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BigTech’s Foray into Cryptocurrency and Digital Payments Could Destabilize Global Finance

The Financial Services Board (FSB) has issued a report highlighting the potential impact of large tech firms participating in the crypto and digital payments arena. As part of its report, the FSB is calling for robust monitoring of the trend while issuing warnings related to the stability of the global financial architecture.

Credit Crunch Concerns

According to the FSB report, BigTech has little experience in the world of finance. Also, the Board argues that major tech companies tend to adopt a more data-driven approach as against mainstream players and traditional fintech firms who prefer a more customer-driven approach.

Consequently, the FSB forecasts that a proliferation of BigTech crypto and digital payments solution may cause serious economic problems if a credit crunch arises. According to the report:

“A rapid expansion of credit provision by BigTech firms would make the risks that have previously been identified in relation to FinTech lending more prominent. In particular, the performance of new forms of credit assessment have not been tested through an entire financial cycle. Furthermore, the ability of BigTech firms to maintain credit supply during a downturn is not clear… Their [BigTech’s] data-driven approach, rather than a relationship-based, approach to lending might see a sharper contraction of credit during a downturn than for financial institutions.”

Crypto Payment Adoption May Adversely Affect Banks

Apart from a potential credit crunch crisis, the FSB also opines that BigTech involvement in finance could be disadvantageous for banks. According to the FSB, these major tech establishments have significant economies of scale which could disintermediate the banking system.

An excerpt from the report reads:

“Where stored value payment products (e.g. mobile wallets) become prominent, a relatively large and potential mobile pool of funds may be controlled outside the banking system… Furthermore, the greater mobility of this pool of funds compared with the customer deposits may also reduce the stability of bank funding.”

This particular warning of banking disintermediation isn’t from the FSB alone. Several critics of projects like Libra have also raised similar concerns.

Central banks and financial regulators also espouse the same rhetoric with some especially in Europe and the U.S. stating that such projects could negatively impact sovereign monetary policies.

Not all Doom and Gloom

Despite the calls for greater surveillance over BigTech’s finance foray, the FSB did, however, highlight some potential benefits of the emerging trend. Of particular interest is the area of financial inclusion.

Many commentators have in the past declared that tech companies offering payment services could be the next phase of the massive penetration of mobile telephony in the area of digital payments. In China, for example, it is reportedly commonplace for people to use services like Alipay and WeChat Pay for microtransactions.

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