December 4, 2018 / 2:02 PM / 7 days ago

Internet giants pose existential threat to banks: BIS chief

LONDON (Reuters) - Internet and ‘big data’ giants like Amazon and China’s Alipay pose an existential threat to traditional banks, the head of the Bank for International Settlements, Agustín Carstens, said on Tuesday.

FILE PHOTO: Bank for International Settlements (BIS) General Manager Agustin Carstens pictured during the IMF/World Bank spring meeting in Washington, U.S., April 20, 2018. REUTERS/Yuri Gripas/File Photo

Carstens, who took charge of the central bank umbrella group a year ago, said the huge amounts of data that big internet companies gather on their customers meant they potentially have advantages over established banks.

They may have better information on customers’ spending and lifestyles, which might make it easier to judge the risks of providing a loan.

“This is very big,” Carstens, who was previously governor of Mexico’s central bank, told Reuters on the sidelines of a banking conference in London where he spoke on the growing influence of big data.

“This can be an existential threat to some financial intermediation firms so it is very important for us to get all of this early on and try to steer it without distortions.”

Alipay, the payment affiliate of China’s Alibaba, is already catching up with HSBC in terms of market capitalization. The growth of Alipay and companies like Tencent has prompted Chinese regulators to take steps to be able to monitor them more closely.

There are also questions over whether U.S. giants such as Amazon, Google or even social media firms such as Facebook, could expand in financial services with similar setups.

“Each model is different, but what is universal is the exploitation of information,” Carstens said.

“Amazon doesn’t have much of an open financial intermediation model, they don’t have a financial arm like Alipay but there is nothing that prevents them from generating it.”

The key point was that it was not yet clear how much of a competitive edge social media and shopping data can give internet companies that go into financial services, he said.

From the perspective of the authorities, the questions are whether it will create any risky lending or destabilize the financial system in any way.

“We need an open public discussion,” he said in a speech entitled “International coordination is the name of the game”, which he gave at the conference.

Reporting by Marc Jones; Editing by Susan Fenton

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