The Financial Stability Board (FSB), a global finance regulator, warned that the proliferation of eCommerce giants like Facebook, Amazon, Alibaba and Apple in the financial sector is expected to continue and will disrupt the industry, according to a report.
Banks are expected to increasingly feel competition from FinTech firms as well, but those relationships will mostly be collaborative and complementary.
“New entrants into the financial services space, including FinTech firms and large established technology companies … could materially alter the universe of financial services providers,” the FSB said. The Board also said that traditional financial institutions should be monitored as competition increases, because they might take bigger risks even as margins tighten up.
Many companies have moved into the financial space, including Tencent, Baidu, Google, Samsung, Microsoft, Mercado Libre and Vodafone.
Apple Pay, especially, has been expanding at a rapid pace. It announced on Jan. 22 that Target, Taco Bell, Hy-Vee supermarkets in the Midwest, Speedway convenience stores and Jack in the Box all now support the service. Apple said that with the addition of the national retailers, 74 of the leading 100 merchants in the U.S. and 65 percent of retail locations around the U.S. support Apple Pay.
Other companies are offering insurance and lending services, some with an eye on expanding to account and asset management.
“Greater competition and diversity in lending, payments, insurance, trading and other areas of financial services can create a more efficient and resilient financial system,” the FSB said. “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 a new player in the financial sphere isn’t always great for competition, as the Chinese mobile payments market is dominated by Alipay and Tencent, which have 94 percent of the market.
The FSB noted that many financial institutions were behind technologically and had to rely on third-party providers for services like analytics, data provision and cloud storage. That reliance could eventually pose a risk, it said.