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[Music] good afternoon and welcome to all of you to today's online debate organized by the florence school of banking and finance on the topic big tech and fintech credit my name is thorsten beck and i will be sharing and moderating their debate today i'm currently professor of banking and finance at the business school formerly cars in london but will join the amazing team at the florence school in march as their new director and in september move to eui as share in financial stability now uh the topic of fintech and big tech is a very timely very relevant topic um especially after the pandemic given that there is a trend towards more digitalization and we've seen quite some developments in digital finance new providers popping up often referred to as fintech but also the large platform companies facebook google for example moving into financial services sometimes which we refer to as big tech now um we're gonna we won't be able to cover everything today very obviously but we're gonna cover three um big chunks in this area we're going to first talk a bit about giving you a little bit of a landscape then talk about the competition implications and then talk about the um the regulatory implications of this of these developments um each of our three speakers who am i going to introduce in just a moment we'll have seven minutes to present um and then we're gonna go to uh q a we received already some questions and we are open for further questions in the q and a box so please um submit your questions in the q and a box of the uh zoom zoomba before continuing let me just briefly mention that this seminar is actually kind of a partly a preview to an upcoming training activity that we have in fintech innovation finance and regulation which actually will be led by one of our speakers uh philippe from the london school of economics we have a few seats remaining it's already next month but there will be another edition in case you're missing that or you won't don't cannot commit at this stage in september and we will open this the registration for this later in this semester we have other uh training activities as you can see here um network analysis and finance economics panel data for banking sector analysis analysts and then the bank resolution academy later in uh in april before i continue let me mention just one more activity we have a kind of a new series uh the so-called bank board academy um which started in december and we're going to have our next seminar in this series in in just uh three weeks a little bit more than three weeks among under the title for hidden proper assessment better boards for better banks with eduard fernandez boyo as our main speaker and elena scaletti the founding chair of the founding director of the fbf as a moderator so but now let's turn to the topic of today which is big tech and fintech credits and i would like to start each of the presentation uh with a poll so the first poll yes the first poll is what do you think or how do you think the kovit 19 pandemic will affect the growth of big tech credit in europe viktor credible accelerate it will grow less quickly it will actually be further constrained by regulation or it will not be directly affected so um voting is open and while you are voting on this poll let me introduce our first speaker john frost who is part of a very exciting new unit in the bank for international settlement on innovation in the digital economy and he works on policy oriented research on fintech and digital innovation he has written quite extensively in this area and before working at the bis he also works worked at the fsb which is in the same building the netherlands banks and also in academia in the private sector in germany so he is um quite worse in this topic and we're very excited to have him to kind of give us a kind of an overview of the latest development and trends in big tech and fintech before i give him the words um um jan can you please tell us how the poll is going and um whether we have a result indeed so big debt credit growth will accelerate has gotten 71 percent of the votes so the majority is quite clear in that aspect you'll find the whole bulk of the results in the chat box in just a few seconds okay lovely great good then over to you john please um give us your insights thank you very much torsten and uh thanks for the chance to uh to present today um it's uh it's really a pleasure to be able to to draw from current research and be able to talk about big tech and fintech credit and particularly to talk about the european context says uh source to mention i've worked in in various contexts in europe for some time at a national central bank also um in the private sector and um i've noticed that europe is a bit a bit special in global context so i'd like to try to talk about that and show how big tech and fintech credit markets in europe compare also to uh for instance large markets in north america and in asia so i'll start by by noting that this draws on research which is joint work with colleagues from the cambridge center for alternative finance and at the bis and of course these these are my views not necessarily those of the bis so i wanted to start with um with some groundwork uh this is uh perhaps necessary before we talk about you know fintech and big tech credit what are they and um and to start with um fintech of course is a very broad trend that's been you know transforming financial services in a number of areas for several years now and the fsb defines fintech simply as technology enables innovation in financial services noting that it could result in new business models applications processes or products and i think many people are aware of the large fintech providers so there have been a number of challengers who often focus entirely on financial services in areas such as payments or insurance or wealth management and often have you know more niche business models more focused business models that really focus on using technology for one area of financial services so stripe or in europe again our large payment providers of course toss and paytm in asia also in payments robinhood is in wealth management lemonade and john yan are in insurance and these are again firms that tend to focus on a particular vertical in financial services using technology to um to improve that fintech credit of course is one part of the overall fintech space focusing specifically on lending so this is credit activity facilitated by online platforms that are not operated by commercial banks so peer-to-peer marketplace lending is one example and in europe there there's quite a bit of this as i'll also discuss in just a moment zopa is actually the oldest provider of fintech credit it was founded in the uk funding circle of course also mintos and internationally there are many more examples lending club sofi lufax etc now big tech is different because big tech providers don't only do financial services they also have a large range of non-financial business lines so these are large companies whose primary activity is digital services rather than financial services and here at the bis we've