The coordinator of the central banks, the International Bank for International Settlements (BIS, in its acronym in English) warns that the incorporation of major technologies such as Alibaba, Amazon, Facebook, Google and Tencent to financial services such as payments, savings and credit poses risks such as the emergence of dominant companies that could reduce competition.
Some “are old problems of financial stability and consumer protection”. And there is a novel element that is “the access of big tech to the data coming from its current platforms”. “This could cause a rapid transformation of the financial system, with the emergence of dominant companies that could end up reducing competition”, warns the so-called Bank of Basel.
He also considers it “essential to achieve an optimal balance between financial stability, competition and data protection”. And he urges the regulators to “guarantee equitable competitive conditions, taking into account the large customer bases and the particular business models of the big tech”.
“The objective should be to react to the entry of big tech in financial services, taking advantage of their advantages and limiting their risks”, says the bank’s economic advisor and head of studies, Hyun Song Shin. “Public policies must be formulated applying a more comprehensive approach that combines financial regulation, competition policy and regulation of data privacy,” according to the BIS.
More regulation to these digital businesses
It is also necessary “coordination between the authorities at national and international level” to refine and expand their regulatory tools.
For example, in Germany Facebook was limited in February to the systematic use of user data with WhatsApp and Instagram, but other countries are very permissive.
The main business of the large companies in the field is information technology, which represents 46% of its revenues, while financial services account for 11%, according to data from the BIS.
Expansion in Asia
Its operations are mainly in Asia and the Pacific and in North America, and its entry into financial services has been greater in China, although they have also expanded rapidly in Southeast Asia, East Africa and Latin America.
Alipay – which is owned by Alibaba -, Tencent and Baidu operate in China; Vodafone and M-Pesa, in East Africa, Egypt and India, and Mercado Libre, in Argentina, Brazil and Mexico. Google, Amazon, PayPal – which is owned by eBay -, Apple, Facebook, Microsoft and Groupon operate all over the world.
The payment services of large technology companies in China represent 16% of gross domestic product, a very high amount because other forms of non-cash payment, including credit cards, are low.
The irruption has been greater in countries where the provision of payments is limited and a large part of the population has mobile phones, but does not have bank accounts or access to essential financial services, according to the BIS. In addition, from payment services, they also offer money market funds, such as short-term investments, and insurance.
The rise of Alipay
In China, money market funds offered through large technology platforms have grown rapidly, although they are still small compared to other forms of savings.
The Yu’ebao fund offered to users of Alipay, with some 350 million customers, has assets worth more than 1 trillion yuan (about 150,000 million dollars), so in five years it has become the largest World money market fund.
At the end of 2018, money market fund balances related to large technology companies accounted for 2.4 trillion yuan (about 360,000 million dollars), an amount that represents 1% of bank deposits or 8% of products from Wealth Management.