Big tech companies offering financial services pose risk to financial stability: RBI

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Big tech companies offering financial services pose a risk to financial stability, as their complex intertwined operational links with financial institutions could lead to contagion and potential anti-competitive behavior, the RBI said.

The central bank, in its 25th Financial Stability Report (FSR), said the advent of FinTech has exposed the banking system to new risks that go beyond prudential issues and often intersect with other policy objectives. public policy related to data privacy protection, cybersecurity, consumer protection, competition and compliance with anti-money laundering policies.

Big tech can grow rapidly and pose a risk to financial stability, which can result from increased disintermediation of incumbent institutions, he noted.

“Additionally, the complex intertwined operational linkages between BigTech companies and financial institutions could lead to concentration and contagion risks and issues related to potential anti-competitive behavior,” according to the report released Thursday.

Regulators and supervisors are faced with a difficult balancing act between the spirit of innovation and the management of risks to financial stability.

This requires increased engagement of stakeholders such as regulators, the FinTech industry and academia to work towards common principles for managing FinTech activities, including business and revenue models, governance, conduct and management of risks, he said.

Citing a survey, the report says regulators/supervisors around the world are aiming to balance the risks and rewards of Big Tech entering the financial arena.

Going forward, regulators need to be aware of the new interconnections big tech could create with existing financial institutions, he added.

The report highlights that the financial technology (FinTech) sector has experienced phenomenal growth over the past few years. The global fintech market size was valued at $111 billion in 2020 and is projected to reach $698 billion by 2030, growing at a CAGR of 20.3%.

India’s FinTech industry, which is among the fastest growing in the world, was valued at $50-60 billion in 2020 and is expected to reach $150 billion by 2025. India has the Highest FinTech adoption rate in the world (87%). $8.53 billion (in 278 transactions) in 2021-2022.

FinTech innovations are ubiquitous, particularly in retail and wholesale payments, financial market infrastructures, investment management, insurance, credit origination and capital raising and could lead to significant changes in the financial landscape, he said.

The report further states that the adoption of FinTech can promote financial inclusion, expand the supply of financial products and services, increase the efficiency of financial service delivery and lead to greater accessibility, at an affordable price. and an improved customer experience.

It can also lead to efficiencies in credit granting processes, better targeted products, better risk management, including better underwriting models, among others.

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