On 25 October, the FCA launched a "discussion" on the competition impacts of Big Tech’s entry into financial services. Focused on four retail financial service sectors (payments, deposit taking, consumer credit and insurance), the purpose of this programme of work is to explore:
- The incentives and barriers faced by Big Tech when contemplating entry and expansion into financial services, including potential retaliatory behaviours from incumbent financial services providers with whom many Big Tech firms have existing commercial relationships;
- strategies adopted to support Big Tech’s entry (i.e. compete or collaborate? Innovate or replicate?); and
- how best to weigh up the potential benefits and harms – noting that the benefits created by Big Tech firms’ entry need to be considered alongside the risk that their entry further entrenches their market power and ultimately leads to reduced incentives to innovate and improve outcomes for consumers.
The FCA is just the latest UK regulator to announce a programme of work investigating the impact of Big Tech on competition in key sectors of the UK economy. The CMA has conducted market studies into digital advertising and mobile ecosystems and has ongoing investigations into suspected breaches of competition law by Apple, Google and Facebook. The Digital Markets Unit has been established within the CMA, on a non-statutory basis, in anticipation of the new pro-competition regime for digital markets.
The CMA has also been liaising closely with the Information Commissioner’s Office on the Google Privacy Sandbox case and Ofcom recently launched a market study into Cloud Services. These regulators have already begun cooperating through the Digital Regulation Cooperation Forum, which includes the FCA and aims to bring UK regulators together to deliver a coherent approach to digital regulation for the benefit of consumers and businesses online.
The role and impact of Big Tech is also under increased scrutiny internationally. On 1 November 2022, the EU’s Digital Markets Act came into force and will lead to a range of obligations being imposed on the world’s largest platforms. Whilst financial services do not directly fall within the ten core platform services currently set out within the legislation, the obligations on Apple and Google’s mobile ecosystems could improve third-party access to key technologies (such as the Near-field Communications chip) and act as a catalyst for further innovation in these markets.
The payments sector
In the UK, Big Tech firms already have FCA permissions to provide certain financial services, with Google, Amazon, Meta, and Apple active in payments.
In its discussion paper, the FCA is upfront about the benefits that Big Tech has already brought to the payments sector, such as convenience and security benefits to consumers. It also notes that strong complementarities between the services they offer are likely to further enhance Big Tech’s presence in financial services.
Specifically, the FCA identifies three plausible entry or expansion strategies in payments that Big Tech firms could adopt, none of which are mutually exclusive:
- Move beyond existing products and services into established functions to capture more of the value chain.
- Facilitate the adoption of disruptive technologies, such as non-card payment systems, for instance by integrating alternative payment options directly into digital wallets.
- Widen the scope of digital wallets beyond retail payment products, such as peer-to-peer transfers.
In particular, the FCA highlights the potential benefits that Big Tech’s expansion in payments could deliver by increasing competition across the card scheme value chain and incentivising lower prices, higher quality and innovation from the scheme operators themselves.
However, the FCA also expresses a word of caution. It is alive to concerns expressed in other sectors that Big Tech’s entry or expansion could create or further entrench their market power in existing core markets, allowing them to engage in anti-competitive behaviours and ultimately undermining the short-term benefits highlighted above.
The FCA’s programme of work will determine the direction of travel of regulation in financial services. The FCA will be hosting sector-specific workshops on the 6 and 7 December 2022 and is inviting responses to its call for views by 15 January 2023.
Unlike other regulators, the FCA’s position appears to be a bit more open-minded about the role of Big Tech on competition, although engagement with stakeholders through this process, as well as developments in other jurisdictions, may alter that position. The FCA plans to publish a Feedback Statement during the first half of 2023, which sets out how it will develop its regulatory approach in response to stakeholders’ feedback.