By: 26 October 2022

The presence of big tech in UK financial services markets has been steadily increasing, with the potential to expand further and instigate rapid change

FCA to examine the impact of big tech on financial services

UK regulator the Financial Conduct Authority (FCA) is looking at the potential pros and cons of big tech entering the jurisdiction’s financial services markets. 

The regulator issued a discussion paper yesterday on the subject, noting that big tech firms can bring benefits to consumers by providing “innovative, efficient products and services”. 

But big tech, including Meta (the parent company of Facebook), Alphabet (the parent company of Google), Apple and Amazon, could pose competition risks if “they rapidly gain market share, and they are able to exploit market power”. 

Sheldon Mills, executive director of consumers and competition at the FCA, said: “In recent years, big tech’s entry into financial services, in the UK and elsewhere, has demonstrated their potential to disrupt established markets, drive innovation and reduce costs for consumers.” 

“Across the world, we’ve seen the capability of big tech to offer transformative new products in areas such as payments, deposits and consumer credit.”  

“We want to make sure that these benefits are fully realised while, at the same time, ensuring good consumer and market outcomes. This is vital when we consider the role of big tech firms in the provision of key technological infrastructure like cloud services.” 

The presence of big tech in UK financial services markets has been steadily increasing, the FCA said, with the potential to expand further and instigate rapid change. 

The FCA said big tech firms can bring benefits to consumers by integrating financial services into their existing businesses. One benefit could be competitive pricing from increased efficiency, which will deliver healthy competition among incumbent financial services providers. 

No regulatory changes are being proposed at this stage. The FCA’s paper aims to stimulate discussion to inform its regulatory approach to big tech firms as part of the new UK pro-competitive regime for digital markets. 

Mills said: “The discussion we are starting today will inform the FCA’s pro-competitive approach to digital markets, and I encourage consumers, firms and fellow regulators to join the conversation.” 

The FCA will focus on big tech’s entry in four retail sectors—payments, deposit taking, consumer credit and insurance—as they have the greatest potential to affect consumers. 

Based on the four retail sectors, the FCA identified five key themes. First, the potential for big tech firms to enter new financial services, such as the payment sector, and grow as a result.  

Second, in the short term, there is still likely to be partnerships between big tech companies and other fintechs. Longer term, they will rely less on partnerships and bring activities in-house. 

Big tech’s entry into financial services will be hard to predict, which could mean “significant market changes occur quickly”, as entry into one will create opportunities for expansion into complementary ones. 

In the short-term and possibly longer, big tech could benefit many consumers through innovations, spurring other market participants’ incentives to innovate, improve quality and reduce prices of financial products and services through increased competition. 

Finally, in the longer term, there is a risk that big tech could create and exploit market power to harm healthy competition and worsen consumer outcomes. 

The FCA plans to publish feedback in the first half of 2023, setting out how it will develop its regulatory approach to big tech. 

Image source: FCA

Josh Poyser
Josh Poyser is an editor at FinTech Intel. He has written about fintech for several years and appeared at FinTech Connect 2023 on the 'Unlocking Success: The Art of Fintech PR' panel.