Thursday 14 February 2019 5:09 pm | Updated: Monday 03 June 2019 1:02 am

Financial services sector must prepare as tech giants set to shake up the industry, FSB warns

The financial services sector must prepare for both the benefits and risks of tech giants shaking up the industry, the global finance regulator has warned.

The Financial Stability Board said that tech giants, such as Google, Amazon, Facebook and Apple, were muscling into the financial services sector and predicted that expansion to continue.

It said banks would also face greater competition from fintech firms, but noted that the relationship between the two was largely co-operative and complementary.

“New entrants into the financial services space, including fintech firms and large established technology companies ‘BigTech’ could materially alter the universe of financial services providers,” the FSB said.

While greater competition was positive for the sector, the FSB called for close monitoring as existing financial institutions may take extra risks as margins are tightened.

The FSB’s reports on fintech development noted that Alibaba, Tencent, Baidu, Google, Amazon, Facebook, Apple, Samsung, Microsoft, Vodafone and Mercado Libre had all moved into the payments sphere, most carried out lending and insurance and that several were moving towards current accounts and asset management.

It said: “Greater competition and diversity in lending, payments, insurance, trading, and other areas of financial services can create a more efficient and resilient financial system. “Notwithstanding these clear benefits to financial stability, heightened competition could also put pressure on financial institutions’ profitability.

“This could lead to additional risk taking among incumbents in order to maintain margins.”

The emergence of tech giants into financial services may not automatically improve competition the report warned, citing the Chinese mobile payments where Alipay and Tenpay account for 94 per cent of the total market.

Financial institutions’ reliance on third-party service providers – for data provision, cloud storage or analytics – was currently low, it said, but could increase also posing risks.