Gatekeeping the Gatekeepers: When Big Techs and Fintechs Own Banks

Categories : Regulation and Payment System Governance, Regulation of Digital Financial Services


Author: Bank of International Settlements

Following the 2007–09 financial crisis, big techs and fintechs started to offer financial services without the need for or interest in a banking license. More recently, tech firms have obtained banking licences in several jurisdictions to access low-cost deposits and to gain the credibility a banking licence affords. These developments have been facilitated by a conducive regulatory environment, where some authorities have set aside historical concerns regarding the ownership of banks by non-financial companies (NFCs) and allowed new classes of NFCs – such as tech firms – to own banks, in the hope of improving consumer outcomes.

This paper by the BIS assesses the merits of extending a banking licence to tech firms and explores their regulatory landscape in seven jurisdictions. To ascertain their risk characteristics, the BIS categorises the universe of tech firms that provide financial services into three groups: standalone fintechs, large diversified fintechs and big techs. Big techs and large diversified fintechs pose the most significant supervisory concerns, with the former requiring more onerous prudential measures than the latter. To mitigate their perceived risks, authorities impose various quantitative and qualitative requirements during authorisation, but supervision and enforcement may pose formidable challenges.