FCA looks at Big Tech in the financial services sector

The FCA has issued a discussion paper exploring the entry and expansion of Big Tech firms into the retail financial services markets and the potential competition impacts.

As part of the introduction to the discussion paper, the FCA highlights its view that Big Tech firms’ presence in the financial services markets, both in the UK and internationally, has “been increasing with the potential to grow and change market outcomes quickly.” Whilst this can provide benefits to consumers, as Big Tech firms would be competing fairly with incumbent providers and other entrants (such as fintech firms), there are concerns that competition risks may arise due to firms rapidly gaining market share and therefore “potential exploitation of market power.”

The purpose of the FCA paper is to stimulate an impartial discussion with industry participants, on both the potential benefits from competitive pressure and the risk of harm if competition evolves in a certain way.

In this article, we provide a summary of the key takeaways from the discussion paper and what to expect next.

What constitutes Big Tech?

The FCA has defined Big Tech firms as “large digital companies with established technology platforms and extensive established customer networks,” specifically referencing Google (Alphabet), Apple, Meta (the owner of Facebook), Amazon and Microsoft; these companies have already entered the financial services market and could expand rapidly due to significant user bases, high market shares, and developed eco-systems.

The paper also draws on experience from other large technology companies, namely those operating in Asia and South America, as part of its evidence base.

What sectors does it cover?

The FCA has identified four retail sectors in which its analysis focusses on: payments, deposit taking, consumer credit and insurance. This is due to, first, the importance of such sectors on consumers financial position and, second, the potential impact on competition Big Tech firms’ entry and expansion may have on these sectors.  

What are the key themes identified?

The FCA has primarily identified five key emerging themes that may impact the retail sectors:

  • 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. Whilst initial forums of entry may be hard to predict, once momentum builds, we might see significant market changes occur quickly.
  • In the short term (and possibly over the longer term), Big Tech firm’s entry in financial services could benefit many consumers.
  • In the longer term, there is a risk that the competition benefits from Big Tech’s entry into financial services could be eroded if these firms can create and exploit entrenched market power to harm healthy competition and worsen consumer outcomes.

What to expect next?

Particularly in the payments space, it’s fair to say we are seeing big tech companies make inroads into the retail market offering new services, often with faster back-end processing or slicker point-of-sale interfaces. Elon Musk’s recent takeover of Twitter is one to watch as reportedly Musk has recently voiced plans to turn Twitter into a payments engine. Another is Apple, which arguably of all the big tech companies, already has a presence in payments and financial services; in addition to its Apple Pay offering, it also offers a credit product known as the “Apple Card.”  

Whilst there are currently no regulatory or policy changes proposed, for now, the FCA intends to use the outcome of the discussion to inform its regulatory approach to Big Tech, as part of its commitment to shaping the digital markets, which given the activity in the market, is likely to be of interest to Big Tech companies.

The discussion period will finish on 15 January 2023. Subsequently, the FCA will consider feedback and publish a Feedback Statement in the first half of 2023. 

You can access the full discussion paper here: https://www.fca.org.uk/publication/discussion/dp22-5.pdf


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