MICROFINANCE PAPER WRAP-UP: "Platform-based Business Models and Financial Inclusion," by Karen Croxson et al, Published by Bank for International Settlements

Many financial institutions are transitioning to platform-based business models, which leverage “big data and automation to offer third-party services, such as digital payments, credit insurance and wealth management….” Dr Croxson and her colleagues argue that although these platforms can lower costs and support financial inclusion, regulatory scrutiny is warranted because they can also lead to the formation of digital monopolies and oligopolies.

Platform models use technology to contribute to financial inclusion by reducing the cost of financial services and easing access by underserved users. For example, mobile money: (1) improved access to payment services and wealth management in the UK; and (2) brought low-cost payments to many underserved users in sub-Saharan Africa. However, platform models pose risks to market competition and data privacy, potentially causing: “(1) monopolistic behavior and price discrimination; (2) anti-competitive behavior; (3) algorithmic biases and exclusion; and (4) violations of data privacy.” To prevent these outcomes, the authors suggest policymakers adopt the following approaches: “(1) applying existing financial regulation, competition and data privacy rules to platforms; (2) adapting old and adopting new financial, antitrust and privacy regulation; and (3) redefining data protection rules.”

This is a summary of a paper by Karen Croxson, Jon Frost, Leonardo Gambacorta and Tommaso Valletti; published by the Bank for International Settlements; January 2022; 33 pages; available at https://www.bis.org/publ/work986.htm

By Sheen Gupta, Research Associate

Additional Resources

Bank for International Settlements homepage
https://www.bis.org/

More MicroCapital wrap-ups
https://www.microcapital.org/?s=wrap

Did you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Find out more at https://www.microcapital.org/products-page.