According to a recently published paper by the Bank for International Settlements (BIS), Central banks and financial regulators urgently need to get to grips with the growing influence of ‘Big Tech.’ Global watchdogs are worried that entry of big tech firms into financial services with the huge amounts of data they control could allow them to reshape finance and could destabilize the entire banking system.
Agustin Carstens is the lead author of the paper. He points out examples like two big tech Chinese payment firms Alipay and WeChat Pay now account for 94% of the mobile payment market.
The paper said:
The entry of big techs into financial services gives rise to new challenges surrounding the concentration of market power and data governance.”
China has already bogged its markets with a series of clampdowns on top tech and e-commerce firms. In November 2020, it stopped the public listing of Jack Ma’s fintech Ant Group. Earlier this year, it fined the Alibaba group $2.7 billion for anti-competitive practices.
Almost every tech firm in China is under strict scrutiny. Most recently, it came down heavily on US-listed firms including Didi Global. In other countries as well, tech firms are rapidly establishing footprints. Some are leading to individuals and small businesses as well as offering insurance and wealth management services.
Furthermore, the paper also mentions that “The entry of big tech into financial services gives rise to new challenges surrounding the concentration of market power and data governance. Any impact on the integrity of the monetary system arising from the emergence of dominant platforms ought to be the key concern for the central banks.”
Stablecoins a threat to National Currencies
The paper also mentioned Stablecoins. A stablecoin (e.g. Tether) is a new class of cryptocurrencies that attempts to offer price stability. Unlike cryptocurrencies like Bitcoin, a reserve asset backs a stablecoin.
Stablecoins have gained traction as they attempt to offer the best of both worlds—the instant processing and security or privacy of payments of cryptocurrencies, and the volatility-free stable valuations of fiat currencies.
There is no doubt that investment in cryptocurrencies has grown manifold. Central banks are worried if private currencies keep on growing at this pace, national currencies are likely to come under some kind of threat.
Likewise, the paper said, it could lead to a fragmentation of existing payment infrastructures to the detriment of the public good. Countries should anticipate developments and formulate policy based on possible scenarios where Big tech initiatives are already reshaping payments and other parts of financial systems.
BIS has already warned that crypto assets could put the banking system in danger.