The potential competition impact of Big Tech firms on retail financial services is the subject of last month's FCA discussion paper. Big Tech firms can bring benefits to retail financial services consumers both through competition and innovation, but rapid gains in market share could also be harmful both to competition and consumer outcomes. The discussion paper is part of the FCA's process of better understanding the emerging risks and opportunities that the sector faces and how the regulatory framework should be structured to ensure consumer benefits are harnessed and harms mitigated.

What are Big Tech firms?

The FCA defines 'Big Tech' firms as "large digital companies with established platforms and extensive established customer networks". The focus of the Discussion Paper is Big Tech firms that operate in the UK, including Google (Alphabet), Apple, Facebook (Meta) and Amazon as they have already entered the retail financial services sector.

What retail financial service sectors do Big Tech firms operate in?

In its analysis the FCA focuses on payments, deposits, consumer credit and insurance as these are the areas where Big Tech have already entered financial services and, as well as their potential competition impact, they are also sectors which are important to consumers' financial lives.

At the moment Big Tech firms have some FCA permissions to be involved in retail financial services including payments permissions and e-money permissions (eg. digital wallets Google Pay and Apple Pay), consumer credit (eg. Apple's partnership with Barclays to provide financing on Apple Store purchases) and insurance permissions (eg. Amazon's business insurance collaboration with SuperScript).

The FCA reports that no Big Tech firm yet has permissions to provide products and services in deposits, mortgages or pensions.

What are the emerging themes?

The Discussion Paper sets out possible scenarios for Big Tech entry and expansion in financial services, highlighting benefits from increased competition pressures from Big Tech firms as well as scenarios where competition may develop in a manner that creates competition risks. From this analysis the FCA has set out five emerging themes for the four retail sectors in scope:

  1. There is potential for Big Tech firms to enhance their overall value with further entry and expansion in retail financial services sectors: while Big Tech firms tend to enter through the payments sector, further growth and expansion into complementary financial sectors is likely.
  2. A partnership model is likely to remain the main entry strategy for Big Tech firms in the short term. In the longer term, they may compete more directly with existing firms, likely through mergers and acquisitions and/or by bringing value chain activities in-house.
  3. Big Tech firms' entry into retail financial services may not be sequential or predictable. Significant market changes may occur quickly.
  4. In the short term, Big Tech firms' entry into the financial services could benefit consumers by increasing incentives to innovate, improve quality and reduce prices of financial products and services through increased competition.
  5. In the long term, there is a risk that those competition benefits would disappear if the Big Tech firms exploit their power to harm the healthy competition and consumer outcomes, for example by locking consumers in.

Next Steps

Views on the issues raised in the discussion paper should be submitted by 15 January 2023. The FCA's Feedback Statement setting out plans for developing its regulatory approach can be expected within the first half of 2023.

Final thoughts

This Discussion Paper is an indication of what is to come in terms of regulation of Big Tech firms in the UK; we can expect increased regulatory focus on Big Tech as technological evolution and developments in consumer demands encourage firms to make the move into regulated financial services sectors.

In its Business Plan the FCA recognised the need to stay up to date with global changes - particularly those driven by technology and innovation - and to reflect those in their regulation. With the EU regulation of Big Tech firms through the Digital Markets Act now in force there are moves outside the UK towards further regulation and awareness of potential risks posed by Big Tech firms. It will be interesting to see the approach developed by the regulators within the UK to monitor and manage Big Tech firms within the context of financial services. This FCA discussion and likely follow-on consultation is one to watch.


Lindsay Lee

Senior Associate

Caoimhe Hunter Blair

Trainee Solicitor