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The Challenge of Big Tech Finance

In an old parable about banks and regulators, the banks are greyhounds – they run very fast – while the regulators are bloodhounds, slow afoot but faithfully on the trail. In the age of the platform economy, the bloodhounds are at risk of losing the scent.

BERKELEY – In 2009, in the midst of the global financial crisis, Paul Volcker, the former Federal Reserve chair, famously observed that the only socially productive financial innovation of the preceding 20 years was the automated teller machine. One wonders what Volcker would make of the tsunami of digitally enabled financial innovations today, from mobile payment platforms to internet banking and peer-to-peer lending.

Volcker might be reassured: like the humble ATM, many of these innovations have tangible benefits in terms of lowering transactions costs. But as a critic of big financial firms, Volcker presumably also would worry about the entry of some very large technology companies into the sector. Their names are as familiar as their services are ubiquitous: e-commerce behemoth Amazon in the United States, messaging company Kakao in Korea, on-line auction and commerce platform Mercado Libre in Latin America, and the Chinese technology giants Alibaba and Tencent.

These entities now do virtually everything related to finance. Amazon extends loans to small and medium-size businesses. Kakao offers the full range of banking services. Alibaba’s Ant Financial and Tencent’s WeChat provide a cornucopia of financial products, having expanded so rapidly that they recently became targets of a Chinese government crackdown.

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