written um on on big tech and what makes it different and internationally of course the the largest players are in the united states and in china so ant group and 10 cent which operates we bank are of course very large but also amazon facebook google as as tourists mentioned in the start in europe the the largest players you know we count telecoms that financial operations uh also as part of this so ohange for instance has a launch bank um and uh vodafone and pesa of course is a subsidiary of vodafone headquartered in the uk but there are relatively fewer compared to the large big techs that operate in asia or in north america now we've done work with cambridge center alternative finance looking at the growth of fintech and big tech credits and this is shown on the left this uh this chart uh appears simple but there's uh i think literally hundreds of math hours behind it in putting together the the data that's shown here and you'll see big tech uh shown here in blue bars and uh what jumps out of this is that big tech credit is booming so at the global level there was about 572 billion uh dollars in big tech lending in 2019 we're currently assembling data for 2020. we hope to have that soon and it's actually an open question whether big tech credit has increased or decreased during the covet 19 pandemic certainly there's been greater demand for credit from for borrowers but big tech companies have also said that given the higher credit risk during the pandemic they've also lowered limits and um and it it's it's very much an open question uh whether the lending is actually increased or not but um what's uh what's striking here is that uh you know so much of this a very large part is actually in asia so if you look uh by country um on the right you can see this with a logarithmic scale fintech and big tech credits china is by far the largest market for both and actually interestingly there's um the fintech credit is declining very rapidly in china but until now fintech credit was was rather rather brisk and big tech credit uh has also been increasing other large markets for big tech credit include korea japan indonesia um russia kenya and actually uh european markets come very far after that so the uk and france have have some big tech credit but it's much much smaller than than either the asian countries or the united states and the number of developing economies what europe does have a lot of is his fintech credit so fintech credit has grown very fast in europe and in a number of countries including italy the netherlands um the uk germany france uh there's actually more than one billion dollars of fintech credits so this is peer-to-peer lending marketplace lending in 2019 and you can see there's been a fairly dramatic growth again we're still waiting for uh for information on what happened during the covet-19 pandemic but at least before the pandemic it was growing very rapidly and i think it's useful also on this slide to note the the developments in china i mentioned that china has seen a decline in fintech credit volumes and that's due to some using chronic factors including a regulatory crackdown on peer-to-peer platforms in china um and so you can see that uh particularly uh compared to uh to the developments in china europe stands out as a place where fintech credit is still really taking off i see there is one question on how big tech is defined i think this is important perhaps to quickly mention so big tech credit uh is defined as lending activity by large companies whose primary activity is digital services rather than financial services and it's important to state here that big tech credit is credit extended both directly by big tech companies and by big tech companies in partnership with incumbent financial institutions so both forms of lending are are seen in countries around the world just to give very concrete examples amazon lends to small businesses that sell on the amazon platform for instance the united states and also the united kingdom uh bank is a subsidiary of and has lending to its uh clients in france so um these are examples of big tech credits also in europe in many other european countries there there's not yet an example of a big tech credit so i just wanted to close the regulation which i think will hopefully be a nice segue to lauriana and phillip in the later sessions and just to say that there's been a very large regulatory debate about how to address the risks from from from fintech and big tech credit um and on big tech i think um you know particularly given the scale of big techs not only in financial services but in a number of other industries there's been a lot of discussion about competition issues in finance there's a discussion of systemic importance and too big to fail and so increasingly it seems that authorities are leaning more toward an entity based approach to big tech perhaps to complement activities based regulation and here are just a few examples so in china i think people are aware that the state administration for market regulation issued draft guidelines on internet companies in november and of course there are a number of measures by the financial regulators around amp group and other big techs regarding their lending activities in the united states there's been work on antitrust toward big text the house subcommittee on anti-trump's commercial administrative law put out a report in october and in europe uh there is the draft digital services act and digital markets act and um i think that it's uh it seems that europe is also taking an ambitious approach uh likely entity based that will address some of the specific risks uh from big tech so we'll have a chance to go into this in more detail but i'd like to now pass back to torsten and to our next speakers thank you very much john for this introductory um kind of overview which i think shows the the importance of big tech credit and fintech credit of course there's much more to be said in terms of all the regional variation which maybe we come back to later but let me ask you one question which actually also came up already for before the uh before the event uh can you just spend maybe uh 35 seconds on the implication for a financial inclusion i mean you mentioned already m-pesa uh which started in kenya but it's also active in other countries um what is the role of big tech um as you define it like the phone companies mobile phone companies uh in this in this context absolutely so big tech has a number of uh unique characteristics including its hyper scalability so big tech providers often have access to large networks from their non-financial businesses they have access to user data they have a broad range of activities so we've written about this dna feedback loop which allows hyperscalability data network activities and this is very powerful it can be very powerful for good for financial inclusion for instance and we've seen this with m-pesa and uh indeed with uh and um you know and group uh alipay and uh in china um we've seen that these innovations have reached you know tens and hundreds of millions of users in a very short amount of time because they are hyper scalable because they are very cheap