Banks Could Rival Big Techs Again

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Regulators Aim to De-risk

In an effort to further de-risk its financial system, the Chinese authorities in June ordered Big Techs and fintechs in China to channel payments through a newly authorised clearing house – NetsUnion – in a bid to enable the PBoC to better monitor customer funds on third-party payment platforms.

In Singapore, companies that collect monies from their customers must start to examine if their activities fall under the scope of the new Payment Services Bill, aimed at regulating systematically important payment firms for financial stability. 

Depending on the type of payment activity engaged and the level of transactions done, a provider can be categorised as a money-changing licensee, a standard payment institution or major payment institution.

Choking Big Tech Is Dangerous 

With harsher regulatory landscape for tech payment firms, a near-term side effect is the cut off in funding for SMEs when economic or liquidity conditions weaken. This could have spillover effects on the overall economy which is difficult to model, analysts note.

«In a downturn, there could be a large drop in credit to SMEs and large social costs. A complete evaluation of this new form of financial intermediation requires a complete business and financial cycle,» said Carstens.

Window of Opportunity

Against a backdrop of weaker economic outlook and tightening credit conditions, China’s central bank in October has slashed the level of cash that banks must hold as reserves for the fourth time last year. Aware of small firms' contribution to jobs, the authorities also introduced low-cost loans for smaller firms, reported by «South China Morning Post». Such moves are attempts to lower financing costs and shore up growth overall.

For sure, Big Techs will not give up their dominant position in payments without a fight. As they lobby for lower reserve requirements, banks may have gotten a window of opportunity to quickly roll out digital platforms or solutions that rival those of Big Techs.

With updated regulations, perhaps financial authorities may soon soften the stance on Big Techs. After all, they are comparatively more willing and able to fund smaller enterprises traditionally declined by bigger banks.