Big Tech vs Fintech

Press Release
GDS Modellica
Big Techs and fintechs represent a challenge for the banking business as direct competitors for traditional banks
The appearance of Big Tech brings with it countless benefits for the consumer, such as an increased range of services and greater financial inclusion
The term “Big Tech” refers to those companies whose business model focused on the use of digital technology and data. They form part of the new digital economy and represent a new challenge for the banking sector. They use technology to improve efficiency, reduce financial intermediation costs and incentivise innovation so that they stand out from the rest.

Both big techs and fintechs use technology to offer better financial services. And this poses a challenge for banks in the form of direct competition. The difference between big techs and fintechs is that big techs have more capital, cutting-edge IT systems, worldwide recognition that is hard to ignore, a greater online presence, handle more big data than any traditional bank and their market share on computers and mobile phones is second to none. In the current financial ecosystem, these tech companies are trying to open up digital business opportunities for themselves either by supporting banks or acquiring them. More traditional financial institutions often lack the capacity to develop technologies on the necessary scale, so they end up signing deals with big tech operators and have to rely on them for solutions.

Digital banks are gaining ground, and the relationship between fintechs and banks has evolved towards a situation where they both compete and cooperate with each other. And the same is now happening with big techs, who have established partnerships with banks to offer customers their payment methods (such as Google Pay, Apple Pay or Amazon Pay).

According to a report by the Bank for International Settlements (BIS) titled Big Tech Interdependencies – A Key Policy Blind Spot, financial institutions are relying on big tech solutions and are starting to show signs of increasing dependence in relation to cloud computing or data analytics. The four main providers of this technology – Amazon, Microsoft, Google and Alibaba Cloud – control around 70% of the global cloud computing market. This growing dependence, according to the BIS report, brings with it additional risks, particularly to operations, not to mention the systemic vulnerabilities should one of the big techs experience functional problems. According to García Rouco, “At GDS Modellica, we offer flexible solutions that allow financial companies to create, manage and improve their strategies in a faster, convenient and customised way. We also help them to maintain compliance within a very strict regulatory environment and accelerate their commercial cycle by adapting our solutions to the provision of credit and loans. We do all this whilst guaranteeing maximum security and delivering agile decisions based on risk analysis”.

Regulations, compliance and general risk management represent an added burden for financial services, and the absence of regulations concerning the provision of financial services by big techs puts the very stability of the financial system at risk.
Indeed, the Bank of Spain has claimed that the emergence of big techs poses “practical challenges, forcing it to assess “not only the potential impact of their behaviour but also the resulting public actions that could compromise the goals of other authorities and vice versa”. In their view, the regulatory response has been highly uneven. In the case of the European Union, they point to the commission’s package of measures concerning digital finance, considered to be an “ambitious reform” of the existing framework that “addresses the needs of the digital era”. The ultimate goal is for regulation and oversight to be implemented by the end of 2024 so that the current boundaries can be revised and suptech tools enhanced. The free operation of big techs remains at the very fringes of monetary policy and state controls, generating significant debate about which measures to apply and how to regulate these supranational entities.

The march forward of big techs in the financial world now seems unstoppable, as they continue to provide new ways of addressing financial needs, attract new users to their platforms and offer services that complement their main business. The appearance of these companies brings with it countless benefits, including an increased range of services, better financial inclusion and greater financial efficiency, as they increasingly offer alternatives to the oligopoly of the banking sector.
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