BIS general manager: „A bigger threat is posed by the prospect of Big Tech not only operating their own payment system but also issuing a stablecoin for exclusive use in their system”

The rise of Big Tech and its incursions into payments through projects such as Facebook’s Diem stablecoin, could concentrate market power and threaten financial stability, challenge bank business models, and fragment the monetary system, warns BIS general manager Agustín Carstens, according to Finextra.

In a speech, he raises the prospect of Big Tech firms moving beyond the provision of front end payment services, tapping their large networks and data to develop their own back-end.

Currently, regulatory barriers to establishing private payment networks are low, meaning that closed-loop payment networks operated by just a few big techs is a real risk, says Carstens.

This „would lead to a fragmentation of payments and represent a threat to the public good character of the payment system”.

However, a bigger threat is posed by the prospect of Big Tech not only operating their own payment system but also issuing a stablecoin for exclusive use in their system – like the Facebook Diem proposal.

Data from payment transactions would enhance Big Tech’s ability to exploit the DNA loop, which could further concentrate market power in the hands of a few, and threaten financial stability, fair competition and data governance, says the speech.

If these new payment instruments affect demand for bank deposits, they could threaten bank business models, requiring them to look for more costly and less stable sources of funding.

Thirdly, funds collected by big techs by issuing stablecoins could become quite large, and could be moved around rapidly by users, including across borders. „In this type of scenario, stablecoins could erode a jurisdiction’s monetary sovereignty and its unit of account through ‘Diem-isation’,” says Carstens.