You don’t have to look far to find evidence of technology giants muscling their way into the financial system: it’s happening in shops all over the country.
However, recent commentary from regulators suggests that as well as being a long-term competitive threat for bank investors, the rise of big tech in finance also brings potential risks for customers – i.e. all of us. To understand why regulators are looking at this, though, it’s useful to go back to “digital wallets” such as Apple Pay.Digital wallets took off during the COVID-19 pandemic, and are unregulated, growing fast, and dominated by Apple and Google. Consumers like the service, which is convenient and more secure than using a plastic card. But the Reserve Bank also says digital wallet payments on average attract “materially” higher fees that are ultimately passed on to merchants.
It says big tech players have been particularly good at breaking into finance in countries including China, Indonesia, Kenya and Korea. In China, it says big tech lending in 2020 and 2021 grew much more rapidly than traditional credit from banks. “Once big techs have established a captive consumer base, they can abuse their dominant position in the market to prevent the entry of competitors, increase switching costs, bundle products and promote their own products at the expense of third-party sellers,” the BIS paper says.