When Apple & Co. become banks, these are the new risks in the financial system

“It is high time to move from theory to practice,” said Augustin Carstens, general manager of the Bank for International Settlements (BIS), at the conference on “Big Tech in the financial business” in Basel on Wednesday.

It was not for nothing that the organizer of the conference was the bank of central banks itself. Apple, Google, Microsoft, Facebook or Amazon have long been a reality in the financial sector. In certain countries, such as China, such companies already have a firm grip on day-to-day payment transactions.

Payment formats such as Apple Pay, Google Pay or Amazon Pay are also emerging in the local markets. And when these technology groups gain momentum on a company site, things can suddenly move very quickly.

Network effects play a role in online commerce and many other Internet-based business models: they make a provider more attractive the more data it can collect about its customers. There is a strong market concentration, which can even lead to monopolies.

Big techs haven’t made it that far in finance yet, but their entry into finance has the potential to rapidly transform the industry, with risks for savers and consumers.

What are the greatest dangers?

Carstens and the central banks are particularly interested in potential threats to financial stability, and the BIS believes they certainly exist. Carstens addresses the fact that many large banks now rely on the data storage capacity of large technology groups such as Microsoft, Amazon or Google. If there are disruptions in their data clouds (cloud), the functionality of the entire banking system is compromised.

But Carstens also speaks them opaque division of responsibility in partnerships between banks and technology companies in the distribution of products bee. And he mentions the Big Tech companies’ proprietary payment systems, which compete with the incumbent banks.

Both are sources of risk that can undermine the stability of the existing banking market and jeopardize the stability of the system as a whole, the BIS believes. Against this background, regulation of technology companies active in the financial sector is of great urgency.

Carstens advocates combining existing regulations, for example in the area of ​​consumer protection, with so-called group supervision approaches for technology groups.

The banks have been subject to such supervision for some time. Capital requirements and specific liquidity and risk management requirements are designed to protect depositors and customers of individual banks while keeping the financial system stable. The BIS wants to prevent entrants from the tech sector from jeopardizing this fragile balance.

(aargauerzeitung.ch)