ECB warns that big tech entering the FinTech space could lead to security risks

The European Central Bank has warned that Europe’s failure to produce big tech companies of its own to compete with American ones could leave the EU exposed and reliant on foreign providers as big tech moves into the FinTech sector. 

The statement comes after several tech titans have made moves to enter the FinTech space, with Apple launching a credit card on top of its payment solutions, Uber initiating its Uber Money initiative and Facebook introducing a payment solution as well as spearheading the cryptocurrency project Libra. Then, of course, you have Google Pay, Amazon Pay and Ant Financial.

The ECB made the argument in its answer to a European Commission consultation on digital financial services, saying the absence of big Europan tech businesses “could lead to banks’ reliance on a few non-EU service providers and possible concentration issues at both entity and systemic levels.”

The ECB has previously backed initiatives by European banks to better computer against US card schemes such as Mastercard and Visa.

Nevertheless, it has little control over cloud-based services like the ones provided by Amazon Web Services, Microsoft Azure and Google Cloud.

Now, with more big tech companies pushing into FinTech, it has prompted more consideration about how the sector should be regulated as the ECB noted that big techs could easily and rapidly gain a significant market share.

This, the ECB argued, could lead to bigger risks in terms of operational failures and hack attacks if the market is concentrated to bigger ventures.

“The prospect of technology companies increasing their footprint in the financial services sector and using increasingly sophisticated ways to provide these services could warrant the need to extend the regulatory perimeter and to explore the possibility of complementing the current entity-based regime with an activity-based approach,” the ECB wrote.

Nevertheless, as we have reported in the past, big tech companies entering the financial services space could also create both risks and opportunities for FinTech businesses.

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