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Finance watchdog warns of long-term risk Big Tech poses to competition

FAGA's interest in payments and lending services has UK's Financial Conduct Authority's attention

The Financial Conduct Authority, the UK's financial services regulator, has begun discussions with the aim of understanding the impact of Big Tech on industry competition.

The move is set to kick-start a process which could take an interest in how Big Tech – taken to mean Facebook, Apple, Google, and Amazon – affects the financial services market given the companies' collective interest in payments and lending services.

Sheldon Mills, FCA executive director of consumers and competition, 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 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."

In an accompanying analysis of the potential competitive impacts of Big Tech interests in payments, deposit taking, consumer credit and insurance, the watchdog found that while the move might benefit consumers in the short term, trouble could lie ahead.

"In the longer term, there is a risk that the competition benefits from Big Tech entry in financial services could be eroded if these firms can create and exploit entrenched market power to harm healthy competition and worsen consumer outcomes. This risk can arise given the characteristics of digital markets and the characteristics and behaviours of Big Tech firms," it said.

The characteristics of digital markets include economies of scale and scope, limitations to switching and multi-homing, incumbent data advantages and network effects. Big Tech firms' characteristics include global scale and large user bases, rich data about their users with advanced analytics and technology, influence over decision-making and defaults, and ecosystems of complementary products and their strategic choices and investments.

"These characteristics can lead them to rapidly gaining market share, markets 'tipping' in their favour, and potential exploitation of market power," the report said.

The FCA does not propose any regulatory changes at this stage. It said it aimed to stimulate discussion to inform its regulatory approach.

The FCA's moves are in parallel with plans set out by the European Union. After nearly two years of legal wrangling, the European Parliament passed the Digital Markets Act and the Digital Services Act in July. ®

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