Big Tech is a term used for the five most dominant information technology firms in the world —Google, Amazon, Facebook, Apple and Microsoft—that have market capitalisation ranging between $1 trillion and $2 trillion, each.
“Big Techs offer a wide range of digital financial services…of several advanced and emerging market economies. While this holds the promise of supporting financial inclusion and generating lasting efficiency gains, including by encouraging the competitiveness of banks, important policy issues arise. Specifically, concerns have intensified around a level playing field with banks, operational risk, too-big-to-fail issues, challenges for antitrust rules, cybersecurity and data privacy,” RBI said in its Financial Stability Report.
Big techs present at least three unique challenges. First, they straddle many different (non-financial) lines of business with sometimes opaque overarching governance structures. Second, they have the potential to become dominant players in financial services.
Third, big techs are generally able to overcome limits to scale in financial services provision by exploiting network effects. it said. Interestingly, the RBI concern comes at a time when the government is engaged in a tussle with the companies over media rules.
For central banks and financial regulators, financial stability objectives may be best pursued by blending activity and entity-based prudential regulation of big techs. An activity-based approach is already applied in areas such as anti-money laundering [AML] /combating the financing of terrorism; an activity-based approach is the provision of cloud services, where minimising operational and in particular, cyber risk is paramount, it said. Furthermore, as the digital economy expands across borders, international coordination of rules and standards becomes more pressing, it said.
Growing Big Tech clout
Facebook, Apple, Google and Amazon are leveraging their huge user bases to push their financial services. With consumer user data at hand, these companies can use it to curate personal financial products for them. which entered Indian fintech market in 2016 with Amazon Pay, has taken several strides. It has partnered ICICI Bank to issue credit cards, become a part of the Indian government’s payment network through the Amazon Pay UPI, launched insurance services, and entered into the digital gold space.
Google has partnered Wise and Western Union to enter the $470 billion remittance market under which Google users in the US can send money in Inda.