to onboard additional users but these same forces also lead to all of the questions around competition around systemic importance that i mentioned so it is a double-edged sword this uh this dna feedback loop it can be very powerful for financial inclusion they can also be very uh disruptive for fair competition in markets okay well thank you very much uh john um so now we're turning to the uh before i turn to the next speaker loriana let me uh ask john to put up our second poll so what effect will higher financial sector competition due to the anti-fintechs and big tax have on financial stability it will ensure greater stability it will result in less stability or even a crisis there won't be any major effect on stability or completely different the entry of fintech and big tech will not increase competition so please go ahead and vote and in the meantime i'd like to introduce um uh lorianna pelisson who's the program director of the research center safe um in the greater university in frankfurt um which is now one of the major um uh research centers um in in germany focused on financial sector issues she's also the chair of law and finance uh additionally she's also a part-time full professor of economics in beautiful venice and a research affiliate at mit sloan and she has also worked across a lot of areas in in finance including on fintech and big tech and including on the issue of competition and stability and so here we have the um the results uh as a challenge for you loriana it will result in less stability that seems to be the uh the kind of what most people say uh with the second kind of tight either greater stability or no effect at all it's it's interesting that very few people say that it will not increase stability at all so no jana over to you you can't hear you you have to unmute so thank you very much for giving me uh the opportunity to uh you know share some ideas about uh competition an the perimeter of the fintech big tech and banks in the european union so the focus is uh on uh uh specifically on on europe and actually on the european union and you know one of the first questions we need to ask when we are talking about how these different institutions of different companies will compete and will eventually disrupt the incumbent is what is different for finance with respect to what we have already observed for several other markets like you know retail and agency businesses where you know we know very well what's happening in terms of amazon and tripadvisor and uh even more what is going on now with the with the crisis clearly on one side finance is having many points on both similarities and differences with respect to these other sectors on one side you know uh finance is not really asking too much physical infrastructure so this is why maybe uh it will be very easy to compete under this framework but as we all know it is highly uh the regulation is very large so it is only subject to regulation then clearly this will uh affect a lot how this different institution fintech and bing tech eventually will be able to compete in the credit market uh but let me just summarize i'm using this beautiful picture that has been provided in a uh let's say by this uh in this paper that is characterizing where and under which dimension think fintech is competing with banks uh you know and it is under different dimension you know on one side in terms of lending by digital banking by fintech balance sheet lending and loan crowdfinding and some of these companies has been already highlighted by john in his presentation you know it can be used for capital rising it can be used as asset management for opera advisory it can be used largely for payments is affecting a lot the payment system and then is also going to affect another important part of the financial system that is the insurance market and also the power related to crypto assets so financial activities related to crypto assets cryptocurrencies and so on uh but you know if several of these activities are at the core of what usually banks are doing banks are doing all these activities together and the reason why they're doing several of these activities together is to exploit their ability to do to have economic economy of scope think tech instead are largely very specialized and look into each of these type of activities uh in most of the case in a separate way difference is for big tech big tech as john already stressed and it is i think i'm using here the classical picture and uh definition that bis is already uh proposing by two years i think is that you know big tech are very large companies and thanks to their activities they are able to collect a lot of data and thanks to this data they are also able you know to uh pretty much get access to a very significant network of of people and and also not just on the number of people but how these people interact among each other and based on this they are also able to expand their activities and thanks to these they are collecting even further data and so on and this is a circular effect that will generate this huge let's say uh network uh effects that will amplify their capacity so clearly they are largely different than fintech and for this reason they are competing with bank in a completely different way so now let's move to you know the financial system and clearly the way in which this both big tech and think tech can compete in the financial assistance is depend on how is the financial system so you know we know that around the world we have financial systems that are largely bank based like europe for example continental europe another part that is largely marked market-based like the us and in part also you okay and i'm putting fintech here because this will help us to understand how they can compete in this framework and then potentially we will end up to have a sort of big tech based financial system and this is something that we do not observe so far but uh so that's why i'm largely you know guessing on how this type of framework would be and i'm going to analyze this framework under three different dimensions clearly what are the competitive advantages and what are of course also the disadvantages of uh you know of these three type of framework in terms of uh the different financial activities what are the fragilities if we will have a you know a market or a system characterized largely by banks by fintech or by big tech and what are then the financial stability instruments that we have in place in order you know to address these fragilities so let's start with the one that we know already bank base you know banks do have a co a significant competitive advantages advantage with respect to the other that is the deposit this is the main reason of why they are regulated and they have in principle a significant deposit rent at least they have deposit insurance now with negative interest rate how large is this deposit rent we can discuss but in any case you know they have deposit and this is usually their way to get a lot of information from their clients and so on and based on this they are exploiting their economy of scope so from the deposit then they are also able to provide credit