• Anastasia Demetriou, General Counsel & Company Secretary at IFX Payments


• 08.12.2022 12:15 pm
#finance

Big Tech companies have extensive data, power and influence at their fingertips, that as they enter the finance space – it begs the question, are the regulators ready for them?

Clearly, there is a need (and a desire) for a clear regulatory framework to be provided by policymakers within the industry. At the same time, we are wondering how the regulators can possibly keep up with the inevitably fast-paced nature of Big Tech’s developments in financial services. How can this accumulation of power and dominance be effectively tamed?

Let’s examine the case of Elon Musk’s recent payments vision for social media platform Twitter. Despite the ideas he presented being in preliminary planning stages, rather than fully formed, the company has already filed initial paperwork with the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

Musk’s aim of allowing Twitter users to monetise their content through P2P payments may be music to content creators’ ears, but there are thorny issues when it comes to the accompanying compliance challenges.  After the recent introduction of a new paid profile verification system, fake accounts flooded the platform overnight. In order to avoid fraud and scams from such accounts, Twitter will need to invest significant resource into upgrading its internal compliance framework before jumping into payments.

An unfair playing field

Financial services is one of the economy’s most influential sectors. In recent years, Big Tech companies have edged their way into the industry. This isn’t just a case of FOMO, but a means of acquiring market power and dominance. As this happens, we’re left asking whether the current regulatory framework is robust and fit for purpose as it stands?

If Musk’s looming grip on finance is successful, we risk social networks holding extreme power, in a sector which plays a vital role in global economic and social development. Many may argue that there are benefits, namely innovation leading to further financial inclusion, but in the absence of controls, is it not inevitable that a tech giant will dominate more than it will diversify - a topic already tackled by the Financial Stability Board.

It's by no means new that monopoly power creates market disadvantages for consumers. Legislators have expressed a desire to adapt existing frameworks to protect competition in the digital marketplace, but it’s hard to see what pro-competitive interventions can be made without simply limiting Big Tech’s expansion into certain markets.

Twitter’s vast resources and access to customer data set the landscape for an immediately unfair playing field. We can’t be confident that there’ll be true separation between the data (which Twitter has collected under an entirely different offering) and its financial services arm. The tech giant’s ability to leverage customer data coupled with its (very) deep pockets means it will scale quickly and the impact will be self-reinforcing. The more markets it dominates, the more customers it acquires and the more data it accesses. Rinse. Repeat.

Regulatory uncertainty: it’s time to act

The legislation is clear: the use of personal data should be restricted to the original purpose for which it was collected, and consent must be freely given; specific, informed and unambiguous.

Let’s look at Meta as another example. The Facebook-Cambridge Analytica scandal sparked an interesting debate about social media’s influence in politics. This pre-dated the privacy requirements imposed by the GDPR and stricter privacy regulations could have helped prevent the leak.

But what assurances can Meta provide that it has learnt from its past mistakes? Do financial penalties have enough of an impact on tech giants? Meta’s 2019 financial services expansion was geared around the cryptocurrency market where regulation is novel and by comparison, in its infancy.

Regulatory oversight needs to span multiple areas, and financial supervisory authorities will need to engage in constant dialogue with other regulatory authorities globally. Yet, the complexity and scale of a tech giant’s operations means that regulators will need to be collaborative, cautious and innovative in their methodology.

Small and medium-sized FinTechs such as IFX Payments have worked hard to ensure that they live and breathe the regulatory frameworks in which we operate. Compliance must be a priority; it underpins our key offering and ensures that consumers retain confidence in the sector. Entry into the industry by social networking giants should only be permitted if we can be confident an appropriate and impactful regulatory framework and response can be established and upheld on a global scale.

Big Tech companies might see moving into financial services as a lucrative, current trend, but let’s not forget that they’re a social media provider with the potential for monopolistic practices. Regulation needs to level up when it comes to monitoring and challenging such conglomerates.