BigTech in Financial Services: Regulatory Approaches and Architecture (IMF Fintech)

Summary

• BigTech firms invested over $2 billion in fintech companies in 2020, with Alphabet generating 23 fintech investments alone.p.12
• The share of consumers willing to purchase insurance products from BigTechs expanded from 27 percent to 44 percent between 2016 and 2020.p.12
• A 2020 survey revealed that over 70 percent of banks and 80 percent of insurers depend on just two cloud providers for infrastructure as a service (IaaS).p.14
• Globally, 52 percent of cloud services are delivered by just two BigTech firms.p.14

Key insights

1. BigTech firms leverage large existing user bases, advanced data analytics, and cross-subsidization to quickly build market share across financial services.p.8
2. BigTech expansion creates potential systemic risks through cumulative cross-sector activities, operational dependencies, and financial interconnections with banks.p.8
3. Neither pure activity-based nor pure entity-based regulatory frameworks alone can fully capture the systemic risks generated by BigTech business models.p.9
4. A hybrid regulatory approach is required, combining groupwide entity-based oversight by home supervisors with activity-based rules from host supervisors.p.9
5. Extreme concentration in cloud service provision creates single-point-of-failure risks that make leading BigTech cloud providers systemically important.p.14
6. Co-lending structures where banks absorb almost all credit risk while BigTechs collect fees generate moral hazard and potential risk-taking incentives.p.13
7. Updating the 2012 Principles for the Supervision of Financial Conglomerates is recommended to address emerging regulatory gaps around BigTech ecosystems.p.9