Big tech involvement in finance

The rise of big tech in finance has sparked a wave of innovation and disruption, offering consumers new and convenient financial services and products.

From payment systems to digital currencies, these tech giants have rapidly expanded their presence in the financial industry, challenging traditional banking and financial institutions.

Yet, this rapid growth has also raised concerns about data privacy, cybersecurity, and the concentration of financial power in the hands of a few corporations.

With these firms coming under increasing public scrutiny and regulatory pressure, it�s clear that strict regulation of Big Tech in finance is on the horizon.

How big tech is involved in finance

Big Tech companies, like Amazon and Alibaba, that possess a wealth of data have already established a presence in the financial services sector, offering services such as banking, payments, asset management, insurance, and even cloud computing for banks.

Their extensive reach in e-commerce and social media enables them to rapidly gain a substantial market share in financial activities. Having such an extensive reach across multiple sectors not only risks putting smaller banks out of business, but may also make tech firms “too big to fail” � where governments are forced to bail out huge enterprises to protect the economy, as they did with banks over a decade ago.

The need for regulation

Regulation, when done correctly, is the key to safer activities for the general public. In the banking sector, financial institutions must adhere to strict guidelines that protect consumer interests and stepping out of line risks severe penalties.

Even for digital activities like online gambling, when visiting an online betting site, or even lists of best online lottery sites, you�ll see a disclaimer saying that anything you find there follow the appropriate regulatory requirements.

It makes sense, therefore, that the rapid expansion of big tech in finance has put pressure on regulatory authorities to implement measures that safeguard consumer interests and prevent financial harm.

Big tech companies collect vast amounts of personal and financial data, which has prompted growing concerns about data privacy and security. Regulation can help protect this data and ensure it�s used only for the purpose for which it was collected.

There are also fears that the concentration of financial power in the hands of a few large corporations can have far-reaching implications for competition, innovation, and consumer choice. With strict regulations, regulators can ensure that these companies are not engaging in anti-competitive practices and that there is a level playing field for smaller financial players.

How the authorities could do it

Bank for International Settlements General Manager Agustin Carstens made a speech in early February about how Big Tech firms could be required to follow a �holistic� regulatory framework, in which their financial services would be ringfenced from other services.

This would include them providing additional information on group-wide governance, business conduct, and operational resilience � a term referring to a business�s ability to deal with large setbacks.

Similar regulation is already emerging in the EU and Britain to give regulators an insight into the use of cloud computing firms and could be easily transferred to Big Tech in finance. However, a holistic approach could be tricky, with regulators already in place for Big Tech data privacy and competition: a clash between the two could be inevitable.

Many experts say the need for regulation is urgent, though. Microsoft recently signed a $2 billion deal with the London Stock Exchange to strengthen the ties between finance and Big Tech.

With these firms quick to point out the benefits of such deals, including improved customer outcomes and enhanced financial inclusion, the argument against regulation is already there.

All the more reason why the likes of Carsten are eager to put theory into practice and keep the big players in line, before they do indeed get �too big to fail�.