Turbulent times ahead with Big Tech, Libra and the shake up of financial services
In the weeks since Facebook announced its plans for the new Libra coin the project has received criticism over whether it is likely to get off the ground while regulatory concerns remain unaddressed. The US treasury secretary this week also warned of its potential for misuse.
The launch of the Libra project comes alongside the timely release of the Bank for International Settlements’ (BIS) annual economic report which this year it features a special chapter on the entry of big tech into finance. The report highlights how the entry of large technology firms ("big techs") into financial services presents new and complex trade-offs between financial stability, competition and data protection.
This raises questions are to what risks are associated with the move of big tech into financial services? Does this really serve the underbanked and it is necessarily promoting competition due to the dominance big tech already has?
However, as the BIS report emphasises, the entrance of big tech into finance services does offers many potential benefits including low cost structures and the ability to enhance the efficiency of financial services provision. These are all benefits that are certainly worth maintaining, subject to proper maintenance of privacy, financial stability and market competition.
Big techs have the potential to become dominant through the advantages afforded by the data-network-activities loop, raising competition and data privacy issues. Public policy needs to build on a more comprehensive approach that draws on financial regulation, competition policy and data privacy regulation. The aim should be to respond to big techs' entry into financial services so as to benefit from the gains while limiting the risks. As the operations of big techs straddle regulatory perimeters and geographical borders, coordination among authorities - national and international - is crucial.
