IMF flags rising financial stability risks as BigTech expands deeper into payments, lending and financial services

New Delhi: The International Monetary Fund (IMF) has warned that the growing role of large technology companies in financial services could pose risks to financial stability, particularly in emerging market and developing economies, and called on regulators to strengthen oversight as these firms expand into payments, lending, insurance, asset management and financial SuperApps.

In its latest technical note, the IMF said the financial stability risks from BigTech firms remain limited in most countries for now, but could become significant if their rapid expansion continues.

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The report defines BigTech as large technology companies that use platform-based business models and data-driven network effects to drive business growth.

According to the IMF, the main risks stem from the emergence of systemically important financial services, deeper links between BigTech firms and financial institutions, concentration of multiple financial services within a single corporate group, and increasing dependence on BigTech firms for cloud computing, artificial intelligence and other technology services.

"Given this growth and the potential implications for financial stability, regulators should take action to manage emerging risks," the report said.

It added that countries where BigTech firms already play a significant role in financial services should strengthen monitoring, improve domestic and international regulatory coordination, reinforce financial supervision, widen the regulatory framework and enhance data protection measures.

The IMF said BigTech firms have rapidly expanded their financial services by leveraging their technology platforms, vast user networks and access to data. Payment services have emerged as the primary entry point, helping improve financial inclusion by extending digital payment services to underserved populations in several emerging markets.

The report noted that payment data also enables these companies to assess borrowers' creditworthiness and provide loans to individuals and small businesses with limited credit histories.

However, the IMF cautioned that such expansion also creates new regulatory challenges. It said BigTech firms could become systemically important more quickly than traditional financial institutions due to their large existing user base, while the growing reliance on a small number of technology providers could increase concentration and operational risks.

The report also flagged concerns related to consumer protection, digital fraud, privacy and the increasing use of alternative data in lending decisions.

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Looking ahead, the IMF recommended that regulators adopt risk-based and group-wide supervision of BigTech firms. It also urged global standard-setting bodies to develop internationally consistent regulatory standards for BigTech companies engaged in cross-border financial services, noting that no global financial standards currently apply specifically to such firms.