they are able to provide services they are able to serve the payment system several all pretty much all the different things that i just stressed before they're all done all together in the balance sheet of their bank what we know is that uh for us already 20 years we are now in the framework of a secular disintermediation so we already know that this type of business is already you know going to reduce their significance and uh it is largely affected by this disintermediation effect what are the fragility of this system well bank run we know very well and second we know the issue of the too big to fail that will generate systemic risk and we are indeed trying to address these two problems largely with regulation and supervision and on the other side having the lender of last resort what about the market-based fintech you know already with the secular disintermediation even before that we have the classical fintech we already observed that you know there was a lot of securitization and a significant fraction of the activities were parcelized and specialized so you have companies just doing one thing not all the different things that banks are uh we're doing and now with fintech this is uh in some sense exacerbated okay this is giving a lot of market efficiency it is benefiting a lot of the secular disintermediation but this let's say framework is then characterized and will be eventually characterized if you know fintech will be uh significantly present by market ranks in this case we will have also fire sales as a big problem because everything is intermediated by the market in this case and then we know already by the evidence that this type of activities is largely characterized by pro-cyclicality they react fast uh more fast to changing the environment than banks are usually doing and this is creating immediately processing so in terms of financial stability we have all the regulation that so far it has been used for the market maybe it's not enough uh clearly regulation supervision and then we have started already observed the possibility to have a market maker of last resort i'm putting a question mark because it's not clear how far we can go on this then let's move to the big tech big tech we know they have this huge advantage of having this dna so this ability you know to have economic economic scope and also efficiency uh it is they are of course benefiting of the secular cycle of disintermediation but they are having then the big problem of being too big to fail they have a lot of issue in terms of investor consumer private rights you know investor protection what are we doing with this data they are competing in a fair way with the rest of of the system because you know they are in some sense using data that are not available to all the other and it is not clear how they are using it and in terms of financial stability instrument well you know i'm leaving this largely to the next speaker because there is a lot of thing that can be done and can be said but uh so far you know we didn't see too much there are some attempts just in the few last few months by uh different countries as already john stressed but as you can see uh we need really to figure out what will be the final result and how this different type of framework will interact in the near future thank you very much well thank you very much lorianna just to push you a bit on that so the the poll question that we've put up earlier but the majority said that actually the higher competition caused by the ngo fintech and big tech will actually reduce stability do you agree this with this or would you say it really depends um well i will say that this will really depend on how we will react in terms of you know financial stability instruments okay that's important yeah thanks sorry if i may ask one more follow-up question this was actually also um came in already in the q a box and i think also before the seminar how do you see the impact of both fintech and big tech on the banking sector um and on the shadow banking sector yeah so you know so as i just said they both think tech and and big tech are already you know uh uh appearing in a framework where uh the the banking sector in europe is uh characterized by very low uh return on equity by the fact that they need to shrink because there is over banking and on this side i think uh the fact that there is over over banking this is justifying why fintech do have a lot of problem in the continental europe to develop because you know pretty much is not that the system is working so bad it's not like in emerging markets where you know people do not have access to the banking services you know europe is already well served and this is why some sense and it is relatively cheap also compared to the us you know the services provided by by european banks are far cheaper than the one in the us and and this is maybe one of the reasons why bank in europe are given this huge competition are also not so profitable so this this in some sense is justifying why it's difficult for fintech to expand in europe in terms of big tech even they are not expanding too much in europe let's see what is going on after the crisis this coveted 19th but so far as john already showed they are not expanding in germany for example we do not see any big tech able to provide any credit to people and even in the other countries like italy spain france and so on uh maybe john can can add to this but it doesn't seem that from his data there is a significant let's say presence so this is telling this is telling us that it is very difficult for fintech and big tech to expand in a framework where there is already a lot of over banking okay well thank you very much lauren actually i'm gonna want to ask our search speaker for a little bit more patience and just turn it back to john actually and ask him briefly how um whether you agree with loriana's assessment and also with the i mean one thing is that data looking at the data the other is of course of the the courses of why we don't see the same kind of uh boom in big fintech and big tech in uh especially in the continent i guess then we see for example in china but i was in the us yeah so i agree with uh lorianna i think that quite simply there's less unmet demand for financial services particularly for credit in europe i mean there there's a very wide range of banks there are examples of small businesses that you know report not being able to access credit so it's not that the demand is entirely met but i think that relative to the united states or china or a number of emerging markets um the the market is better served and i think the regulatory approach is stricter in europe as well in some countries uh you know banking license is required for these types of activities and in other places authorities have i think been more reluctant to allow big techs to to do the sorts of things they've been able to do in china or a number of other markets around the world so i think it is a mix of the existing structure of the banking sector and the regulatory approach wonderful thank you very much john and this kind of smoothly leads up to the third topic today before i introduce our third