Big Tech’s Pursuit of Banking Leaves Regulators Uneasy

Big Tech’s Pursuit of Banking Leaves Regulators Uneasy

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Leading technology companies are increasingly looking to transform themselves into banks without officially crossing the line into taking deposits. Instead, they are on the fringes of financial services with payments, peer-to-peer transactions, and even loans that make them more embedded into the lives of their users. While this may seem convenient, policymakers are worried that tech plays are getting too much control.

In particular, the International Monetary Fund (IMF) is worried that major tech companies have too much control over data already, and giving them access to financial information thrusts privacy into the spotlight. Tech companies such as Facebook and Google already have access to the topics people search for, email content, and YouTube viewing. The one area that has remained sacred from Big Tech is finance and now the tide has begun to turn.

IMF Managing Director Christine Lagarde expects “a significant disruption to the financial landscape is likely to come from the big tech firms.” Facebook, for instance, boasts more than 2 billion users. Lagarde believes technology plays will use their user prowess coupled with the strength of their balance sheets to create “financial products based on big data and AI.” In turn, this could “lead to vulnerabilities in the financial system.”


The IMF’s concerns stem from how payments have evolved in China in particular. Tech giants Tencent and Alibaba’s Ant Financial dominate mobile payments in the country. Together, their companies are worth nearly $1 trillion and they control some 90% of mobile payments in the country. Lagarde doesn’t want the same trend of tech dominating payments to surface globally.

Companies from Apple and Facebook to Amazon and Google have experimented with payments including digital wallets, but they haven’t taken off to the extent of WeChat Pay and AliPay. The one thing that could prevent that from happening is regulation, and in the U.S., policymakers are hot on the tail of tech giants. Google alone has faced EU antitrust charges that have cost them billions of dollars over the past decade, and now they are being scrutinised in the U.S.



Facebook Cryptocurrency

One of the companies that Lagarde is worried about, Facebook, is launching its own cryptocurrency for payments. Its use case will be limited to payments, unlike the biggest cryptocurrency bitcoin that is used as both a store of value (similar to gold) and for payments. Facebook’s new coin, which is expected to be called Libra, will be tied to the value of fiat currencies, which will provide stability to the cryptocurrency rather than the volatility that bitcoin is known to experience.

According to reports, the social media company has courted the likes of Visa and MasterCard for the initiative, which will give the payment processing giants a window into what Mark Zuckerberg’s company has planned for payments. Uber is another partner, which suggests that there may be a way to pay for ride-sharing via Facebook’s new Libra coin.

Meanwhile, Facebook’s privacy issues, which stem back to the U.S. presidential election of 2016, have not disappeared. If anything, they’ve worsened as Mark Zuckerberg has reportedly come under a microscope for not following protocols and not valuing user privacy. One of the possibilities that was introduced by G20 finance ministers is removing certain tax benefits that tech companies including Facebook and Google have enjoyed in given jurisdictions. It’s being described as a “global tax.”

Now that Facebook will have its own payments coin, some in the industry including billionaire Cameron Winklevoss are suggesting that it will open the floodgates to other FAANG companies (Facebook, Amazon, Apple, Netflix, and Google parent Alphabet) doing the same.

Tech and Bank Partnerships

The North American financial services industry alone generates $1.35 trillion in sales, as per McKinsey data, nearly half of which is reportedly at play for tech leaders to capture.

One way that financial services companies are competing with tech players in payments is by partnering with them. For instance, Apple launched a new credit card and teamed up with Wall Street bank Goldman Sachs as well as Mastercard for the venture.

These partnerships could help to ease the concerns of regulators such as the IMF considering financial services firms are involved.

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