Columnists

Beware the power of BigFintechs

fintech
bitangendemo-ima

Summary

  • There are growing concerns among governments across the world and other multilateral agencies that the expansion of BigFintechs may undermine financial systems especially in developing countries with weaker regulatory regimes.
  • These concerns were last week echoed by the US House Judiciary Committee’s Antitrust Subcommittee that has been investigating the state of competition in the digital economy for the last 16 months.

Technology and digitalisation continue to re-shape the world of finance. The relentless changes the digital economy presents are giving rise to new dominant players in the name of big financial technology companies (BigFintechs) that are often unregulated.

There are growing concerns among governments across the world and other multilateral agencies that the expansion of BigFintechs may undermine financial systems especially in developing countries with weaker regulatory regimes.

These concerns were last week echoed by the US House Judiciary Committee’s Antitrust Subcommittee that has been investigating the state of competition in the digital economy for the last 16 months. Its findings show that there was “a clear and compelling need to strengthen antitrust enforcement and consider a range of forceful options, including structural separations and prohibitions on anticompetitive conduct.”

A press release by the Judiciary Committee chairman Jerrold Nadler and Antitrust Subcommittee chairman David N. Cicilline noted that "as they exist today, Apple, Amazon, Google, and Facebook each possess significant market power over large swaths of our economy. In recent years, each company has expanded and exploited their power of the marketplace in anticompetitive ways,"

In conclusion, the two chairmen said, "our investigation leaves no doubt that there is a clear and compelling need for Congress and the antitrust enforcement agencies to take action that restores competition, improves innovation, and safeguards our democracy."

These organisations and similar ones from China are referred to as Over The Top (OTTs) in telecommunications lingua. In other words, they are not regulated in spite of the impact they have customers. They can decimate local financial institutions if left unchecked.

When WhatsApp introduced its payment in Brazil mid this year, banks ganged up to push it out. Brazil’s central bank issued a statement ostensibly to support the banks in preserving an adequate competitive environment in mobile money payments space and to ensure “functioning of a payment system that’s interchangeable, fast, secure, transparent, open and cheap.” A month later, WhatsApp was allowed to resume its mobile payments.

Reuters reported that concerns over potential for monopolies to arise from the partnership between WhatsApp and large international companies like Visa and Mastercard, with far-reaching implications on data protection and privacy, went unanswered. Brazil's central bank director João Manoel Pinho de Mello changed tune and stated that the country regarded Big Tech coming in as a "huge opportunity." "Everyone can participate,” he said. “We will allow it, no problem. People can take whatever path they want, [do] whatever initiatives they want." He, however, had a caveat — as long as companies obey Brazil's regulations.

A few countries have cleverly created a payment layer to force the BigFintechs to follow local regulatory frameworks. India and China have created a local payment rail which also serves as a platform for interoperability with other operators.

For these giants to participate in the local market, they have to seek permission to use and pay for the local payment rail infrastructure. Once they are inside that rail, they automatically fall within the purview of the central banks.

Without such a financial rail infrastructure the central banks will have difficulty monitoring anti-money laundering, terrorism financing and other regulatory requirements. It will also be useful to tax authorities to have visibility of digital transactions in real time if emerging technologies like artificial intelligence and blockchain are deployed.

Emerging economies must take the UN’s concerns very seriously because either way the disruption from technologies will continue. The world cannot wait because African countries have not developed the capacity to manage their finances.