Are BigTechs Banks of the Future?

The big technology groups in the world are taking over more and more shares in international payments and are increasingly establishing themselves in the financial sector. The European Securities and Markets Authority has now summarized the risks and opportunities of this development in a report.

Are BigTechs Banks of the Future?

The world's BigTechs are conquering more and more market shares in cross-border payments with their own payment services. The European Securities and Markets Authority (ESMA) has now published a report on "Trends, Risks and Vulnerabilities", which shows the benefits and potential risks of BigTech penetration into the financial sector.

Opportunities and risks go hand in hand

The report deals with general developments in the capital markets and devotes a section to BigTechs. As a result, the financial services of the big technology groups such as Google, Amazon, Apple and Facebook are associated with both opportunities and risks for consumers.

For example, the connection of private households to the capital markets should be emphasized positively. By allowing populations cut off from payment transactions to access the payment services of private companies, the BigTechs also help to ensure financial inclusion.

The monopolization of payment networks, on the other hand, is classified as a possible risk that could have a negative impact on consumers. Overall, this increases the urgency of effective, cross-sector and cross-border cooperation between the respective regulatory authorities.

According to the report, companies can also adapt their offer to consumer preferences based on extensive data collection. This is one of the reasons why BigTechs “have the potential to gain a significant market share in various financial services in the coming years”. However, this also has a core problem, because:

Given a large amount of sensitive consumer information they deal with and the volume of their existing business (many of which are related to the financial markets), their entry into the financial industry also poses significant risks to markets and consumers.

There are therefore several risks for consumers. In the first place are the risks related to privacy and data protection. There is also a risk that users will be dependent on privately owned monopolized payment networks.

There is also a risk of financial exclusion; the inclusion of marginalized groups could, on the contrary, have the opposite effect and lead to the exclusion of certain demographic groups.

The future of BigTechs

Due to their economic size, their global customer networks and the possibility of using collected data for personalized services, BigTechs will compete with the established service providers in the financial sector in the future. The securities and market surveillance authority expects companies to gain more shares in the European market in the near future.

While the benefits for consumers in terms of simplified payment options and integration in payments are grown, the penetration of big technology companies into the financial sector is forcing regulators to reduce risks related to financial stability and consumer protection through new legislation.