The FCA has published the discussion paper DP22/5: The potential competition impacts of Big Tech entry and expansion in retail financial services in response to the increasing presence of Big Tech firms in UK financial services markets. The FCA also highlights in the paper the fact that they have the potential to rapidly expand further and to change markets quickly.
Therefore, they are seeking to better understand the risk and opportunities to consumers that these changes may present and are looking to receive responses to questions set out in the discussion paper from interested stakeholders. Such parties could be Big Tech firms, financial services firms, consumers, groups representing consumers' interests, and fintech firms.
Big Tech firms are defined in the discussion paper as large digital companies with established technology platforms and extensive established customer networks - in particular, Google (Alphabet), Apple and Amazon. Whilst they can bring benefits to the consumers of retail financial services, via the promotion of fair competition and provision of innovative products and services, they often face competition questions, such from rapid market share gain, suggestions of markets tipping (in their favour) and allegations of potential exploitation of market power.
The discussion paper focuses on analysis of four retail spheres: payments, deposit taking, consumer credit and insurance. These were chosen due to their significance in consumers' financial lives and the potential competitive impact Big Tech firms' entry and expansion can have on them. Big Tech firms have in fact already entered these areas, so it is especially important to develop an understanding of how such entry and expansion may harm consumers.
In the discussion paper, the FCA reaches the conclusion that in the short-term, and possibly longer term, Big Tech firms' entry in financial services could benefit consumers for the reasons mentioned above - incentivising other market participants to innovate, improve quality and reduce prices of financial products and services via increased competition. However, in longer term, there is a risk that these benefits could be eroded due to the characteristics of digital markets and of Big Tech firms, e.g. large user bases and ecosystems of complementary products, which allow for rapid expansion.
The FCA notes that Big Tech firms’ entry may not be sequential or predictable. Whilst initial forms of entry may be hard to predict, once momentum builds, we might see significant market changes quickly. This is due to the fact that Big Tech firms' ecosystem business models of products and services, that are able to work in combination with each other (and in a way that strengthens the value and functionality of each), means that entry into one financial services market will create opportunities for expansion into complementary financial markets.
The FCA wants to hear views about areas where Big Tech entry is likely to create both the biggest competition that will benefit consumers and on the contrary, where there is the greatest risk of significant harm. The questions set out for stakeholders include whether the FCA has identified the right analytical approach to assessing Big Tech entry and competition, and whether the stakeholder believes that Big Tech firms in the UK financial services sector follow a similar path to other countries.
The deadline for submitting comments on the paper is 15 January 2023, after which the FCA will review the feedback and plans to publish a Feedback Statement in the first half of 2023. The intention is then to use the discussion to inform the development of an effective competition approach for Big Tech firms in the UK financial services sector that is coherent with the wider competition and regulatory landscape in the UK and internationally.
Given that the Competition and Markets Authority has established the Digital Markets Unit to address problems with competition in digital markets, and launched a consultation paper 'A new pro-competition regime for digital markets' in 2021, it is clear that the impact of Big Tech firms on competition in digital markets is a particularly hot topic. This trend will likely only continue over the coming years as such firms continue to expand. It will be interesting to observe what recommendations arise from the feedback and any resulting potential changes to the competition regime.
You can respond to the discussion paper via the online form here.
If you have any questions about the discussion paper, wider competition queries or would need advice, please get in touch.
We would like to acknowledge the contribution of Katie Hurst to this article.