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So far, fintech growth has been largely benign, but the involvement of big tech companies in financial services and a greater reliance on data outsourcing could pose a bigger threat to the traditional industry and a risk to the financial system, suggests a new report from the Financial Stability Board (FSB).

The report finds that fintechs have proven complementary to, and cooperative with, traditional financial firms. But it also warns that the financial industry could face greater competitive pressure if large tech companies (such as Apple, Amazon and Google) were to enter the financial services business.

These firms could represent a more disruptive threat, the report suggests, since they already have large, established customer networks, brand recognition and trust, and access to proprietary customer data that could be used to their advantage.

“Combined with strong financial positions and access to low-cost capital, BigTech firms could achieve scale very quickly in financial services,” the report says. “This would be particularly true where network effects are present, such as in payments and settlements, lending and, potentially, in insurance. Cross-subsidization could allow BigTech firms to operate with lower margins and gain greater market share.”

The FSB notes that there are benefits to enhanced competition but warns that there could also be risks. “Greater competition and diversity in lending, payments, insurance, trading and other areas of financial services can create a more efficient and resilient financial system,” it says. “However, 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.”

Additionally, the FSB says that financial firms’ reliance on third-party data service providers could pose a risk. While such reliance is estimated to be low at this point, the FSB says that this phenomenon warrants ongoing attention.

The FSB is particularly worried that this reliance could be a financial stability risk. “If high reliance were to emerge, along with a high degree of concentration among service providers, then an operational failure, cyber incident or insolvency could disrupt the activities of multiple financial institutions,” it says. “Thus, while increased reliance on third-party providers specializing in cloud services may reduce operational risk at the individual firm level, it could also pose new risks and challenges for the financial system as a whole.”