speaker let's put up our third poll um should fintech and big tax providing credits be regulated on the basis of an activity-based entity-based or risk-based approach activity what are they doing entity the institution is such or a risk based according to how much risk they pose to the financial system you have these three options um and of course the fourth one is the i guess they can call the laissez-faire approach they should not be regulated at all so while you uh vote on this poll let me introduce our third speaker um philippe who is an associate professor of financial law and regulation at the london school of economics since 2010 he's also the director of the lse's law and financial markets project and um he's also actually a fellow a um and well used to be a fellow now a visiting professor at the um university of frankfurt so the same place as where noriana teaches and researches he also has spent uh before joining lse quite some years at the heart of international legal and regulatory reform including working for the uh european commission so uh jan if you could maybe see the uh results of our poll yes a okay it's tight 48 so almost half say a risk-based approach uh and then uh um followed by the activities based approach it's interesting very few think that actually uh they should not be regulated at all so i think that gives you a good basis uh philip for your presentation over to you thank you thank you very much uh thorson for this very kind introduction let me just bring up my let me just bring up my slides so can everyone see these slides yes again yes thank you very much so i'm extremely grateful to my to my colleagues for for their presentations because they have not only said a number of very important things which are also important in my cod uh in my context they've also sharpened my mind for something which i had forgotten that i should say it actually but now i say it in the very first place we are kind of playing here we are juggling here with labels yeah we are talking about banks we are talking about fintechs in the term of companies we are talking about big tax and so on but these labels they are these are just labels so what we really need to think about is the activity what is going on and what is the risk that they are creating and there you are already seeing where i'm going with this little presentation because i'm clearly going in the direction of risk-based approach why am i saying this i'm saying this because i think and this is the outcome of the work of an expert group of the european commission which i chat about a year ago which we we delivered our report a little bit more than a year ago and what one of the fundamental findings of this report was well we shouldn't make that distinction actually between fintech and traditional finance yeah there's no such there's no such distinction we all use technology and therefore also somewhat i usually try to avoid the word fintech like for describing an entity a fintech company i would rather say a specialized technology enabled financial provider this is also basically what john said as an explanation for the term earlier because incumbent banks even very traditional banks are using tech quite a lot so they are also in a sense fintech and therefore i i think we always need to be very very careful when using these labels what matters for us really yeah and here i come to regulation is how we want to see the market and how we want to see the market that we achieve through regulation regulation is always like finding the right middle way of avoiding risks on the one hand and on the other hand um providing the ground for the materialization of opportunities in the market so and in doing this regulation we we want to shape our market and i came up here i come up here with a with a propo al for the rationales how for how for for for sure for shaping our market so the rationales are very typical we want growth we want everyone to benefit from it we want to avoid risks for this we need to do basically two things we need to uh provide for market efficiency and that uh includes supporting measures and as the same at the same time also curbing measures so kind of restricting market activity and at the same time we need to avoid systemic crashes then as a slightly as a as a regulatory rationale which is slightly apart we have consumer protection that is something that is more attached to ideas of human human rights and equal opportunities and similar things and on this basis yeah if we think what do we actually want to achieve stability growth efficient market yeah where it makes sense to do business where it makes sense to be innovative on this basis we then look what market participants are actually doing and here i come back to the classification and for purposes of our little talk today i have adopted um the categorization proposed by the title of the conference big tex and fintechs notably so i would usually make the distinction between incumbents big techs and specialized technology driven startups yeah just to be a little bit more descriptive but let's just take stick with the term fintech so here we are looking uh at what at the at the map of market market actors so first group of market actors are the incumbents banks insurance companies money market funds uh other types of investments payment service providers and so on and i mentioned payment service providers here look at this there are payment service providers like the cart companies mastercard i mean they are doing tech they are doing this for decades they are not doing anything which is so fundamentally different payment over the internet for what paypal does or what from what now tencent does or amazon tries to introduce everywhere so this is why i say this these these lines between the different categories they are very very they are blurred yeah we need to be very careful with this so the incumbents uh basically continue using and continue propping up on uh technology because they want to retain efficiency gains gains and secure their market position they need to transform in order to achieve this john mentioned it a little earlier then we have the big text already very nicely described by my colleagues and this network effect where you have this massive user base already there and if you introduce financial services like for example in particular credit yeah consumer credit or payment services you just have to send out a message to your massive user base and you will generate business from day one that is uh sufficiently interesting to sustain the whole thing and then you have the fintechs which come in to the market in a niche i shouldn't say niche business i should say in a very specialized with a very specialized business like payment like uh lending platforms which are not one-stop shops and they are entirely um technology driven and john has come up with a very nice slide in the beginning giving a couple of names here for me the big difficulty are actually not what we call here the fintechs the fintechs at least in europe they have licenses anyway yeah they are licensed either they have a full banking license or they have a payment service provider license or they