"Big Tech's Financial Intermediation Activities Must Be Accompanied by Thorough Supervision from Policy Authorities"

Korea Institute of Finance Report on 'Current Status, Impact, and Policy Tasks of Big Tech's Lending Functions'

Financial Regulations Applied to Kakao and Naver
(Table: Korea Institute of Finance)

[Asia Economy Reporter Park Sun-mi] While the fund intermediation activities of big tech can contribute to improving resource allocation efficiency and financial inclusion, as well as lead to structural improvements in the financial industry, it has been suggested that thorough supervision by policy authorities is essential to protect consumers and manage financial system risks.

On the 25th, researchers Lee Byung-yoon and Seo Jeong-ho of the Korea Institute of Finance stated in their report titled "Current Status, Impact, and Policy Tasks of Big Tech's Lending Functions" that "the advantage of big tech fund intermediation lies in analyzing vast big data obtained through platforms using artificial intelligence (AI) and machine learning techniques to conduct highly accurate credit evaluations," adding, "As a result, resource allocation efficiency and financial inclusion in the financial market are enhanced." So far, in Korea, financial companies such as banks that perform fund intermediation functions have focused on household loans and fiercely competed over high-credit, prime customers, which has meant that financial exclusion experienced by medium-credit borrowers and small business owners has not significantly improved.

However, even though big tech's fund intermediation activities play a significant role in changing the competitive landscape of the financial industry and customers' financial behavior, if proper supervision is not implemented, side effects are inevitable. According to the report, big tech’s competitiveness strengthens as its scale grows due to network externalities, increasing the likelihood of market dominance and monopolization. There is also the possibility of various anti-competitive behaviors using the market dominance of their own platforms. Furthermore, excessive competition with existing financial institutions and the transmission of risks from big tech’s core non-financial businesses to financial businesses could undermine financial stability.

Researchers Lee Byung-yoon and Seo Jeong-ho suggested, "While it is necessary to activate the early-stage big tech fund intermediation market, it should be done under thorough financial supervision to protect financial consumers and manage financial system risks," adding, "Since big tech is somewhat freer from regulations compared to existing financial companies, it is worth considering applying some related regulations even if they are not designated as financial conglomerates."

They also stated, "Because concerns about monopolization are significant, financial authorities need to prepare in advance through cooperation with fair trade authorities," and "From the perspective of financial regulation, it is necessary to strengthen function-based or behavior-based regulations, improve the asymmetrical data-sharing system between financial companies and big tech, enhance supervisory functions that promote fair competition on platforms within financial authorities, and strengthen cooperation with overseas supervisory authorities."

Additionally, they added, "Financial authorities should establish an official data system related to credit provision by fintech and big tech, strengthen monitoring, and prepare in advance for the possibility of insolvency among some less competitive institutions."

This content was produced with the assistance of AI translation services.