- The Bank for International Settlements (BIS)’ paper explores the evolving relationship between banks and technology firms (fintechs and big techs) in the banking sector.
- The paper details various partnership models, distinguishing between back-end and front-end partnerships. In back-end partnerships, tech firms provide technological services like cloud computing, while in front-end partnerships, tech firms utilize banks’ infrastructure to offer financial services directly to customers. This integration, often referred to as Banking-as-a-Service (BaaS), allows tech firms to maintain customer relationships while leveraging the bank’s infrastructure for regulatory compliance.
- Key findings include that tech firms increasingly use partnerships or monoline licenses (e.g., payment licenses) instead of full banking licenses due to regulatory constraints and the operational flexibility these arrangements offer. However, regulatory frameworks vary by jurisdiction, influencing how tech firms engage in the financial sector.
- The report also emphasizes the risks associated with these partnerships, such as operational, compliance, and reputational risks. These risks are heightened by the complex nature of tech-bank collaborations, where multiple entities contribute to delivering a single financial service, creating challenges in maintaining regulatory oversight and consumer protection.
- Finally, the paper suggests that policymakers are urged to explore a mix of direct and indirect supervisory measures to manage the risks posed by the evolving tech-bank ecosystems