have a license as a money market sorry electronic money institution and in that sense they're already regulated and supervised according to what they do and according to the risk they are creating for example an electronic money institution they don't do what banks do they don't have uh maturity risk they don't have liquidity risk they do not do liquidity transformation yeah and therefore their risk profile uh lojana mentioned earlier the deposits yeah their risk profile is totally different different and therefore if a fintech as we call it here fintech provider is licensed already that would typically be sufficient according to what they do so i'm personally not really concerned about these in regulatory terms they can become big but we have big banks or we have other big service providers around for many many years think of paypal for example i don't think there's a problem for me the really big thing are the big techs and um i'm just trying to look at the clock here the big techs they because they have this massive user base they come from an angle of the market which is basically about providing technical services they have a multi-faceted role and this is maybe the most important thing i'd like to talk about they do so many things at the same time they are cloud providers they they run the infrastructure that all the others sorry for this they run the infrastructures that all the others need to use need to provide their services and that gives them a very powerful position at the same time they provide the ecosystems like the app stores like the operating systems of computers and smartphones which is the building block for fintech overall and now they start providing services directly they typically end with like the little bits like payment micro credit and so on then branching out and providing more and more and because they are so big because they have such a strong position we need to think whether we have to reconsider regulation regulation and that's also something that the expert group that which i chaired came up with should work on the principle of same activity same risk same rule it is very simple to assess well whether the inactivity is the same well that's a lending activity that's payment activity and so on the devil is here in the risk element yeah big tax they because of that branching out because of their monopoly situation because of the data that they hold they create risks which are totally different from the risks that we know in the financial sector so far it's not only that they are that they may become systemically important as massive payment service providers or massive credit providers in the market no this risk the risks that flow from this combined with other risks which relate to the data position which relate to the cloud service provider position and so on so here we really have to sharpen our regulatory thinking and uh in the interest of time i've come here with maps what we have to do in the in the future regarding fintech regulation the most important the most interesting for us here talking about big techs relate to the following we have to make sure that there's a level playing field between them and other market participants notably more traditional ones we have to think about how to increase resilience in prudential terms because they are highly interconnected it's a different form of interconnectedness than the one we know from the banking sector but it is definitely interconnectedness we have to think about the risks from data economy including the regulation of personal and non-personal data and we have to think about their massively dominant position which translates for consumers into the log so called login effect we are facing this and on that basis we need to shape regulation supervision so that's my proposal what we need is an integrated especially for big tax an integrated kind of regulation which takes into account all these areas financial regulation as we know it with all the tools that we have at our disposal including potential tools data regulation and also competition regulation and if we have read the financial times over the last two months we are also rethinking competition regulation because so far that has been kind of reactive uh or to large extent has been a reactive kind of regulation we need proactive competition regulation in order to avoid with protects the financial sector what we have seen with uber yeah moving to the market kind of occupy the market and afterwards wait for the regulation to happen that is extremely difficult we can't afford this here in this sector because it's much more important than taxi services so integrated risk-based regulation supervision that's my proposal for big tax thank you thank you very much uh philip um we went a bit over time but uh i think the richness of the information is uh is key here um let me actually before i go to other questions let me follow up actually with one on one point on your kind of the last slide that you put up and maybe you can put it up again just so we can look at it again i mean this is a task um which is far beyond the regulatory uh brief of uh i think anybody right now no i mean if i think about this the banking supervisor has maybe does micro crew maybe some in some cases macro crew conduct sometimes i mean here in the uk as you know it's the fca uh consumer protection partly fca can also be something else data i'm not even sure who does that i mean who who is this who's supposed to take this on i mean this is a great proposal well it's even more complex because we need this on a national eu and actually even international basis and it would basically work like different agencies work together at the moment i mean if you want a practical proposal for this um there are now information flows and cooperation mechanisms between banking uh insurance and securities markets regulators and actually to this network you just add two or three others and then it becomes a matrix structure because you have this on the various levels eu sorry national eu and then international obviously it is complicated but it is already complicated i i agree these structures we do not have them but i'm 100 sure the current regulatory thinking as regards the rulemaking and the current supervisory practices as regards the rule enforcing is insufficient to capture this problem okay great thank you so um there are lots of questions i won't we won't have time for all of them uh but let me maybe uh start with some uh and that is actually um um we have to see who i will start with i think maybe all three of you can say something to that the one thing and maybe let me start with loriana uh you made a difference between fintech and banks however um we've also seen cooperation between fintech and banks right i mean sometimes banks are actually investors and actually investors in the sense of putting their money for lending purposes into a lending platform for example or banks give fintech companies space to develop their uh technologies i've seen this here in london for example i think with barclays um so how do you see this i mean is it is this uh can we expect the fintech to be kind of like just an annex