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Credit markets around the world are undergoing a transformation. Fintech and big tech firms are providing more lending to households and small businesses. Using a new BIS database, this column estimates that fintech credit flows reached $223 billion in 2019, while big tech credit reached $572 billion. Both forms of credit are larger where there is greater (unmet) demand for credit and where economic and institutional factors favour the supply of such lending. The Covid-19 pandemic represents an important test for these new business models. https://www.bis.org/publ/work887.htm

Information on the size and characteristics of fintech and big tech credit is scarce. This BIS paper assembles and updates available data on fintech and big tech credit volumes for 79 countries around the world over 2013-19. The database is made available as a resource for researchers, policymakers and practitioners. The paper answers the questions: how large are fintech and big tech credit markets, both in absolute terms and relative to overall credit markets? What economic and institutional factors are driving their growth and adoption? How large and important could they become in the future?

Apple has acquired Mobeewave, a startup with technology that could transform iPhones into mobile payment terminals. Mobeewave's technology lets shoppers tap their credit card or smartphone on another phone to process a payment. The system works with an app and doesn't require hardware beyond a Near Field Communications, or NFC, chip, which iPhones have included since 2014. Samsung Electronics Co. partnered with Mobeewave last year to allow its phones to use the technology.

Collateral is used in debt contracts to mitigate the difficulties ("agency problems") that arise when the lender's knowledge of the borrower is incomplete ("asymmetric information"). Banks usually require borrowers to pledge tangible assets, such as real estate, to help offset such problems in credit assessment, or to reduce moral hazard and enforcement problems. By contrast, large technology firms ("big techs") can use massive amounts of data ("big data") to better assess firms' creditworthiness. These capabilities could help to reduce the importance of collateral in solving asymmetric information problems in credit markets.

China's State Administration of Market Regulation is seeking feedback on regulations that establish a framework for curbing anti-competitive behavior such as colluding on sharing sensitive consumer data, alliances that squeeze out smaller rivals and subsidizing services at below cost to eliminate competitors. They may also require companies that operate a so-called Variable Interest Entity -- a vehicle through which virtually every major Chinese internet company attracts foreign investment and lists overseas -- to apply for specific operating approval.

A Bank for International Settlements (BIS) working paper suggests that use of massive amounts of data by large technology firms (big techs) to assess firms' creditworthiness could reduce the need for collateral in credit markets. Using a unique dataset of more than 2 million Chinese firms that received credit from both an important big tech firm (Ant Group) and traditional commercial banks, the paper finds that a greater use of big tech credit, granted on the basis of machine learning and big data, could reduce the importance of collateral and potentially weaken the financial accelerator mechanism. https://www.bis.org/publ/work881.htm

This Bank for International Settlements (BIS) paper concludes that additional regulatory responses might be needed to comprehensively address big tech risks and achieve policy consistency at the international level. Although recent initiatives in China, the EU and the US constitute important steps in the right direction, if big techs continue to gain prominence in the financial system, additional policy responses might be necessary. It is also very likely that new policy actions will largely need to follow an entity-based approach and require close cooperation between competition, data and financial authorities. Moreover, given the cross-border scope of big tech activities, enhanced international regulatory cooperation is essential.

"Big tech firms entering financial services can scale up rapidly with user data from their existing business lines in e-commerce and social media, and by harnessing the inherent network effects in digital services. In addition to traditional policy concerns such as financial risks, consumer protection and operational resilience, the entry of big techs into financial services gives rise to new challenges surrounding the concentration of market power and data governance. The current framework for regulating financial services follows an activities-based approach where providers must hold licences for specific business lines. There is scope to address the new policy challenges by developing specific entity-based rules, as proposed in several key jurisdictions - notably the European Union, China and the United States."

"Big Techs' expansion into financial services can bring competition, efficiency, and inclusion, particularly in emerging market and developing economics. But it also gives rise to issues concerning a level playing field with banks, operational risk, too-big-to-fail issues, as well as challenges for antitrust rules and consumer protection. This column presents a policy triangle that highlights the trade-offs between three objectives: financial stability, competition, and data privacy. Handling these challenges requires more coordination on rules and standards, both between domestic authorities and across international borders. "

Bank for International Settlements staff, using a dataset of around half a million Chinese firms that use the AliPay QR code-based mobile payment system, found that (i) the creation of a digital payment footprint allows firms to access credit provided by the same big tech company; (ii) transaction data generated via QR code generate spillover effects on access to bank credit; and (iii) there are positive effects of access to big tech credit on sales, including during the Covid-19 shock. The findings suggest that access to innovative payment methods helps micro firms build up credit history, and that using big tech credit can ease access to bank credit.

"The Consumer Financial Protection Bureau (CFPB) published a new issue spotlight highlighting the impacts of Big Tech companies' policies and practices that govern tap-to-pay on mobile devices like smartphones and watches. Apple currently forbids banks and payment apps from accessing the tap-to-pay functionality on Apple iOS devices and imposes fees through Apple Pay. Google's Android operating system does not currently have such a policy. The issue spotlight explains how regulations imposed by mobile operating systems can have a significant impact on innovation, consumer choice, and the growth of open and decentralized banking and payments in the U.S."

"The entry of big techs into the financial sector raises significant regulatory questions. An attribute of the big tech business model that has been largely overlooked involves intragroup dependencies and external interconnections. This column argues that the risks arising from these interdependencies require prompt attention by financial regulators. With few specific entity-based rules for big techs in sight, the authors present a set of options presently available to financial authorities that could mitigate the risks posed by the increasingly inextricable links between big techs and finance."

The UK Financial Conduct Authority (FCA) has announced that it plans to examine the issue of regulation of Big Tech's financial services. The UK regulator is to consider how such regulation of firms such as Apple, Google and Amazon could prevent the potential for them causing harm to the financial services sector. While acknowledging the ability of such companies to bring innovative approaches to financial services, the FCA has voiced concerns that if they build dominant positions this could lead to a "potential exploitation of market power".

A Bank for International Settlements (BIS) paper assesses the interdependencies inherent in big tech business models based on publicly available information on Alibaba, Amazon, Grab, Jumia, Mercado Libre and Rakuten. Big tech interdependencies come with specific risks, in particular to operational resilience, and may require the development of specific entity-based rules for big tech operations in the financial sector. The paper outlines the regulatory implications of how big techs provide financial services and the tools financial authorities have at their disposal now to address related risks.

The Bank for International Settlements (BIS) published a paper that analyzes the effect of big tech platforms on credit markets. It finds that: "(i) platform lending serves as an instrument to price discriminate vendors with heterogenous funding needs, resulting in higher fees and below-market interest rates; (ii) platform lending can spur innovation by providing access to subsidized credit, but may be detrimental to vendors who do not borrow; and (iii) when the platform has better information it will lend only to the highest-quality vendors and at a better rate than banks, which, anticipating adverse selection effects, will not lend. The results suggest that platform lending can be socially desirable if the users would not have received funding from banks, but it has ambiguous effects otherwise."

Banca D'Italia published a paper that outlines the consequences of technological innovation as regards the financial sector and discusses the possible regulatory implications. The analysis shows that the existing regulatory perimeters could be usefully widened to address the risks stemming from the activities of these new providers of financial services. The availability of tools to monitor these operators and the definition of common rules at the international level in the use of clients' data increase the possibility to ensure the correct functioning, competition and efficiency of the overall financial system. In the new market context, it takes on greater importance the cooperation also with the competition and data protection authorities at the domestic and global levels.