In a paper released on June 23, 2019, the Bank of International Settlements (BIS), a financial institution in Switzerland owned by 60 central banks hinted that Facebook’s cryptocurrency, Libra poses known and new risks to the financial sector. The Bank of International Settlements has, therefore, called on a more comprehensive public policy that will regulate the entrance of tech firms such as Facebook into financial services in order to mitigate these risks.
Bank of International Settlements Notes Potential Benefits of Big Tech Firms on the Finance Industry
The Bank of International Settlements in its publication outlined that big technology firms like Amazon, Google, and Facebook who have ventured into financial services such as payments and money management were able to do so thanks to data-network activities loop (generation of more user data through the offer of more services) on their platform. Nonetheless, their large size and customer reach have potential benefits that could rapidly change the finance industry.
For instance, the low-cost structure business of these tech firms is easily scalable to provide financial services especially in regions where a majority of the population is unbanked. Through the use of “big data and analysis of the network structure in their established platforms,” these firms can also reduce the riskiness of a borrower and the need to ask for collateral to ensure a borrower makes repayments. Thus, tech firms can potentially enhance the efficiency of financial services provision and bring about associated gains in economic activity.
Big Tech Firms Come With New Risks Despite Potential Gains
Despite these potential benefits, the BIS noted that Big tech firms come with new risks and market failures. Some of these are known issues such as financial stability and consumer protection. On the other hand, there are new and unfamiliar challenges which these firms also pose.
That being the case, the Bank of International Settlements has called for a more comprehensive public policy that will focus on the entrance of tech firms into financial services. The latter is in a bid to ensure that while the financial sector benefits from these gains, the risks associated with them are mitigated.
