation Facilitators to exchange information and share knowledge from across innovation hubs and sandboxes in our Member States. Initiatives of this kind will become ever more valuable as we monitor innovative activity all the way from small-scale firms up to the largest banking firms and new entrants.