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Platform-based business models and financial inclusion

Author

Listed:
  • Karen Croxson
  • Jon Frost
  • Leonardo Gambacorta
  • Tommaso Valletti

Abstract

Three types of digital platforms are expanding in financial services: (i) fintech entrants; (ii) big tech firms; and (iii) increasingly, incumbent financial institutions with platformbased business models. These platforms can dramatically lower costs and thereby aid financial inclusion – but these same features can give rise to digital monopolies and oligopolies. Digital platforms operate in multi-sided markets, and rely crucially on big data. This leads to specific network effects, returns to scale and scope, and policy trade-offs. To reap the benefits of platforms while mitigating risks, policy makers can: (i) apply existing financial, antitrust and privacy regulations, (ii) adapt old and adopt new regulations, combining an activity and entity-based approach, and/or (iii) provide new public infrastructures. The latter include digital identity, retail fast payment systems and central bank digital currencies (CBDCs). These public infrastructures, as well as ex ante competition rules and data portability, are particularly promising. Yet to achieve their policy goals, central banks and financial regulators need to coordinate with competition and data protection authorities.

Suggested Citation

  • Karen Croxson & Jon Frost & Leonardo Gambacorta & Tommaso Valletti, 2021. "Platform-based business models and financial inclusion," BIS Working Papers 986, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:986
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    More about this item

    Keywords

    financial inclusion; fintech; big tech; platforms;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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