The financialization of big tech companies

A comparison of the US and China

Abstract

This study aims to compare the advancements of Big Tech companies in the financial services industry—a phenomenon often referred to as “financialization”—in the United States and China. These nations are examined as pioneering examples of big data utilization in finance, with the goal of clarifying the overall landscape and characteristics of these developments.

In recent years, the provision of financial services by Big Tech companies, which are giant IT platform operators, has rapidly expanded in both the United States and China. The entry of these non-financial entities into the financial services industry has led to the creation of various FinTech-based services, driving structural shifts in the existing traditional banking system.

In the United States, Big Tech companies like Google, Apple, Facebook, and Amazon (GAFA) are advancing new financial services, such as loans and Buy Now, Pay Later (BNPL), primarily focusing on payment services and typically in collaboration with major financial institutions. In China, meanwhile, Big Tech companies such as Alibaba and Tencent are uniquely situated to offer a wider range of financial products, including third-party payment services, lending, savings, mutual funds, and insurance, all leveraging their proprietary internet payment platforms.

A key difference between the two countries is that U.S. Big Techs typically provide financial services in partnership with existing major financial institutions, whereas Chinese Big Techs offer financial services in an ancillary form, deeply embedded within their own network services.

The benefits of Big Tech’s entry into the financial services industry include improved accuracy in individual credit assessments via access to vast amounts of customer data, and the relaxation of procedural requirements—such as document screening and collateral requirements—that previously hindered the spread of financial services, thereby contributing to enhanced financial inclusion. Furthermore, their entry has introduced new perspectives on the assessment of financial risks and the cost-benefit analysis of services. Simultaneously, the emergence of new service formats that were not anticipated by traditional financial regulations has raised significant new challenges. Specifically, the rapidly changing environment has exposed new risks that cannot be adequately addressed within the traditional regulatory framework, especially concerning the assurance of financial system stability and consumer protection.