Big tech's complex links may increase financial stability, says report

Big tech's complex links may increase financial stability, says report

Big tech companies offering to pose risks to financial stability as their complex operational links with financial institutions can lead to a contagion effect and potential anti-competitive behaviour, the has said.

The banking system is exposed to new risks that extend beyond prudential issues, consumer protection, competition, and compliance with anti-money laundering policies, according to the 25th Financial Stability Report FSR.

It noted that techs can cause financial stability to be put at risk due to increased disintermediation of incumbent institutions.

According to the report released on Thursday, complex intertwined operational links between BigTech firms and financial institutions could lead to concentration and contagion risks and issues relating to potential anti-competitive behaviour.

Regulators and supervisors have a difficult balance between innovation-friendliness and financial stability.

It requires more engagement of stakeholders, such as regulators, FinTech industry and academia to work towards common principles for management of FinTech activities, such as business and revenue models, governance, conduct and risk management.

According to a survey, regulators in the world are trying to balance risks and benefits from the entry of Big techs into the financial domain.

It added that regulators need to be mindful of the new interlinkages that big techs might create with existing financial institutions going forward.

The financial technology FinTech industry has had tremendous growth over the past few years, according to the report. The global FinTech market size was valued at USD 111 billion in 2020 and is projected to reach USD 698 billion by 2030, growing at a CAGR of 20.3 per cent.

The Indian FinTech industry, which is among the fastest growing in the world, was valued at USD 50-60 billion in 2020 and is projected to reach USD 150 billion by the year 2025. India has the highest adoption rate of FinTech in the world, with 87 per cent of it receiving funding of USD 8.53 billion in 278 deals during 2021 -- 22.

FinTech innovations are ubiquitous, especially in retail and wholesale payments, financial market infrastructures, investment management, insurance, credit provision and equity capital raising, and may lead to material changes in the financial landscape, it said.

The report said that the adoption of FinTech can promote financial inclusion, broaden the offerings of financial products and services, increase efficiency for delivery of financial services, and lead to better accessibility, affordability and enhanced customer experience.

It may result in efficiency gains in credit delivery processes, better targeted products, improved risk management, including better underwriting models, amongst others.