The Reserve Bank has once again raised concerns about big tech’s impact on financial services and financial stability. “Given their established consumer base from non-financial benefits such as search engines and e-commerce platforms, big techs can manufacture products and establish their imprint in the financial arena with greater ease than embryonic fintechs. This is a significant impediment to creating a level playing field to stimulate innovation in the fintech area”, according to an RBI document.
The central bank document, which listed the risks posed by big techs, or huge non-financial technology enterprises, stated that the complicated governance structure of big techs limits the opportunity for effective oversight and the formulation of entity-based rules.
“Second, because of their direct exposure to the supply of financial services, big techs can have an impact on the risk and maturity transformation functions. This can sometimes translate into or contribute to shadow banking operations, endangering financial stability “It stated. Because of their widespread adoption as third-party service providers, big techs frequently serve as the underlying foundation for a variety of services.
According to the RBI, this uniquely allows big techs to quickly obtain cross-functional databases that may be used to generate creative product offers, allowing them to become market leaders.
Bigtechs’ pervasiveness provides them with a vast client base that is entrenched in utilizing their platforms/products with access to numerous sides of consumers’ data, generating substantial network effects. Bigtechs’ entry into finance shows the substantial complementarities between financial services and their primary non-financial activities. Aside from technological advantages, big techs usually have the financial muscle to withstand competition challenges.