Big tech companies have penetrated into many sectors, and continue to expand and deepen their presence in new markets. The financial services sector is one that has attracted the attention of tech giants in recent times, and while they have succeeded in carving out a niche for themselves, their presence could present challenges to regulators towards maintaining adequate stability and governance of the ecosystem. Such were the concerns presented by the Reserve Bank of India, as it said that the entry of the tech giants in the country could disrupt the even playing field.
The apex bank of India said that the tech giants offer a wide range of services that promise to support financial inclusion, generating lasting efficiency gains, and making banks become more competitive, but their expansion in the financial services sector gives rise to “important policy issues” like challenging antitrust rules, cybersecurity and data privacy, operational risks and monopolistic practices.
What does the term “Big Tech,” used by the RBI to denote the tech giants, refer to? The answer is simple – the quintumvirate of Google, Amazon, Microsoft, Apple, and Facebook – whose market capitalization ranges between $1 trillion and $2 trillion, each. Amazon, Facebook’s WhatsApp, and Google have their payments platforms and are part of India’s UPI (United Payments Interface), while Amazon and Google have enabled financial intermediary services, such as loans and card payments, on their payment platforms.
According to the RBI, the Big Tech firms straddled many different (nonfinancial) lines of business with sometimes opaque overarching governance structures and had the potential to become “the dominant players” in financial services. Additionally, they generally overcame limits to scale in financial services provision by exploiting network effects.
Coming at a time when major social media intermediaries of the country, especially Twitter are engaged in a bitter feud with the ruling BJP government regarding the newly issued Intermediary Guidelines and Digital Media Rules, and the Centre passing guidelines to restrict the business of giants Amazon and Flipkart in the country, the world’s second-largest market is fast becoming a tough place for the technology powerhouses of the world.
It also recommended an “entity-based prudential regulation” approach wherein operations of each Big Tech firm would be scrutinized independently against a set of predetermined standards. According to it, the setting down of an international standard based on the coordination of rules was the best way for financial regulators and global central banks to supervise these firms.
“For central banks and financial regulators, financial stability objectives may be best pursued by blending activity and entity-based prudential regulation of Big Techs,” the central bank said, adding that the international coordination of rules and standards became more pressing as the digital economy expands across borders. After all, the activity-based approach is already in application in areas such as anti-money laundering (AML) and combating the financing of terrorism (CFT) across jurisdictions.