The Financial Conduct Authority (FCA) has called on organisations in the UK finance sector to air their views on the benefits and potential threats that big tech firms bring to the sector.
The rapid digitisation of the financial services sector has seen tech giants such as Apple and Google develop and offer financial services directly to consumers.
The FCA is not proposing specific regulation at this time, but said it wants “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 at the FCA, said large tech firms have the potential to disrupt established markets, drive innovation and reduce costs for consumers. “We want to make sure that these benefits are fully realised while, at the same time, ensuring good consumer and market outcomes,” he said. “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.”
The FCA added: “Based on evidence in big tech firms’ core markets and their expanding ecosystems, there are competition risks arising from them rapidly gaining market share, markets ‘tipping’ in their favour, and potential exploitation of market power. This could be harmful to competition and consumer outcomes.”
Celent analyst Gareth Lodge said it is positive that the FCA is looking into this as a regulator because “it’s best that they have a position before any major changes happen, rather than after the fact”.
Lodge gave the example of India as a warning. “While there are more than 50 payments apps in India, just two account for around 81% of transaction volumes, and 84% of transaction value,” he said. “These are Phone Pe [owned by Walmart] and GooglePay [owned by Google]. The regulator, the RBI, is not happy about this duopoly, which has led the National Payments Council of India to issue guidelines that no processor should have more than 30% market share.”
The guidelines are due to come into effect in January 2023, but Lodge said: “Retrospectively fixing this will be painful for everyone, especially the consumer.
“It will be interesting to see their findings and their views about what are the pros and cons, and what they intend to do as a result.”
Traditional banks have been forced to invest heavily in technology to help them match the user-friendly financial services being offered by big tech firms as well as digital-first banks, known as fintechs.
Because they use the latest technologies, these organisations can offer user-friendly services at a lower cost by automating services, which are available via mobile phones. They can also offer real-time payments and personalising services to consumers through their tech infrastructures.
To keep pace, traditional banks are rapidly implementing cloud-based infrastructures to give them the processing power of big tech firms, with systems providing services such as mobile apps and payments.
For example, Spanish bank Santander has migrated 80% of its IT infrastructure to the cloud as part of its 2023 target to have 100% of its infrastructure cloud-based.
Meanwhile, Deutsche Bank has committed to an in-house digital transformation with Google Cloud, and is collaborating with the supplier to bring new customer-facing services to market.
In the UK, Lloyds Banking Group signed a five-year collaboration deal with Google Cloud in a bid to drive forward software engineering and boost its digital transformation strategy.
Meanwhile, Standard Chartered Bank has deepened its ties with Amazon Web Services by signing a global, five-year deal that will see it migrate its core banking systems and customer-facing applications to the public cloud giant’s infrastructure.
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