By combining financial services with their existing business, Big Tech firms can bring benefits to consumers, such as new offers with highly competitive pricing driven by increased efficiency, delivering healthy competition with incumbent financial services providers.
However, according to the FCA, in the longer term, Big Tech firms could pose competition risks if their market share rapidly increases and they are able to exploit market power.
On the back of this, the FCA announced yesterday that it has published an analysis focusing on the potential competitive impacts of Big Tech’s entry in four vital retail sectors: payments, deposit taking, consumer credit and insurance.
No regulatory changes are being proposed at this stage, and 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.
Sheldon Mills, 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 response to the FCA’s analysis, Dr Matthew Connell, director of policy and public affairs at the Chartered Insurance Institute, had this to say: “We know that some Big tech firms might consider themselves to be in a strong position to deliver insurance to consumers and SMEs in a convenient way, as we depend more and more on mobile technology for payments, checking our finances and purchases. We also know from the CII's Trust Index that ‘ease of doing business’ is an important factor for consumers and SMEs when buying insurance.
“However, experience with comparison websites shows that competition can be skewed towards what is easy to comprehend, with quality of advice and cover losing out to price and convenience. This is despite the fact that both consumers and SMEs rate ‘confidence that the insurance will pay out’ as the most important factor, and SMEs rate protection – having cover that closely matches their needs – as the third most important factor.
“We feel that it is important that the FCA uses the introduction of its Consumer Duty to ensure that competition is driven by the factors that consumers and SMEs believe is most important – this is more often about the reliability of cover than price.”