This Report, which can be found here, provides an interesting overview of potential competition issues in this sphere, while acknowledging ‘the discussion about the competition problems is still hypothetical‘.
Even as I am unable to summarise the (136 pages) Report, it is worthwhile emphasising that the authors believe that the application of competition law to potential anticompetitive behaviours in the FinTech sector faces several challenges, the most relevant being the difficulty in applying existing tools and methodologies to new market phenomena such as: (i) many providers operating in multi-sided markets, with concomitant difficulties in terms of market definition and identifying market power; (ii) the possibility of network effects operating as barriers to entry, together with restrictions on interoperability and the adoption of standards; (iii) the role that access to data can have in restricting competition.
As far as it goes, these observations are in line with widespread concerns about digital platforms more generally – and with the recent report on the Digital Economy, which I plan to review when Australia finally published its thoughts on the matter.
I found it more interesting how the Report looks at each FinTech market segment and discusses the potential antitrust risks in each of them. It identifies as areas of particular risk:
- payment systems, particularly as regards access to critical assets such as data and mobile near field communication (NFC) chips, and the use of an incumbency position gained offline to engage in exclusionary conduct towards competitors;
- digital currencies, particularly as regards network effects, vertical integration and restrictive practices, and the possibility that market power of banks in traditional banking services might be used to limit competition in the cryptocurrency market through pre-emptive acquisitions or predatory pricing schemes;
- wealth and asset management, particularly the risk that algorithms used in the provision of FinTech wealth management services will serve to facilitate co-ordination and collusion;
- in insurance, access to customers’ data and the impact of algorithms on pricing strategies are the main factors that can lead to anticompetitive practices. The standardisation of private blockchains might also create barriers of entry if the standardisation process lacks the required
This will make for interesting reading, and provides a remarkably concise, yet comprehensive overview of the structure of financial services markets and how they are being impacted by digital technologies.
As regards competition concerns, however, it strikes me as being remarkably speculative – which I suppose is unavoidable at this point in time. The authors are in firmer ground when they hold that:
‘The state of the [FinTech] industry does not justify, on its own, a large-scale deployment or reform of competition tools. Competition authorities should be vigilant in case the market develops some of the potential competition threats described in this study, and they should be ready to use competition tools, even in aid of goals already enshrined in regulatory rules. The above also leads to one final conclusion: the FinTech ecosystem shows the need for a more symbiotic relation between regulatory and competition frameworks, which is presently insufficient. (…) In this respect, FinTech could be used as an example of the greater need to incorporate a competition approach into financial regulation. (…) FinTech offers a fertile ground to re-open the dialogue between regulatory and competition goals, principles and frameworks, which could help re-balance financial regulation policies towards a more pro-competitive stance’.