The UK’s Financial Conduct Authority and Payment Systems Regulator are teaming up to examine the competition risks posed by big tech companies operating in the payments sector, with a particular focus on digital wallets.
Nikhil Rathi, chief executive of the FCA and chair of the Digital Regulation Cooperation Forum, today said the agencies will work to “understand the competition problems of digital wallets” which could become a gateway for “nearly all financial services products” in the future.
Speaking at a conference, Rathi stressed the importance of leading a coordinated and effective effort to make the most of the opportunities of digital platforms, while mitigating the risks.
The FCA today lifted the lid on its call for views on the data asymmetry between tech giants and companies operating in the financial services sector, and the potential impact on competition.
Publishing a report on the findings, it honed in on digital wallets as a key focus area and said it will “work closely” with the PSR to better understand the broader risks and opportunities caused by digital companies entering the space.
The agency said that digital wallets such as Apple Pay and Google Pay “have the potential to become a primary interface through which customers undertake their banking.” It noted that if a big tech company achieves “wide scale adoption” of its digital wallet and payment authentication services, it could “become a gatekeeper to cardholders”.
The risk is exacerbated as digital wallets evolve and include financial offerings such as loans, insurance, investing, and digital banking, the agency warned.
It cited developments in Asia, Latin America and Africa where digital wallets have evolved into “super-financial apps”, but noted this has not yet happened in the UK.
The focus on digital wallets comes after stakeholders said the sector should fall within the FCA’s regulatory perimeter. The FCA said its collaboration with the PSR will inform their respective approaches, ensure coherence and link to the wider digital regulatory landscape, including the Competition and Markets Authority’s Digital Markets Unit.
The FCA launched its call for views last November, following its 2022 report on the potential competition impacts of Big Tech entry and expansion in retail financial services.
While at the time respondents raised concerns about the asymmetry of data between big tech companies and financial services firms, today the FCA said it has not identified significant harms arising from the imbalance.
“Our call for input found that firms lacked evidence of the value of big tech firms’ data from their core financial services,” Rathi said at the conference, adding that “respondents believe the data from big tech could have significant value, but were unable to provide that evidence given their lack of access to it”.
But the FCA did flag concerns over partnerships between financial services providers and big tech companies. “Big Tech firm’s are increasingly becoming a critical component of UK firms’ operations (e.g. cloud services), and this is likely to increase with the development of AI services,” the agency said.
It added that it is “increasingly concerned about the competition risks that could arise from the concentration of third-party services amongst a few Big Tech firms”.
“Navigating the UK’s Digital Regulation Landscape: Where are we headed?” hosted by TechUK concluded today.
