The complex governance structure of the BigTech – Amazon, Facebook, and Google among others – limits the scope for effective oversight and design of entity-based regulations, according to a research paper authored by the Reserve Bank of India.

"Bigtechs, given their pervasive adoption as third-party service providers, generally become the underlying platform on which a host of services are offered. This uniquely positions the Bigtechs to easily acquire cross-functional databases which can be exploited for generating innovative product offerings, making them dominant players in the market," warns the research article.

This comes at a time when India has mandated local storage of payments data and is also in the process of legislating its own data protection law.

The pervasiveness of BigTech firms provides them with a large client base who are entrenched in using their platforms or products with access to multiple facets of customers' data, generating strong networks effects.

Given their entrenched clientele base using their non-financial services like search engine, e-commerce platforms, it is possible for Bigtechs to create products and establish their footprint in the financial domain with greater ease vis-à-vis the nascent fintechs, the RBI article says, adding that this poses a serious barrier in terms of creating a level playing field to promote innovation in the fintech space.

Bigtechs typically also have the financial muscle to withstand the competitive pressures. "With the advent of Bigtechs into the financial domain, the primary concern for regulators globally has been to preserve competition and market contestability. Bigtechs with their entrenched customer base can require exclusivity of participants, discriminate across potential or existing vendors, give preferential treatment to their own products, bundle their services, create cross-product subsidisation, or abuse their wealth of data to gain a competitive advantage," the RBI says.

Through their data networks based business models, Bigtechs have the potential to become dominant players raising competition and data privacy issues, the RBI article says.

"As the Bigtechs operate across jurisdictions, there is already a compelling case to seek international consistency of policy developments. In this light, there have also been efforts by international standard setting bodies to ensure that existing financial regulation (particularly in payments) properly cover the activity of new non-bank players. However, the exact calibrations on both entity and activity-based approaches will need to be further explored and tailored to country-specific conditions to ensure that regulators' concerns be addressed without stifling financial innovations," it adds.

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