to the banking system eventually but being the more innovative part of the uh of the banking system and then ultimately be somehow integrated yeah that's right let me before i go on before i go on sorry let me add a second question a second dimension big tech and banks the same discussion and we had this of course also another forum as you know uh loyana um i mean do you see this actually as a cooperation arrangement eventually so the big tech the platforms being the ones that provides the the big tech providing the platform and the the banks providing their um their franchise and their underwriting capacity or is it going to be uh just competing with each other so over to you right you very much so let me start with the first one fintech and banks so you know i think that uh uh fintech are really playing a significant role for banks because they are helping them to innovate quite fast in some sense or you know and and it will be very easy under a certain dimension for banks to incorporate different small fintech let's say uh companies but this doesn't mean that then the problem of you know outsourcing a lot of activities in the banking framework will uh pretty much prevent the problem that i was stressing as a market-based system because as soon as you have everything you know what sources then the problem is uh uh you know when one part of this uh let's say source has not been provided as for example the covet crisis showed to us well you know then you you create a lot of interconnection dependencies of all this type of small institution so you know the question is how much this type of integration or incorporation it is still based in a market framework with different entities or it is really you know incorporated in the general activities of the banks and banks do have all the control on them because otherwise i i do see some fragility from this point of view uh moving to the other question big tech and banks well the story is different here because you know in terms of size and the power market power in the bargaining power of uh between uh emerge between banks and big tech clearly big tech do have a lot of let's say bargaining power compared to let's say a classical fintech institution and this is why even if there will be collaboration or even incorporation and so on the question is who is having the control of you know what it has been done and the type of decision because you know we cannot imagine that you have let's say a collaboration with big tech and banks and we are only regulating the bank and not the big tech but the big tech is controlling the bank yeah so this these are the type of thing that we need to address who was uh brought down by the the rest of the group espirito santo group in portugal and uh and that part was not regulated um thanks um uh john you one wanna add on this one here on the banks versus uh banks versus or and uh fintech and then the same for big tax and if you own that yeah i mean i think that um there are increasing examples of partnerships between banks and fintechs as well as banks and big techs and i thought in the q a there was also questions you know do what what is the more common uh the more likely approach in the future do are we expecting more partnership or more competition and i think it is an open question i mean the the trend until now seems to have been a move toward more uh partnerships there there are more big techs that are becoming a vendor to financial institutions look at ad group in china for instance they've very much moved toward being a vendor to banks and you know offering the front end the client relationship the tools to reach users but it is possible that at some point they reach certain scale and they say okay we're going to compete with these guys after all uh we've decided we can do it better than them and so i i don't think it's a foregone conclusion and i think that it is very important for regulators to look at this closely these things can change very quickly and if we do think that competition is important if we do worry about market dominance then we have to follow this very closely and ensure that we have a framework that allows for fair competition in the longer term thanks and let me turn to philip and this is kind of a question actually that relates to this one but also it's an additional element in there so now you have for example cooperation between a bank and a market dominating uh pick a big tag which would then of course the big tech company has already the kind of the market domination but that's what might also give the bank market domination and then the question is well should the big tech company actually be forced to share their data so we know in the in banking there are credit registries uh at central banks where banks actually have are forced to share their data do we need something similarly to say be provocative for for big tech companies that they are they have to share the data uh across other providers to kind of vote for level playing field but maybe also to distribute the risk somewhat oh very much so and i would even say big techs have to share laid out data much more widely because they are sitting on a common good and dealing with it and treating it as as as if it was their property so this data has a value and this data uh is also important for for risk for responsible risk purposes as you say so absolutely yeah so not only in the event of cooperation which by the way i don't think is very likely that they really cooperate um but not only in that event but actually more generally we have seen data sharing under psd2 and we need a much more wider framework extending to different kind of different kind of data not only personal data also inferred data and maybe even going further i think right maybe i'm wrong but i honest i thought that pst 2 is only uh only forces banks to share data does it also force big tech companies well no but if i mean i'm just referring to this framework because we have this that we have already a data sharing framework yeah so but this would need to be expanded uh something like this would need to be modeled also on onto big techs yeah but the kind of data we are talking about should be much wider not only payment data and not all not only personal data also inferred data and maybe even going further okay thank you actually i'm going to ask you another question and i think i'm not even sure whom to ask but i'm going to start with you because you're also supposedly located in london like me uh brexit how do you see the impact of brexit both let's say on the market development but maybe then also on the regulatory debate uh within the eu on big tech fintech um so on the market development i think um fintech service providers located in london and there's quite a bit of them so out of the 15 unicorns we have in europe i think nine are located in london eight or nine are located in london two are in sweden and the one is in germany or two in germany and so on and um for them obviously this is a market this is a big obstacle the passport uh doesn't work anymore so what what they do is actually they set up uh continental subsidiaries and i have just experienced this as myself