FCA Call for Input: Big Tech in Financial Services

The FCA has published a call for input (CFI) as part of their three-year strategy where they have committed to identifying potential competition benefits and harm from Big Tech firms’ growing presence in financial services. In this CFI the FCA seek to gather evidence into whether a situation of ‘data asymmetry’ has enabled ‘Big Tech’ firms to gain greater market power.

Following their Discussion Paper (DP 22/5) published in October 2022 to prompt conversation about areas where Big Tech entry and expansion is likely to create the biggest competition benefits for consumers and areas where there is the greatest risk of significant harm if competition does not develop effectively. In addition to this in July 2023 the FCA published a Feedback Statement (FS 23/4) which highlighted that the asymmetry of data and data sharing mechanisms between Big Tech firms and financial services firms could have significant adverse implications for how competition develops in financial services in the future.

The data asymmetry arises because financial service firms are unable to access Big Tech firms’ datasets which currently sit outside of the data sharing initiatives, whereas financial services data could be accessed by Big Data firms.

The potential impact on competition and the significant expansion of Big Tech firms in financial services and their potential interconnectedness with financial services firms could also give rise to systemic risks that might have financial stability implications.

The FCA’s CFI focuses on the data asymmetry between Big Tech firms and financial services firms and whether this could affect the way competition evolves in financial service markets in the future. The aim is of the CFI is to collate evidence to help the FCA assess the potential value of Big Tech firms’ own datasets which includes when they are combined with new sources of financial data facilitated by data sharing policy initiative; the potential competition impacts that could arise; and the potential ways to harness benefit and mitigate harms.

In addition to this the FCA are asking for evidence on any significant factors (other than data asymmetry that have changed since they last published FS 23/4 that could lead to Big Tech firms to gain market power and/or become ‘gatekeepers’ in financial services. The FCA are also welcoming information on how the partnerships between Big Tech firms and financial services firms have evolved, the benefits these bring as well as potential competition concerns. The geographical scope for this CFI in the UK within the retail markets.

Financial services providers typically have access to data related to individuals and their finances in order to provide financial products and services to their consumers. For individuals this data can include:

• Cash flow
• Income
• Payments
• Transactions
• Expenses
• Assets
• Debts

With the acceleration of digitalisation in financial services after the Covid-19 pandemic, this has empowered data and technology to drive changes in the financial services sector, by producing new products and ways for firms to engage with their customers. One main area that has grown significantly is the development of Open Banking, which was designed to promote innovation and increase competition, as well as create positive consumer outcomes by enabling data sharing and third party access. There are now initiatives across the economy to look at expanding the concept of Open Banking to a wider range of other sectors and products, including in financial services. One initiative is mentioned in the FCA’s regulated fees and levies proposals 2024/25 where the development of open banking has been taken on as an Exceptional Project between the FCA, Payment Systems Regulator, Competition and Markets Authority and HM Treasury. To a view to transition open banking as an additional method of making payments, competing with existing payment methods.

Big Tech firms have one common characteristic – they can collect vast amounts of data across their platforms regarding consumers’ lives and preferences. Capturing data in real time across multiple platforms, resulting in insights of their customers personal data, purchase behaviours, browsing and search history, social media activity, location, and lifestyle data, which in turn gives these firms additional insight into a consumer’s financial and risk profile.

Through open banking consumers provide consent to third-party providers, allowing them to access their payment account information and/or make payments on their behalf to access a wider range of products and services. Currently nine of the UK’s largest banks have been mandated to implement common standards for Open Banking to ensure consumers can securely share their financial data or safely initiate transactions.

It is not only through open banking that Big Tech firms can access consumers data but also through digital wallets which may allow them visibility to transaction data.

This can be achieved through Open Banking as well as other sources such as Credit Reference Agencies (CRAs), advanced analytics and AI technologies which help them to combine and analyse data from multiple sources to create a better picture of the consumers needs and preferences.

In some instances, Big Tech firms are entering into bilateral arrangements with financial services firms to provide access to the data from their core platform services. The FCA are seeking further information on whether the data-sharing arrangements are occurring in financial services, and the conditions and terms of access that are imposed of the firms seeking to access the Big Tech firms’ data.

There may also be limitations on Big Tech firms using personal data collected from their core digital activities as they are required to comply with data protection law. Compliance with these laws includes a specific purpose limitation principle, which sets rules regarding the re-use or repurposing of personal data collected and processed for one purpose and then used for another. The FCA are interested in whether data protection law – including the purpose limitation principle – prevents data asymmetry between Big Tech firms and other financial services. The FCA are also welcoming views on whether there are other regulatory constraints that mitigate or prevent the asymmetry of data the two types of firms that could lead to adverse impacts on competition.

The Potential Impact on Competition that Could Arise from Data Asymmetry.

In the short-term data asymmetry may bring efficiency benefits, providing more tailored and accurately priced products to the market. However, in the longer term there is a risk of these benefits being eroded by increased barriers to entry and expansion of other firms in financial services industry. This could potentially lead to persistent market power for Big Tech firms, poor consumer outcomes and harmful conduct.

The FCA also observed that if Big Tech firms merge with, acquire, or enter into partnerships with financial services providers, with the latter option apparently being of most benefit to Big Tech due to disproportionate strengthening and bargaining power.

As credit unions hold a lot of data about their members and with the growing prevalence of working with third party providers for Open Banking, credit reference reporting, and instant messaging ABCUL is keen to hear our members views on the potential advantages and disadvantages of data asymmetry.

ABCUL will be responding to this Call for Input and we would welcome your views by email to Policy@abcul.org by 5pm on 17 January 2024.

Questions to Consider:

• To what extent does this data asymmetry hold between Big Tech firms and financial services firms in retail financial services markets?
• What are the nature and drivers of any data asymmetry that exists?
• Do you expect data asymmetry to become more significant over time?
• Are there regulatory (or other) constraints that mitigate or prevent:
  • The asymmetry of data between Big Tech firms and other firms in financial services, or
  • The adverse impact of this data asymmetry on competition?
• Can you provide information, including examples and analysis conducted, that would show whether the competition benefits and harms that we have identified are emerging or are likely to emerge in the future, as well as any other competition impacts?
• Do you have views on ways regulation can enable competition benefits to materialise while mitigating potential harms?