The entry of large technology firms such as Alibaba, Amazon, Facebook, Google and Tencent into financial services, including payments, savings and credit, could make the sector more efficient and increase access to these services, but also introduces new risks.
Big techs entry into finance introduces additional elements into the risk-benefit equation. Some are old issues of financial stability and consumer protection in new settings, but a new element is big techs' access to data from their existing platforms. This could spark rapid change in the financial system through the emergence of dominant players that could ultimately reduce competition.
The role of big techs in finance raises issues that go beyond traditional financial risks, according to the BIS. Tackling these requires striking a balance between financial stability, competition and data protection. Regulators need to ensure a level playing field, taking into account big techs' wide customer bases and particular business models.
In U.S, Democrats in Congress are considering a new bill that would stop Facebook’s cryptocurrency plans in its tracks. Dubbed the Keep Big Tech Out of Finance Act, the new bill would explicitly ban large platform companies from performing banking functions. The bill would be a direct rebuke to Facebook’s plans with the Libra cryptocurrency, which would likely have to be severed from the company if the bill were introduced and passed.
During a quarterly earnings call on July 24, Mark Zuckerberg assured investors that Facebook will work in a responsible manner for its Libra project. He also added that his company will work “however long it takes” to get lawmakers and regulators on-board. He said:
"We’re committed to working with policymakers to get this right. We’ve opened a period of, however long it takes to address regulators and different experts and constituents’ questions about this and then figure out what the best way to move forward is."
Zuckerberg said that he and his team expected the regulatory backlash and were prepared for it. As Facebook steps into the financial space, it understands that this is a highly regulated area and that they are going to face a lot of questions on it. However, assuring his determination to bring Libra to the market, Zuckerberg said:
“We are trying to provide a safe and stable and well-regulated product, so that’s always been the strategy and we’ll continue to engage here."
Besides Facebook, other giants like Google and Amazon are also working on FinTech products which is making the traditional banking institutions jittery. The US Congress recently proposed a draft bill to keep ‘Big Tech’ out of finance and prevent these companies from launching digital assets products.
As per report from Politico, Facebook has already spent over $7.5 million on lobbying efforts this year. Apart from hiring some in-house lobbyists, the social media giant is also approaching some third-party lobbying firms to work on the Libra cryptocurrency.
The report comes just within a week’s time of the Senate Banking Committee held a hearing with Facebook’s David Marcus and questioned him about its Libra crypto project and issues pertaining to anti-money laundering, privacy, and data protection.