Regulating for competition with BigTechs: banking-as-a-service and "beyond banking"

Abstract

This paper analyses “banking-as-a-service” and “beyond banking”, two emerging bank competition strategies. These business models are argued to emulate the transaction-based inroads that BigTechs have made into finance. But they entail new risks that call for adequate regulatory responses along a dual track. First, it is argued that regulation of the disruptive competition model of BigTechs at the confluence of finance and technology requires new tools to coordinate the different regulatory policies involved (banking, payments, competition, data, digital) and a new approach to the treatment of mixed business conglomerates that consolidate multiple business lines and risks. Second, the reliance of “banking-as-a-service” on a quasi-renting-out of the banking licence to non-financial companies as a way of obtaining a transactional base poses moral hazard and model risks that require specific treatments not unlike the originate-to-distribute business model did. The prospects for success of the pure version of the “beyond banking” model, where banks become sponsors of full-fledged platforms, are assessed as dim, but hybrid versions still entail new risks.