Big Tech in Financial Services

"For the past decade or so, “Big Tech”—which hereinafter refers to the large technology companies Amazon, Apple, Google, and Facebook (now Meta Platforms), unless otherwise noted—has been offering a variety of financial services products to retail customers. Big Tech uses advanced data analysis and novel partnerships with traditional financial institutions to redefine financial services. The financial service with unanimous participation among Big Tech companies is payments. In 2021, more than 100 million consumers used mobile payment apps, including those provided by Big Tech. Other offerings include credit cards and lines of credit, value storage, and stable coin wallets. In addition to these direct offerings of financial services, Big Tech has other significant, albeit less direct, ties to finance. Amazon, Microsoft, and Google account for roughly two thirds of cloud service in the United States and count banks and other financial institutions as major customers.

Big Tech relies on partnerships with traditional financial institutions in some capacity to deliver nearly all of these services. The variation in such relationships accounts for much of the difference both between companies and among products offered by the same company. These complex partnerships can obscure the role of Big Tech and the ultimate provider of the financial service, and they raise the question: Do Big Tech companies provide convenient interfaces, or are they true financial institutions? The answer to that question, perhaps not surprisingly, lies somewhere in between. Big Tech companies are neither pure financial institutions nor solely technology providers.

The premise of that debate belies a fundamental issue. Irrespective of the nature of their relationships and current role in financial intermediation, Big Tech companies have demonstrated interest and possess the scale and financial capacity to increase their range of offerings of financial products should they choose to do so. Traditional economic factors such as economies of scale and network effects—and the unique advantages of the Big Tech business model, which relies on access to troves of data and insight into consumers’ behavioral preferences—support this reality.

The context in which these developments have taken place raises a host of policy issues. Currently, regulation of Big Tech’s financial services is fragmented. Big Techs hold money services licenses for their role in facilitating payments and are subject to a handful of regulations, but they also rely on the licenses of their partners to facilitate other offerings. Some observers question whether the existing regulatory framework is adequate. Regulation-related policy issues include, as well, consumer protection concerns and evolving data security and privacy laws. Other policy issues include financial inclusion, algorithmic bias, and third-party and cyber risk. How these companies evolve will have consequences for many of these policy issues but perhaps none more so than the companies’ regulatory treatment..."
Financial Services