Global fintech and funding innovation ecosystem

When Big techs and fintechs own banks

BIS | Raihan Zamil and Aidan Lawson | Jan 20, 2022

benefits risks policy options when fintechs own banks - When Big techs and fintechs own banks

Over the past decade, big techs and fintechs began to provide a range of financial services to consumers, initially outside the confines of the highly regulated banking industry. These services started with payments, but expanded to encompass consumer lending, insurance and wealth management.

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In their provision of financial services, some big techs and fintechs compete directly with banks, while others work in partnership with them through various arrangements, to fulfil their customers’ banking needs. From the perspective of big techs and fintechs, the main benefit of providing bank-like financial services without a banking licence is the limited regulatory oversight, which allows them to focus on enhancing their technology, improving product offerings and enriching the customer experience.

More recently, several big techs and fintechs have obtained a banking licence in various jurisdictions.

Despite the regulatory scrutiny that accompanies a banking licence, a number of big techs and fintechs see the value proposition that it confers. Asia, and in particular China, is home to the largest number of big techs that operate with a banking licence. Numerous fintechs have also been granted bank charters in the United Kingdom and to a lesser extent in the European Union (EU) and the United States.

Access to low-cost deposits that complement their product offerings, the cost savings associated with eliminating the need for partner banks, the perceived trust and legitimacy that a banking licence bestows and the possibility that investors may reward such firms through higher market valuations more than offset the costs associated with operating as a bank.

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  • These developments have been facilitated by an enabling regulatory environment
  • This paper assesses the benefits and risks of extending banking licences to big techs and fintechs.
  • The perceived benefits of allowing tech firms to operate with a banking licence are compelling, but require scrutiny.
  • The inherent risks, however, differ markedly across tech firms, with big techs posing the greatest challenges.
  • Authorities impose a range of financial and non-financial requirements as a precondition for tech firms to operate a licensed bank.
  • In devising licensing requirements, authorities should consider the inherent risks posed by tech firms.
  • The question of whether to allow tech firms to operate with a banking licence has the potential to permanently alter the landscape of national banking systems.

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