Alexa, play a new financial-services industry. Why not – you’ve already played a redefinition of everything from reading to streaming music to retailing along with pretty much the rest of my daily life. Now, just take all my data and let me know what financial products are really right for me at the price you think I can pay with the profit and cross-sell advantages your artificial intelligence likes the best for you.
In its 2017 assessment of platform-company potential in the financial sector, global regulators pointed to the risk of “natural monopolies” or even oligopolies. Concerns here transcend the financial-stability fears regulators have about still more firms far outside the regulatory perimeter. Even more interestingly, the Financial Stability Board fears risks to economic efficiency that could adversely affect financial-market structure.
Because the global-regulatory paper does not detail what these critical risks might actually be, I tried to outline some of them in remarks late last year. In my opinion, the structural challenge to economic efficiency is embedded in the conflict between convenience and competitiveness.
Think about a closed marketplace – meal offerings on an airplane come to my mind after a recent cross-country trip. Would I eat what’s on offer or pay the high price for poor quality if I had a choice? Of course not. Platform financial offerings could easily leverage all the really big data they would surely gain following full-bore entry into consumer financial services. Knowing pretty much all about my financial resources and purchasing proclivities, Amazon, Facebook, and/or Google could quickly come to put on offer only what the provider wants me to have, not what I might freely purchase at a lower price in an efficient, transparent marketplace.
This risk isn’t hypothetical. Recently, my veterinarian recommended a product for my dog. I looked hard for it, but could find it nowhere on offer using Amazon. I thus questioned the vet to be sure I had correctly understood her. Turns out I had, but the manufacturer simply didn’t put the product on offer via Amazon. When I couldn’t find it there, I assumed it didn’t exist. Natural monopoly or oligopoly? You be the judge.
Is Amazon or Alexa evil? I love having Alexa do my bidding too much to attribute malevolence to this darn-handy innovation. However, it’s just that effective – one might also say insidious – presence that poses far-reaching policy problems. Financial-stability risks abound, but less obviously and even more importantly so do risks resulting from a financial market reconfigured to meet the profit objectives of the platform on which access to basic banking could quickly come to depend.
Careful thought is quickly required to ensure that saying “Alexa, make my mortgage payment” is just a convenience, not a new monopoly. Do I own my own data or does Amazon own me? Financial institutions interested in partnering with Amazon have at least as large a stake in this question as I do, but I know the answer I like – my financial data is mine to share as I like, not mine for Amazon to acquire from a bank or broker to whom I now entrust it.