Big Tech companies are likely to become dominant players in the financial services sector in the country, said the Reserve Bank of India (RBI). They are also likely to pose a threat to existing banks, payment companies and non-banking financial services players, the central bank suggested.

While the RBI did not mention any names, the Big Tech term generally is used to refer to global giants such as Amazon, Apple, Facebook, Google and Microsoft. The market capitalisation of each of these companies is between $1 and $2 trillion (1 trillion is one lakh crore).

The regulator added that the presence of Big Tech in digital financial services and payment gateways will bring their own set of challenges to regulators in advanced and emerging markets.

Also read:

RBI flagged over Rs 8,000 crore of potential related-party lending by Srei Group in FY20, show disclosures

In its half-yearly Financial Stability report, India's central bank said such risks from Big Tech could be related to data privacy; anti-trust, monopolistic competition and domination practices; and cyber-security risks. The entry of Big Tech can bring in operational efficiencies and give people enhanced access to financial services, said the regulator.

RBI pointed out that Big Tech doesn't have transparent governance structures due to their presence spread across multiple financial (& non-financial) businesses. It can bypass regulatory limits and scale in financial services by leveraging its networks, said the regulator.

Central banks can supervise Big Tech by formulating global standards based on coordinated standardised rules as the digital economy transcends international borders.

Also read: RBI extends interest subsidy scheme for exporters till Sep

RBI prescribed the "Entity-based Prudential Regulation" approach to regulate Big Tech. In this, each individual unit of Big Tech is examined based on rules or standards decided in advance. RBI pointed out that the activity-based approach is being practiced in anti-money laundering and combating financial terrorism across countries.

Amazon, Facebook and Google have applied to the regulator for setting up their own payment networks in India under the RBI's umbrella entity framework (NUE). Walmart-backed PhonePe and Google Pay already offer digital payment services. Facebook has already started WhatsApp Pay and its Unified Payments Interface (UPI)-based payment service.

Amazon.com Inc. and Alphabet Inc. are amongst those building payments ecosystems, linking retail networks of thousands of neighbourhood shops, selling financial services through apps.

Also read: RBI asks banks to surrender non-compliant corporate current accounts by July 30

The regulator's observation coincides with the government engaging Big Tech following the issuance of the Intermediary Guidelines and Digital Media rules in India.

First Published:Jul 2, 2021 6:12 PM IST