three weeks ago i was doing a transferwise money transfer between my german and my english bank account and suddenly i got a message you're not dealing with transfer wise london anymore you're dealing with transfer west brussels yeah and and that's fine i think that is perfectly that is perfectly uh fine um in relation to policy making um well there are various levels to look at so so far uh the the uk voice in the regulatory debate was actually quite a progressive voice and i think it was quite useful for the european market and we are losing this yeah so this this um progressiveness well we need to make up for this somewhere else we must um refrain from tendencies to protect existing market structures through inertia in the regulatory sphere yeah because we are not doing the clients a favor and we are not doing the market a favor either where also the point of regulatory competition uh plays in long term we have to measure ourselves in these areas with china and the united states and if if we are not progressive in europe we won't be able to sit at the table when the regulatory standards are set and i think we are used to being at that table very much at the top of this table and we are about to lose this and for this it is a great pity to have lost the united kingdom okay good well their decision unfortunately but good yes thank you for that um let me ask you let me ask maybe loriana a question um given your analysis this nice graph that you had with banks and the market base in a big take what kind of skill sets would you expect regulators to have that in that regulators need in the future for example if they take on this big task as as we saw in the last slide of philips presentation well good question you know clearly on one side on one side you need to understand as as philip stressed we need to understand who are the fintech and who are the big tech but on the other side to be honest i really think that we need people that have a general equilibrium approach that are really looking to the externalities that this type of institution might create to the system and try to understand from the let's say the micro uh level so the micro aspects what are then of these different let's say institution what are then the effect in the system so unfortunately we need both capacity to understand uh what are really you know this company is doing that is not so easy if you are thinking on on the different dimension but being also able to understand on how what they are doing will have an impact on the system thank you very much um we're getting close to uh 2 p.m but i want to kind of take a few more minutes um let me actually john hasn't i haven't called on john for a long time and i've had a lot of questions and i wonder whether you have anything any addition to make um on these different questions uh for our audience uh anyone that i should address in particular trust um no anything that you like to address so i just saw for instance um a question about interoperability which i think is great so should big tech companies be legally required to ensure interoperability and to share that data on clients with banks in case they start offering financial services and i think that interoperability in general is a very important point and i think that this is precisely one of the problems at the moment in payments for instance big tech providers often have operated closed loop systems you know walled gardens that are not interoperable with other payment systems and i think that in data as well we see that i mean there are criticisms that psg2 requires uh banks to share their data with with fintechs and big techs but that there isn't necessarily um there aren't necessarily the same requirements or gdpr doesn't necessarily have the the same format and timelines for data sharing in the other direction so i think that ensuring interoperability is important interoperability allows competition it allows users to choose which platforms they prefer and and to you know take their data and their funds with them so i think it's a very important point and certainly to ensure a competitive level playing field to ensure efficiency interoperability is really key well thank you very much um very few minutes left but let me maybe ask um one or two more questions one for loriana um since you're based in in germany i kind of have to ask this question um if my understanding is correct that's the question not my answer via card escaped proper scrutiny by buffing because it is classified as a fintech does that imply that fintech is not probably supervised and regulated or is it just buffing that that messed up so you know i wrote several papers on this regard so you know i went very very deep on the point the problem is that not that wildcard were a fintech company the problem is that they look just on the banking side and do not look carefully on the investor protection side so on the fact that it was uh you know a quoted company and there was let's say some misreporting and misreporting has nothing to do with fintech so that's i i think is something that we need really to consider that is by chance that white card was also a fintech company but the the big problem there it was that pretty much they misreport the actual let's say performance of the company by not providing them right information to the financial market and buffing do not in some sense ex supervise them with the other hat that they are having that is investor protection uh and and this is finally the result so there is a lot of problem in terms of how the uh auditor uh did his job and you know in the way on which the supervisor were able to get information from the actual let's say number of wirecard but this happens for for uh parmalat in italy that was not for sure i think the company but the problem was exactly the same okay sorry let me just philip i know that you have to leave can you give us 30 seconds of what your do you draw any implications from the via cards disaster for fintech big tech regulation or is it just as loriana said completely separate sorry i can't hear you you're muted i i agree with lorianna buffin was captured i think and there was accounting fraud involved you can never avoid fraud regulation will never be able i think it's just a very very big disaster but has nothing to do with fintech okay well on this note thank you very much to our three speakers these uh all for sharing their insights for answering all these questions there were lots of additional questions and as i said at the beginning this is a very broad field uh we didn't even touch the area of cryptocurrencies now again let me make the case for um the fintech course that philip is actually heading as a course director which will start in about two weeks and will be repeated in september and um the recording of this seminar will be online uh shortly and we will also ask these presenters once they we actually share their powerpoint slides again thank you every everybody the speakers our technical team and of course all the participants for their active participation in this online debate thank you and hope to see you again soon thank you very much thank you very much thank you very much