Policy Blind Spot: The Interdependencies of Big Tech and Their Foothold in Financial Services



BIS | Juan Carlos Crisanto, Johannes Ehrentraud, Marcos Fabian and Amélie Monteil | Jul 5, 2022

Big tech and financial servics - Policy Blind Spot:  The Interdependencies of Big Tech and Their Foothold in Financial Services

The purpose of this paper is to assess the interdependencies inherent in big tech’s business models and offer some policy considerations for financial authorities.  The assessment of interdependencies is based on the business models of six big techs: Alibaba, Amazon, Grab, Jumia, Mercado Libre and Rakuten (Table 1).

Overview of Insights

1. Digital services provided by large digital platform companies have become ubiquitous across the globe

These companies, big techs, now serve a myriad of customers who regularly order products online, send messages via apps on mobile phones or check their email or  social media accounts.  By expanding their services, big techs have grown large, and several of them now have market capitalisations that exceed those of the largest financial institutions.

2. Big techs have already gained a substantial footprint in parts of financial services

In some segments and regions, they have emerged as key players over the past decade.  Big techs offer a particularly broad range of financial services in emerging market and developing economies. In some of these markets, they have come to reach dominant positions in payments, credit and other services.

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Big techs dominate, for example, the mobile payments markets in China and India (Feyen et al (2021)). During the pandemic, big techs saw strong growth, including in financial services such as payments and credit, which appears to have helped them to fortify their market positions even further (FSB (2022)). Going forward, big techs may also decide one day to leverage their immense user base for offering stablecoins.

3. Strong external interconnections are an integral part of big techs’ business model

Big techs not only engage in partnerships with financial institutions to offer financial services but also provide them with technology services such as cloud computing and data analytics. These services have become critical to the operation of incumbent financial institutions, creating a situation of dependency with big techs.  Some big techs are also customers and not providers of cloud computing services, creating a network of third-party interdependencies. Taken together, this supply and demand for technology services by big techs creates external interdependencies among big techs and with financial institutions.

4. Internal  and  external  interdependencies  come  with  specific  risks,  in  particular  to operational resilience

A failure in one part of the big tech group could render others unable to function; or disrupt the flow of data between big tech entities. Similarly, operational incidents at third-party service providers, including other big techs, could result in outages or data breaches, with potential knock-on effects on the platform ecosystem and its users.

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5. These risks are hard to assess due to the dearth of information on internal and external dependencies

Big techs that are publicly traded companies are typically required to disclose information about their financial performance (eg the Securities and Exchange Commission’s annual public 10-K reports). They may not be required, however, to disclose comprehensive information on their diverse business activities, leaving investors, competitors and regulators less aware of how exactly they create and extract value from their ecosystems. Without this information, it is especially challenging to understand the corporate structures underpinning the collaboration between big techs and financial institutions, particularly outside their primary domicile (FSB (2022)).

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