Faced with the venture of Facebook and other large companies such as Google and Amazon into the financial space, the BIS is calling for equal conditions for banks
The Bank for International Settlements (BIS), often described as the bank for central banks, issued its 2019 Annual Report, expressing concern about the disruption expected when large technology companies such as Facebook enter the financial space.
The BIS’s report analyzes the risks and challenges posed by companies such as Alibaba, Amazon, Facebook, Google, and Tencent, rather than paying for the service to the potential benefits of this building of the financial revolution.
BIS says that these firms have developed huge customer bases and have the benefit of a data-network-activities loop that provides them the potential to become dominant.
Whilst the venture of these companies into payments, money management, insurance and loans has just begun, it allows the possibility of a major change in the financial industry.
Benefits
The BIS considers that big technicians’ low-cost structure business can be easily expanded to provide basic financial services, especially in places where a large part of the population does not have access to banking services.
It explains that by using big data and analyzing the network’s structure in the established platforms, big technicians can assess borrowers’ risk, thus reducing the need for guarantees to ensure reimbursement.
Accordingly, big technicians intend to improve the efficiency of financial services provision, promote financial inclusion and allow associated profits in economic activity.
Risks
However, it warns that such a change involves new risks. In addition to the old problems of financial stability and consumer protection, “major technologies have the potential to grow to a large extent as financial institutions of systemic importance.”
At this point, BIS specifically raises the recent reports on Facebook’s new Libra project, in which the social media giant is considering offering payment services to its customers worldwide.
Challenges
The BIS suggests that there are also important new and unknown challenges that go beyond the scope of current regulations. It reports that major technologies have the potential to become dominant through the advantages offered by the data-network-activities loop, which raises questions of competition and data privacy.
Therefore, policies will be needed for a comprehensive approach on financial regulation, competition policy and regulation of data privacy. “The objective should be to respond to the venture of big technicians into financial services to benefit from the profits as it limits the risks”.
According to the report, as big technicians’ operations extend along regulatory perimeters and geographic borders, coordination between national and international authorities is crucial.
Fears
In a somewhat revealing statement, BIS further reveals its fears that banks may lose ground to the new big technological disrupters. In this regard it says:
Regulators should ensure a level playing field between large companies and banks, considering big technicians’ broad customer base, access to information and wide-ranging business models.
Since large companies have the ability to work across borders, international coordination on rules and standards is needed to address the potential change in the “risk-benefit balance,” says the BIS.
The report suggests that Facebook’s project may have a hard time with regulators worldwide, since the firm seeks to launch financial services for its billions of users.
By Willmen Blanco
