I can't remember the last time that I visited a branch of my bank, or wrote a cheque. I do all of my banking through mobile apps and pay using my contactless card or mobile payment services. It is estimated that approximately three quarters of the UK population will bank via phone applications by 2023.
This is a huge shift in the approach to banking and financial services and, over the next few years, technology will continue to have a profound impact on the financial services sector. ApplePay is already hugely popular and Apple recently teamed up with Goldman Sachs to launch a new consumer credit card later this year, further pushing the technology firm into the finance sphere. Amazon is reportedly in talks to launch a current account, in addition to its cloud computing services for banking. And it seems that Facebook is keen to emulate WeChat, the Chinese messaging and payments application, in offering a payments service to let users purchase services and settle bills.
But what will all of this mean for regulation and, in particular, antitrust? Global technology companies such as Amazon and Apple extending their services into the area of banking and finance may be seen by some as a cause for concern. Indeed, there have been calls for any technology company with a financial services arm to be subject to the more onerous banking and finance regulations.
However, as regulators have recognised, an increased number of financial services being offered through new technologies and mobile applications brings greater competition into the financial services market. Greater competition and diversity in lending, payments, insurance, trading, and other areas of financial services can create a more efficient, user-friendly, cost effective, and resilient financial system.
From an antitrust perspective, the most important question emerging from the increased involvement of technology in financial services is how to analyse these developing markets.
Most recently, the CMA issued its provisional findings report into the proposed merger of PayPal and iZettle after a Phase 2 investigation. Both companies provide mobile point of sale ("mPOS") devices that enable businesses to take offline payments through a card reader connected to a smartphone or tablet. PayPal and iZettle are also both active in the emerging market for "omni-channel" payment services, through which businesses can take both online and offline payments through a single provider. The CMA had been concerned at Phase 1 about the potential impact of the merger in "omni-channel" payment services, in which iZettle was expanding.
Importantly, during its Phase 2 review, the CMA recognised that the payment services sector is dynamic and developing, and the investigation took into account how competition is likely to develop in the future. Further, the CMA also took into account the competition between mPOS devices and traditional payment services providers such as Worldpay. Following its investigation and dynamic considerations, the CMA has provisionally found that the merger does not raise competition concerns. The final decision is due by 21 May.
The emphasis that the CMA placed on dynamic competition is to be welcomed. This allows the competitive counterfactual to be taken into account, whilst also ensuring that the future developments and benefits of such technological changes to financial services are fully understood. Further, the recognition of competition between fintech solutions and traditional payment methods is also important as it highlights the potential for such fintech solutions to overtake traditional payment and banking methods.
The future is fintech, and both consumers and regulators need to be ready to embrace it. It certainly seems like the CMA is on the right track.
Bankers and politicians may thus be tempted to resist technological change. But that would be wrong because its benefits—a leaner, more user-friendly and more open financial system—easily outweigh the risks.