The British regulator of financial services, the Financial Conduct Authority (FCA), is highly interested in understanding the potential competition impacts of entry by Big Tech firms (especially Alphabet, Meta, Apple and Microsoft) in retail financial service. In other words, what can high-powered AI and masses of data about users’ preferences and characteristics, paired with very deep pockets, do to existing banks and other financial intermediaries (and to fintech-startups)?

The FCA published a first discussion paper on the state of the market in fall 2022 and opened a public consultation, to which I reacted together with my UEA-colleague Andrea Calef a year ago.

After an assembly of the feedback received, the FCA updated the discussion paper and asked specific open questions, such as:

• To what extent does this data asymmetry hold between Big Tech firms and financial services firms in retail financial services markets?
• Do you expect that data asymmetry to become more significant over time? If so, how?
• Should wholesale markets be scrutinized as well by the regulator, next to retail markets?
• Where is the evidence for what we think we know?

Now, in a team of researchers at the Centre for Competition Policy, we reacted and tried to answer the questions posed.

It is great to see how open-minded the FCA is. Now, we hope very much that they will take the received feedback on board and move forward to action. Economically, the big problem is that financial retail markets are most likely “data-driven markets.” If that is true, these markets will most likely tip and be dominated by the firm that has the most data about users’ preferences and characteristics and draws the most valuable insights out of it. Without proper regulation, which we discuss in the response, prospects look dim for traditional financial services firms; in the UK and elsewhere.