The UK Financial Conduct Authority (FCA) is commencing a review of “Big Tech” providing financial services.
The FCA will be reviewing firms like Google, Amazon, Apple, Facebook, and others that have emerged as top financial services providers in sectors like digital wallets and payments. The UK has long been a hotbed of innovation in financial services, and large tech firms have emerged as top providers partnering with UK Fintechs as well as challenging Fintechs in certain segments.
Sheldon Mills, the Executive Director of Consumers and Competition at the FCA, commented on the initiative:
“In recent years, Big Tech’s entry into financial services, in the UK and elsewhere, has demonstrated their potential to disrupt established markets, drive innovation and reduce costs for consumers. Across the world, we’ve seen the capability of Big Tech to offer transformative new products in areas such as payments, deposits and consumer credit. We want to make sure that these benefits are fully realised while, at the same time, ensuring good consumer and market outcomes. This is vital when we consider the role of Big Tech firms in the provision of key technological infrastructure like cloud services. The discussion we are starting today will inform the FCA’s pro-competitive approach to digital markets, and I encourage consumers, firms and fellow regulators to join the conversation.”
The potential competition impacts of Big Tech entry and expansion in retail financial services
To kick things off, the FCA has published a Discussion Paper on the impact of Big Tech providing financial services. The opening paragraph states:
“Big Tech firms’ presence internationally and in UK financial services markets has been increasing with the potential to grow and change market outcomes quickly. Big Tech firms – usually including Facebook (Meta), Google (Alphabet), Apple, and Amazon – can bring benefits to consumers of retail financial services by effectively and fairly competing with incumbent providers, and other new entrants including Fintech firms. They can provide innovative, efficient products and services. However, based on evidence from Big Tech firms’ core markets and their expanding ecosystems, competition risks could arise in the future from them rapidly gaining market share, markets ‘tipping’ in their favour, and potential exploitation of market power that would be harmful to competition and consumer outcomes.”
The paper is focusing on four specific categories:
- Payments
- Deposit Taking
- Consumer Credit
- Insurance
The FCA explains that these categories have been selected due to the impact they have on consumers’ financial existence.
While acknowledging that Fintech services being provided by Big Tech benefits consumers (as well as small businesses), the FCA worries that, over time, Big Tech could dominate financial services, exploiting “entrenched market power,” thus harming competition and perhaps diminishing the value of the services.
Of course, assuming a foregone conclusion and hobbling Big Tech before they actually accomplish estimated ambitions may harm consumers even further. Is this a case of an ounce of prevention is better than the cure? Or regulatory mercantilism?
The FCA states that no regulatory changes are proposed at this time, but depending on the feedback, it may pursue changes at a later date.
The FCA is requesting responses by January 15, 2023, and will be hosting an expert panel event on November 28th, followed by sector-specific workshops on 6 and 7 December.
A feedback statement is expected to be published during the first half of 2023.