The potential competition impacts of Big Tech entry and expansion in retail financial services
Posted on 2 Nov 2022
The FCA has published a Discussion Paper (DP22/5) which targets the presence of Big Tech companies- defined as large digital companies with established technology platforms and extensive established customer networks (namely Facebook, Google, Apple and Amazon)- within retail financial services, especially surrounding the idea of competition impacts. Although this is coming prior to the FCA making any regulatory decisions on the matter, the FCA aims to build discussion to inform their regulatory approach, with the pro-competitive regime coming into effect in the UK.
In the short term, the FCA view the presence of Big Tech firms to be beneficial for retail financial services companies by effectively and fairly competing with incumbents and other new entrants (e.g. fintechs). However, the power of these larger entities within the industry could result in negative impacts due to potential market power exploitation which would be harmful to both competition and consumer outcomes. It is the implications on competition and consumer outcomes which has inspired the FCA to provide their commitment to identify the associated risks and benefits from the entry of Big Tech into financial services.
The focus of the FCA’s analysis is focused on four retail sectors: payments (Chapter 3), deposit taking (Chapter 4), consumer credit (Chapter 5) and insurance (Chapter 6). These sectors were chosen because of their importance to consumers’ financial lives and the potential competition impact Big Tech firms’ entry and expansion could have on them
From the FCA’s analysis of the aforementioned four sectors, they noticed five key themes:
- Potential for Big Tech firms to enhance the overall value of their ecosystems with further entry and expansion in retail financial services sectors through innovative propositions
- In the short term, a partnership-based model is likely to continue to be the dominant entry strategy for Big Tech firms. In the longer term they may seek to rely less on partnerships and compete more directly with existing firms
- Big Tech firms’ entry may not be sequential or predictable. While initial forms of entry may be hard to predict, once momentum builds, we might see significant market changes occur quickly
- In the short term and possibly enduring longer, Big Tech firms’ entry in financial services could benefit many consumers
- In the longer term, there is a risk that the competition benefits from Big Tech entry in financial services could be eroded if these firms can create and exploit entrenched market power to harm healthy competition and worsen consumer outcomes.
Following the production of this Discussion Paper, the FCA are inviting responses surrounding the topics within this document. On the 28th November there will be an expert panel event hosted by the FCA, surrounding the entry of Big Tech firms, followed by sector specific workshops on the 6th and 7th of December. The FCA plans to publish a feedback statement in the first half of 2023, setting out its response and how it will develop its regulatory approach in response to the received feedback.