Banks should fear competition from BigTech firms branching out into financial services more than the threat of FinTech challengers, according to the Financial Stability Board (FSB).

A report from the international policy body for financial services tasked with assessing the impact of new technology on global financial stability, said the disruption that could stem from the entry of global tech giants could “materially alter the universe of financial services providers”.

Meanwhile, the digitalisation of the financial system across the board has the potential to significantly change the way the global financial system functions, raising a number of potential benefits and risks, the FSB said.

It recognised that “technological innovation holds great promise for the provision of financial services, with the potential to increase market access, the range of product offerings, and convenience while also lowering costs to clients”.

It also noted that greater competition and diversity in the fields of lending, payments, insurance, trading and other sectors of the financial services industry, could improve the efficiency and resilience of the financial system.

However, it warned that “heightened competition could also put pressure on financial institutions’ profitability and this could lead to additional risk taking among incumbents in order to maintain margins”.

The FSB added: “Moreover, there could be new implications for financial stability from Big Tech in finance and greater third-party dependencies, for example in cloud computing services.”

Underlining the fact that the competitive impact of BigTech may be greater than the growing influence of FinTech firms, the report cited the risk posed by the fact that BigTechs have large, established customer networks and enjoy name recognition and trust amongst large swathes of the population.

Amongst its key findings, the FSB concluded that the for the most part, the relationship between incumbent financial institutions and FinTechs appears to be largely “complementary and cooperative” in terms of maintaining global financial stability.

In addition, reliance by financial institutions on third-party data service providers such as data provision, cloud storage and analytics - as well as physical connectivity for core operations - whilst low at present, warrants ongoing attention from authorities and regulators.

The FSB said it would continue to monitor digitalisation trends, to assist in harnessing the benefits while mitigating risks, including ongoing analysis of the financial stability implications of technological innovation.

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