Bank For International Settlements (BIS) Warns of the Risks Big Tech Like Facebook Poses to Banks

Bank For International Settlements (BIS) or better known as the “Central Bank of Banks” just released their annual report, in which they didn’t seem too happy about big tech firms entry into the space of financial services.

The entry of large technology firms or “big techs” into financial services can enhance financial inclusion but comes with new risks #BigTech https://t.co/KpLcrlwXui pic.twitter.com/DEmApauohO

— Bank for International Settlements (@BIS_org) June 23, 2019

It looks like BIS is just jealous of these companies having customer data as evident from the introduction of their report. They state:

“Technology firms such as Alibaba, Amazon, Facebook, Google, and Tencent have grown rapidly over the last two decades. The business model of these big techs rests on enabling direct interactions among a large number of users. An essential by-product of their business is the large stock of user data which are utilized as input to offer a range of services that exploit natural network effects, generating further user activity. Increased user activity then completes the circle, as it generates yet more data.”

These advantages give these big-tech firms the avenue to ventured into financial services, including payments, money management, insurance, and lending.

They go ahead to say that regulators

“need to ensure a level playing field between big techs and banks, taking into account big techs' wide customer base, access to information & broad-ranging business models.”

Regulators need to ensure a level playing field between big techs and banks, taking into account big techs' wide customer base, access to information & broad-ranging business models #BigTech https://t.co/KpLcrlwXui pic.twitter.com/nXTGW8csBT

— Bank for International Settlements (@BIS_org) June 23, 2019

They go on to say:

“The aim should be to respond to big techs' entry into financial services so as to benefit from the gains while limiting the risks. As the operations of big techs straddle regulatory perimeters and geographical borders, coordination among authorities – national and international – is crucial.”

It is hard to feel sorry for central banks. They have had a head start over these tech firms. If they wanted to, they could have spent more on innovation and adapted to the changing business models faster. However, they waited long enough on archaic practices which have ultimately come back to haunt them.

With the launch of Facebook’s Libra occupying the headlines globally, it looks like banks and regulators alike are panicking. Their archaic monetary system and their financial control over the world seems to be fading away. It just a matter of time when they open up their eyes to this new world, instead of resisting it in a way BIS wants to do now.