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According to a new IMF Fintech Note, the rapid and significant expansion of BigTechs in financial services and their interconnectedness with financial service firms are potentially creating new channels of systemic risks. To achieve effective implementation and multiple objectives of financial regulation and supervision, a hybrid approach, combining a mix of entity- and activity-based approaches, is needed. Home supervisors should establish an entity-based approach to cover the global activities of a BigTech group, while host supervisors could in principle address local risks and concerns mainly through activity-based regulations. Cross-sector and cross-border cooperation are key in determining the future of the regulatory architecture. However, it can take several years before regulators have achieved a sufficiently robust legal and regulatory framework to address all risks arising from BigTech in financial services, and short-term solutions may be needed. In the interim, regulatory authorities should actively use all existing regulatory powers to manage risks, while BigTech should adopt and improve governance frameworks through industry codes of conduct and enhanced disclosures. Options should be explored to promote global consistency in the treatment of BigTechs, through existing or new global bodies with a broad mandate. The note recommends that the Joint Forum's 2012 Principles for the Supervision of Financial Conglomerates be reviewed to address regulatory gaps.

The BIS published a paper that documents some stylized facts on Bigtech credit and rationalize them through the lens of a model where Bigtechs facilitate matching on the e-commerce platform and extend loans. Bigtech reinforces credit repayment with the threat of exclusion from the platform, while bank credit is secured against collateral. The model suggests that: (i) a rise in Bigtechs' matching efficiency increases the value for firms of trading on the platform and the availability of Bigtech credit; (ii) Bigtech credit mitigates the initial response of output to a monetary shock, while increasing its persistence; (iii) the efficiency gains generated by big techs are limited by the distortionary fees collected from users.

The Bank for International Settlements (BIS) published a paper that analyses an economy in which large technology companies, Bigtechs, provide credit to firms operating on their platforms. It focuses on two advantages that Bigtechs have with respect to banks: better information on their clients and better enforcement of credit repayment since big techs can exclude a defaulting firm from their ecosystem. While Bigtechs have both superior enforcement and complete and private information of the firm type Bigtechs can encroach on banks' turf only if they guarantee some privacy to firms by tempering their drive to collect information about firm characteristics and leaving some rents to them. The way Bigtechs share information i.e. by providing information publicly or in a private way entails different outcomes in terms of efficiency.

A Financial Stability Board (FSB) report found that the expansion of BigTech firms in financial services in emerging market and developing economies (EMDEs) has generally been more rapid and broad-based than that in advanced economies. Lower levels of financial inclusion in EMDEs create a source of demand for BigTech firms' services, particularly amongst low-income populations and in rural areas where populations are under-served by traditional financial institutions. This has been supported by the increasing availability of mobile phones and internet access.

The Bank for International Settlements (BIS) published a paper on two potential Bigtech regulatory models. The first is segregation, which is a structural approach that seeks to minimize risks arising from group interdependencies between financial and non-financial activities by imposing specific ring-fencing rules. The second is inclusion, that creates a new regulatory category for Bigtech groups with significant financial activities. The paper concludes that the inclusion approach provides for a more tailored option to address specific risks associated with Bigtech business models.

The Bank of Canada published a paper that models the trade-off faced by BigTech payment platforms between costs associated with compensating users for their privacy concerns and revenues from the harvested data. The results of the modeling lead to two policy implications. First, data monetization is not necessarily inefficient from a social point of view because data are socially valuable and users are compensated for their privacy concerns with cheaper platform services. Second, when assessing BigTechs' introduction of payment services, one needs to consider the bundling of data and payments and the implied complementarity. In economies with large payment frictions, data-driven payments tend to increase social surplus. In advanced economies, however, where payments are already fairly efficient, payment-driven data can lead to inefficient adoption by platforms that seek to generate data beyond what is socially efficient.

BigTech firms are entering finance, and their access to massive amounts of information may give them an edge in areas like credit assessment and beyond. This column assesses the economic forces behind the adoption of Big Tech services in finance. It shows that BigTech lenders thrive in countries with less competitive banks and less strict regulation, and that they have an information advantage from the use of big data and machine learning.

"BigTech firms have unique advantages that banks cannot easily replicate and therefore present a much stronger challenge to established banks in consumer finance and loans to small firms. Both Fintech and BigTech are contributing to a secular trend of banks losing their comparative advantage as they have less access to unique information about parties seeking credit."

The Financial Stability Board published two reports that consider the financial stability implications from an increasing offering of financial services by BigTech firms, and the adoption of cloud computing and data services across a range of functions at financial institutions.

