The Bank of International Settlements (BIS), the Swiss-based financial institution, has commented on the tech giant’s foray into the financial sector.
In its new report, the institution owned by sixty of the world’s central banks, particularly examined Facebook’s decision to launch the Libra coin. According to the BIS, the regulators must soon step in, as this entrance is not just about opportunities. It is also about risks. The latter boils down to “complex trade-offs between financial stability, competition and data protection.”
To begin with, the report states that “the entry of large technology firms (“big techs”) into financial services holds the promise of efficiency gains and can enhance financial inclusion.”
Big techs have extensive user bases and access to user data. Their business models are multi-faceted. Combined, these can dramatically reshape the financial service industry.
Echoing the idea of banking the unbanked, the BIS admits that the tech giants can indeed promote inclusion. Plus, since their structure is low cost, the business becomes highly scalable. However, the BIS warns that this entry will bring about new challenges — both new and old ones.
“Big techs have the potential to become dominant through the advantages afforded by the data-network- activities loop, raising competition and data privacy issues,” the report reads.
Consumer protection strikes again
The report does not excessively elaborate on the details of the new challenges. However, it does mention the more conventional issues such as financial stability and consumer protection. According to it, big techs might disrupt the traditional banking sector as well as the design of financial intermediaries.
All in all, the report indicates “as the operations of big techs straddle regulatory perimeters and geographical borders, coordination among authorities – national and international – is crucial.”
It adds, “regulators need to ensure a level playing field between big techs and banks.”
Thus they should take into account big techs’ wide customer base, access to information and broad-ranging business models.
To remind, on June 18th Mark Zuckerberg revealed that his main mission is to open the world to digital financial infrastructure.
Some countries were quick to react. In India, for example, the coin’s future seems to be uncertain.