Credit from FinTech, Big Tech platforms hit a staggering $795bn
The Bank for International Settlements (BIS) has recently published a report that sheds light on the rapidly expanding role of FinTech and Big Tech platforms in the global lending market. According to the BIS, the flow of FinTech credit reached a staggering $223 billion in 2019, while Big Tech platforms provided an even greater $572 billion in credit over the same period. While the United States, China, and the United Kingdom remain the largest markets for FinTech credit, Big Tech credit is rapidly growing in countries such as Japan, South Korea, Southeast Asia, and some countries in Africa and Latin America.
The rise of FinTech and Big Tech in the lending market has been driven by several factors, including a business-friendly regulatory environment, supportive judicial systems, and a low bank credit-to-deposit ratio. In countries where GDP per capita is higher, traditional banking sector profits are greater, and regulation is more lenient, alternative forms of credit have flourished. The BIS report notes that FinTech credit is more prevalent in countries where there are fewer bank branches per capita, suggesting that FinTech and Big Tech are filling a gap in the market where traditional banks are less present or less competitive.
One interesting finding of the BIS report is that FinTech and Big Tech platforms seem to complement traditional forms of credit rather than replacing them. This suggests that the lending market is becoming more diverse and competitive, which could benefit consumers and businesses. However, the report also highlights some concerns about the potential risks associated with Big Tech companies entering the lending market without proper financial supervision. The fact that these companies are becoming shadow banks and issuing loans without a lender of last resort raises questions about their ability to handle financial crises. It is important that regulators keep a close eye on these developments and ensure that appropriate measures are in place to mitigate any potential risks to financial stability.
One of the most significant developments highlighted in the report is the entry of Big Tech companies into the “buy now pay later” (BNPL) customer loan market. Apple, for example, is now offering BNPL loans to its customers without a banking partner, simply securing loans via its massive balance sheet. This move could be seen as an attempt by Big Tech companies to test the waters and expand their banking business based on the data they collect via BNPL. While the risk to financial stability from these loans in the consumer goods market is currently limited, it is important to recognize that these companies are increasingly challenging banks directly, which could have significant implications for the future of the lending market.
The BIS report highlights the growing importance of FinTech and Big Tech platforms in the global lending market. While the entry of these companies has brought many benefits, such as increased competition and innovation, it is also important to recognize the potential risks associated with their expansion. Regulators must carefully monitor the activities of these companies and ensure that appropriate measures are in place to protect financial stability and consumer protection. As the lending market continues to evolve, it is important that a balanced approach to regulation is maintained, one that promotes competition and innovation while safeguarding financial stability and consumer protection.
