Technological giants such as Alibaba, Amazon, Facebook and Google could become dominant participants in financial services of payments, savings and funding, if global joint work is not done among regulators, supervisors and legislators, warned the Bank for International Settlements (BIS, by its acronym in English).
“It is imperative that global regulators and legislators work together to exchange experiences and knowledge that in turn help enrich the supervision of large technology firms at the service of financial activities”, he said.
In one of the five chapters released from the Annual Report of the BIS, entitled “Big Technological in Finance: Opportunities and Risks”, it also established the relevance of renewing regulations in the face of structural changes fostered by the participation of “companies that control digital platforms such as e-commerce sites and social networks”.
“The public policies resulting from this recommendation should be based on a comprehensive approach to financial regulation, competition policy and data privacy”, he suggested.
Worried about Facebook’s Libra
In this chapter of the annual report, the so-called central bank exposes its concern specifically for the participation of Facebook and Amazon in transactions that are the responsibility of entities of the financial system.
About Facebook, he highlighted in the analysis his intention to grant an alternative to people who do not have access to bank accounts, to perform payment transactions from one country to another.
Just last week, the CEO and creator of Facebook, Mark Zuckerberg, reported the launch of Libra, a cryptocurrency that will be available to its almost 2,000 million users around the world, which will favor payment transfers in countries where bank penetration is low . And in the launch video they specifically mentioned the cases of Mexico and the Philippines.
BIS investigators involved in the report expressed concern over Amazon, which currently grants loans to companies that participate in its activities, with what they have said they want to fill the gap that banks have left in lending to small businesses.
“The misuse of the data could have adverse effects of an economic and welfare type, and could use unsafe criteria to grant financing without calculating the impact of the payment capacity of its users,” they said.
Preparing the business
In the analysis of the BIS, they established that the technological giants entered the financial services business once they had a broad base of clients and a high recognition of their brand.
Their more active participation in the financial services system reflects the strong complementarity between their main activities, which they estimate represents 46% of their profits, and the economies of scale that they could take advantage of.
While 11% of their profits result from the financial services they already offer. Its operations associated with the financial service are already a fact in Asia, Asia-Pacific and North America, and are about to expand their business to regions with low penetration, such as Latin America and East Africa.
Advantages, but regulated
In the analysis, the BIS admitted that there are empty spaces in the availability of financial tools that have not covered the institutions that operate in a regulated system of banking services.
However, he pointed out that several of the potential users of these technological services offers lack of basic documentation and are difficult to contact because they are located in places that are too remote geographically. They can also be SMEs with low competition and limited capacity to generate income, which in itself raises the cost of granting them a traditional credit.
This mixture of characteristics makes the possibility of fulfilling their obligations less reliable, and since there is no strict regulation on financial activities among their clients, there is also a greater risk of default. There are no collaterals, there is no one who protects granting companies or users, which makes the operation risky. The BIS is an organization that helps affiliated central banks in financial and monetary operations. Banco de México is one of its more than 60 associates and is the only international organization headed by a Mexican, Agustín Carstens.