Banks face encroachment by tech giants that could widen cyber exposure, French authority says
1 February 2019. By Neil Roland.
The banking industry could be transformed in years ahead by the expanding foothold of Amazon, Google, Apple and Facebook in financial services, creating interconnections that might fuel cyber threats and systemic risks, said Denis Beau, the Bank of France’s first deputy governor.
The technology giants are likely to expand into banking beyond their current offerings of consumer payment services in dozens of countries and back-end cloud computing for banks and other firms, he said in Paris this week.
“Bigtechs, more than fintechs, have the potential to fundamentally redefine financial intermediation by integrating the entire landscape of financial services into their own digital ecosystems,” Beau said. “Banks may be interfaced with bigtechs’ platforms.”
This evolution would probably benefit big banks the most, he said.
“Digital finance will more likely lead to reshuffling the cards, with the most digitally-agile incumbents and the most financially able challengers becoming the new dominant (and potentially systemic) intermediaries,” the text of Beau’s speech said.
He said tech giants are well-positioned to expand into finance because of their assets, brand recognition, global customer base and access to technology. Their financial entanglements are growing more slowly in the West than in Asia.
Regulators and bankers around the world view the potential concentration of large banks and technology giants as a juicy target for cyberattacks — “a potential source of systemic risk which needs to be addressed,” he said.
Authorities should decide whether the contours of their authority should be redrawn to include cloud providers like Amazon and Microsoft, Beau said.
“As the core financial functions lift and shift to the cloud, the risk of a single point of failure will emerge, and yet cloud providers are unregulated and out of the direct reach of financial supervisors,” he said.
Banks are expected to spend as much as $32 billion each year on cloud technology by 2023, a Hong Kong consultancy said last summer.
In addition, Beau said, banks partnering with tech giants will likely gain access to consumers’ “social network” information that presents a snooping temptation.
In developing countries, he said, lenders and credit-scoring agencies have started assessing potential borrowers’ social-media behavior to assess their creditworthiness.
This development, Beau said, “raises questions about financial intermediaries’ governance and risk control frameworks when privacy concerns or discriminatory bias are at stake.”
JPMorgan Chase and Amazon are in talks to partner on a number of financial ventures, and the bank already issues two Amazon credit cards, the Wall Street Journal has reported. The corporate giants also are discussing building a checking-account-like product that Amazon customers would be offered.
Amazon’s revenue last year was more than double JPMorgan’s.
A 2017 McKinsey consultancy report said the big tech companies are blurring boundaries between industries “as they seek to be all things to all people.”
The US tech giants are finding that some Asian technology firms have already ventured into finance.
Japan’s biggest online retailer, Rakuten, which manages one of the country’s biggest online travel portals, also issues credit cards and offers mortgages and securities services.
Alibaba, in China, another huge e-commerce company, does business as a lender, payments firm and asset manager.