Big Tech and financial services: FCA lays the groundwork for future regulation

The potential impact on competition from Big Tech firms in retail financial services is the subject of last month’s FCA discussion paper. Big tech companies can benefit consumers of retail financial services through both competition and innovation, but rapid gains in market share could also harm both competition and consumer outcomes. The discussion paper is part of the FCA’s process to better understand the emerging risks and opportunities facing the sector and how the regulatory framework should be structured to ensure that consumer benefits are harnessed and harms mitigated.

What are Big Tech companies?

The FCA defines “Big Tech” companies as “large digital companies with established platforms and large networks of established customers”. The discussion paper focuses on large tech companies that operate in the UK, including Google (Alphabet), Apple, Facebook (Meta) and Amazon, as they have already entered the retail financial services sector.

In which retail financial services sectors do Big Tech companies operate?

In its analysis, the FCA focuses on payments, deposits, consumer credit and insurance, as these are the areas where Big Tech has already entered financial services and, in addition to their potential impact on the competition, these are also important sectors for the financial lives of consumers. .

Currently, Big Tech companies have certain FCA authorizations to be involved in retail financial services, including payment authorizations and e-money authorizations (e.g. Google Pay and Apple Pay digital wallets), consumer credit (eg, Apple’s partnership with Barclays to provide financing on Apple Store purchases) and insurance authorizations (eg, Amazon’s commercial insurance collaboration with SuperScript).

The FCA reports that no Big Tech company has yet been authorized to provide products and services in deposits, mortgages or repos.

What are the emerging themes?

The working paper outlines possible scenarios for Big Tech entry and expansion in financial services, highlighting the benefits of increased competitive pressures from Big Tech firms as well as scenarios where competition may develop in ways that creates competition risks. From this analysis, the FCA identified five emerging themes for the four retail sectors involved:

  1. Big Tech companies have the potential to improve their overall value with further entry and expansion into retail financial services sectors: While Big Tech companies tend to enter through the payments sector, growth and further expansion into complementary financial sectors is likely.
  2. A partnership model is expected to remain the main entry strategy for Big Tech companies in the near term. In the longer term, they could compete more directly with existing companies, probably through mergers and acquisitions and/or bringing value chain activities in-house.
  3. The entry of large technology companies into retail financial services may not be sequential or predictable. Significant changes in the market can happen quickly.
  4. In the short term, the entry of Big Tech companies into financial services could benefit consumers by increasing incentives to innovate, improve quality, and reduce prices of financial products and services through increased competition.
  5. In the long term, there is a risk that these competitive advantages will disappear if Big Tech companies use their power to harm healthy competition and consumer outcomes, for example by locking in consumers.

Next steps

Opinions on the issues raised in the discussion paper are due by January 15, 2023. The FCA’s feedback statement outlining plans for developing its regulatory approach can be expected in the first half of 2023.

Final Thoughts

This discussion paper is an indication of what is to come in terms of regulation of Big Tech companies in the UK; we can expect an increased regulatory focus on Big Tech as evolving technology and changing consumer demands encourage companies to venture into regulated financial services industries.

In its business plan, the FCA recognized the need to keep abreast of global changes – particularly those driven by technology and innovation – and to reflect them in their regulations. With European regulation of Big Tech companies through the Digital Markets Act now in place, there are moves outside the UK towards further regulation and awareness of the potential risks posed by companies Big Tech. It will be interesting to see the approach developed by regulators in the UK to overseeing and managing Big Tech companies in the context of financial services. This FCA discussion and likely follow-up consultation is one to watch.


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