Big Tech & Financial Services

ECONOMY/ GOVERNANCE

• GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment 
• GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Big Tech & Financial Services

Context: The involvement of large tech players in the financial services segment is something that has been specifically flagged by the Reserve Bank of India (RBI).

Recent Developments 

• Amazon’s financial services unit Amazon Pay has partnered with investment platform Kuvera to offer wealth management services to the former’s customers. 
• This follows Google Pay’s deal with Equitas Small Finance Bank for fixed deposits.

What is Amazon Pay’s partnership with Kuvera?

• Under the partnership, Kuvera will provide services, products and technology know-how to Amazon Pay that will facilitate investments in mutual funds, fixed deposits, etc for its customers. 
• Through this partnership, there will be democratisation of investing and wealth management in India.

Have there been other partnerships like this?

• The most recent partnership involving a big tech company and a financial services firm for wealth management was Google Pay’s deal with Equitas Small Finance Bank for fixed deposits.
• Several tech companies, though, have tied up with banking partners for short-term financing instruments. 
• These include Amazon Pay that has tied up with Capital Float and IDFC FIRST Bank for the Amazon Pay Later instrument, and Paytm, which has tied up with Clix Finance India Pvt. Ltd for its postpaid service. 
• Credit card payment platform -CRED also has an online lending platform in partnership with IDFC FIRST Bank.

What has the RBI said about involvement of tech companies in the financial services space?

• While the RBI hasn’t commented on specific deals, in the Financial Stability Report released in July 2021, the central bank flagged concerns with big tech firms offering digital financial services.
• Big techs offer a wide range of digital financial services and have a substantial footprint in the payment systems, crowdfunding, asset management, banking and insurance of several advanced and emerging market economies.
• While this holds the promise of supporting financial inclusion and generating lasting efficiency gains, including by encouraging the competitiveness of banks, important policy issues arise.
• Big techs foraying into financial services present at least two unique challenges. 
  • First, they operate at many different (non-financial) lines of business with sometimes opaque overall governance structures.
  • Second, they have the potential to become dominant players in financial services within short span of time by exploiting network effects. Therefore, their regulations cannot be post their establishment in the sector.
• More specifically, the concerns have intensified around 
  • A level-playing field with banks
  • Operational risk given the huge customer base they enjoy
  • Too-big-to-fail issues
  • Challenges for antitrust rules
  • Cyber security and data privacy

Connecting the dots:

• MFIs: Digital and Physical Micro-lending
• New Social Media Code
•  Dominance of Big tech
• Australia’s News Media Bargaining Code