The UK’s City watchdog is to examine how to regulate “big tech” companies such as Apple, Google and Amazon over fears they could harm competition in Britain’s financial services sector.
The Financial Conduct Authority (FCA) said that big tech companies could provide innovations in financial services and drive down costs, but also expressed concerns that they could build dominant positions leading to the “potential exploitation of market power”, according to analysis published on Tuesday.
US technology companies are increasingly considering global financial services as they look for ways to use their huge profits, market power and troves of data to disrupt another industry.
Alphabet (the owner of Google), the retailer Amazon, Meta (the owner of Facebook) and the iPhone-maker Apple all already offer some financial services in the UK, the FCA said. However, the companies are gradually revealing more products across the world such as Apple’s credit card and a planned “buy now pay later” feature. Last week, Amazon launched an online insurance store in the UK.
The FCA analysis said: “Big tech firms’ entry in financial services could benefit many consumers.” However, it added that those benefits “could be eroded if these firms can create and exploit entrenched market power to harm healthy competition and worsen consumer outcomes”.
The FCA said it was concerned that big tech companies could become “gatekeepers” to financial services because of advantages ranging from “global scale and large user bases” and “rich data about their users” to the fact that they can set default options on consumer devices – potentially allowing them to push their own products or exclude others. Google and Apple have already shown that they can rapidly become forces in financial technology via mobile phone payments.
Sheldon Mills, the FCA’s executive director of consumers and competition, said it was important to examine big tech’s potential expansion in financial services “given their scale, the amount of data they have on consumers”.
“It’s not theoretical – it’s clear that big tech is interested in financial services,” he said, pointing to recent developments such as Apple’s purchase of the UK credit scoring startup Credit Kudos and Amazon’s insurance launch.
The analysis comes after UK government this year unveiled a “new pro-competition regime for digital markets” that said that some companies’ market power had harmed consumers. The FCA said that it is not yet proposing changes to regulation, but asked for responses to its paper by 15 January to “inform its regulatory approach” in light of the government policy.
Mills stressed that the FCA has not yet “seen any evidence of specific harms flowing from big tech”. However, he said that it was important for the regulator to start talking to those companies given the likelihood that some of them will enter the UK market. Vast profits meant that big tech companies “could support entry at scale if they choose to do so”, he added.
The FCA paper also highlighted a potential risk of big tech firms using their data – in many cases built for use in targeted advertising – in decisions on which financial services products to offer. It said there was a risk the insurance sector could be undermined if data “is negatively used in insurance underwriting, therefore impacting access to insurance for specific cohorts of consumers”.
Mills said the FCA wants to ensure companies are “adopting the right trust-based and ethical frameworks”, and that “bias or other areas don’t start to feed in or creep in to the use of AI or machine learning”.
“It’s always about balancing those risks of bias and discrimination” against the potential “massive benefits” that big tech companies could bring to financial services, Mills said.