The Bank for International Settlements (BIS) published a paper that assesses the merits of extending a banking licence to tech firms and explores their regulatory landscape in seven jurisdictions. To ascertain their risk characteristics, it categorises the universe of tech firms that provide financial services into three groups: standalone Fintechs, large diversified Fintechs and Bigtechs. Bigtechs and large diversified Fintechs pose the most significant supervisory concerns, with the former requiring more onerous prudential measures than the latter. To mitigate their perceived risks, authorities impose various quantitative and qualitative requirements during authorisation, but supervision and enforcement may pose formidable challenges. In this context, the paper outlines a range of policy options that are mapped to the risk profile of tech firms seeking a banking licence.

The Financial Stability Board published a letter from its Chair Randal K. Quarles to G20 Finance Ministers and Central Bank Governors ahead of their meetings in Riyadh later this week. The letter notes that the global financial system is constantly facing new challenges. Technology is changing the nature of traditional finance; the non-bank sector has grown and requires deeper understanding and coordination among the supervisory and regulatory community. Pressures that can lead to market fragmentation exist. Concurrently, important supervisory and regulatory issues require attention, including stablecoins, cross-border payments, and "Tech" (particularly BigTech, RegTech, and SupTech).

"The high level of market concentration typically observed in BigTech may get carried into financial services, with potentially adverse impacts on consumer prices and financial stability," the European Securities and Markets Authority, or ESMA, said of Big Tech companies entering finance, as part of its 2020 Trends, Risks and Vulnerabilities report.

A Bank for International Settlements (BIS) paper reports on a recent survey of US households, finding that they say they are more likely to trust traditional financial institutions than government agencies or fintechs (and especially bigtechs) to safeguard their personal data. Respondents from racial minorities have less trust in financial institutions, while younger respondents trust fintechs relatively more. Female, minority and younger respondents are more concerned about implications of data-sharing for their personal safety.

This BIS working paper advocates regulating bigtechs using an entity-based rather than a "same activity, same regulation" activity-based regulatory approach. It argues that there is only limited scope for harmonizing the requirements for different players in specific market segments without jeopardising higher-priority policy goals. The regulatory framework should incorporate entity-based requirements for big techs in areas such as competition and operational resilience that would address the risks stemming from the different activities they perform. This strategy would not only help regulation to achieve its primary objectives, but would also serve to mitigate competitive distortions. However, in some policy domains, such as consumer protection or AML/CFT, an activity-based approach may well be adequate enough to achieve primary objectives.

The IMF thinks BigTech could significantly disrupt the financial sector, accelerating inclusion and modernizing financial markets, but raising privacy issues, plus competition and market concentration concerns, both of which could lead to financial system vulnerabilities.

In places where banks are not doing their jobs in allocating credit and not innovating, bigtechs face a huge opportunity. Their informational and network advantages allow them to make vast numbers of loans that boost access, productivity, and growth. Moreover, with low default rates, they can offer cheap credit and remain profitable. In advanced economies, where banks are producing and using information, as well as integrating new technologies into their businesses, the evolution of financial services providers could be very different. Big tech firms generally are still shying away from obtaining their own banking licenses. Instead, we see them creating partnerships in which banks exploit their expensive compliance systems and knowledge of regulation, while big tech firms provide the data and a flow of customers. Meanwhile, banks are investing in technology to provide additional services, as well as capture and process data.

The Central Bank of Brazil launched its instant payments platform Pix on November 16. Pix allows consumers and companies to make money transfers 24/7 without requiring debit or credit cards through a Pix alias or a QR Code. It is also free of charge for individuals. Central bank president Roberto Campos Neto said the central bank is in talks with Bigtech players such as Google and Facebook about entering the Brazilian payments services market, and that WhatsApp will start doing P2P soon. https://www.bcb.gov.br/en/pressdetail/2361/nota

Differences in the development of FinTech credit reflect differences in income and financial market structure. The higher a country's income and the less competitive its banking system, the larger the FinTech credit volume.

According to an analysis by Chinabankingnews.com, at least ten commercial banks in China have inked partnership deals with tech or fintech companies since the beginning of the year.

In the longer term, Swiss banks envisage themselves continuing to play a central role in financial intermediation, albeit amid heightened competition and significant digitalisation of financial services. In certain segments, such as payments and corporate lending, bigtechs and digital banks could emerge as important competitors for banks. By contrast, fintechs are seen more as partners given their modest size and specialised focus. At the strategic level, the banks are seeking to bring their existing business models to a high level of digital maturity with the aim of cutting costs and retaining their attractiveness to customers