We think of our All Things FinReg blog to be global in nature, so when interesting regulatory developments occur somewhere in our blog footprint (namely, the planet), we try to highlight them, especially where they may have relevance beyond the jurisdiction or region where such developments occur. A recent action by the French competition authority (ADC) may be one such event.
Specifically, the ADC has launched a public consultation on the fintech sector in France, in particular with regard to payment services. The consultation focuses on the two types of new players in the payments space: (1) the role of big digital platforms and (2) the effect of smaller innovative payment service providers on competition in the financial services sector.
The objective is to better understand to what extent new and emerging players and services are complementary or competing with traditional banking services and to identify where competition may be dysfunctional. And of course, these new and emerging players—as with the services they offer—are almost always cross-border in nature.
The feedback from the consultation will feed into an opinion of the ADC on future regulation and/or enforcement in the fintech and digital payments space. It is therefore an excellent opportunity for all market players (large and small, established or starting up) to convey key messages and have their say as future regulation is in the making. The deadline for comments is June 19.
Context of the Consultation
The consultation echoes the European Commission’s monitoring of mobile payments services as well as the Dutch competition authority’s review of activities of big tech companies in the Dutch payments market.
New Players and New Technology
Growing use of smartphones and the internet of things has changed consumer demand. The ADC notes that this has led to two types of new market entry in the digital payments space. On the one hand, a whole range of small firms are offering innovative services, often at lower cost. On the other hand, large players in the digital space that are already established in France have started offering payments services. Cloud storage and blockchain technology have led to the arrival of new services on the market, such as electronic wallets or cryptoassets. The ADC is seeking to understand how this broadly affects competition in the area of payments space.
Reaction of Banks
The ADC is also looking at the various ways traditional banking players have adapted to this evolution. Banks have reacted very differently; some are acquiring fintech players or setting up fintech services providers themselves, some have entered cooperation or partnership agreements with fintech providers, and others are simply investing into R&D. The regulator seeks views in particular on the acquisition of fintech players by banking groups in France.
Scope of the Consultation
The relatively short consultation consists of a set of 12 questions around three areas.
Understanding Technological Developments in the Sector
The ADC is seeking very general views from the market on the entry of smaller and larger fintech players, the acquisition of smaller players by banking groups, and the impact of cloud and blockchain technology on the sector.
Delimiting Markets and Identifying Competitive Advantages
With its second set of questions, the ADC is seeking more targeted feedback on whether new entrants are perceived as competitors of traditional banks or rather as complementing their offerings, what factors make up competitive advantages for players in the markets, and which players might already hold such advantages or even have a strong market power.
The final set of questions asks respondents to provide general feedback on any malfunctioning of competition in the fintech space as a result of the application of new technologies to payments services, and also more specifically, with regard to cryptoassets, blockchain, or cloud technologies, respectively.
Participation in the ADC consultation is voluntary, but it is a classic tool for competition agencies and other regulators to review a market before passing to regulatory or enforcement measures or both. It is therefore a prime opportunity for any market player to convey key messages and have their say as future regulation in the fintech and digital payments space is in the making.
In particular, the delimitation of markets, evaluation of key competitive advantages, and the identification of impediments to the proper functioning of competition in fintech will set the base line for future action by the regulator. Players are well advised to participate in where this line will be drawn. The deadline for comments to the ADC is June 19.
While the ADC consultation is limited to France, it provides an instructive example of a national regulator taking the initiative to learn and understand a continuously expanding and vital segment of the financial services industry. Although the ADC is limiting its inquiry into competition issues, this type of regulatory initiative is something that could—and perhaps should—be readily replicated in other jurisdictions.
In Europe, the ADC is not the only competition agency and the results of its consultation will be shared in the network of European competition agencies (ECN). In turn, we can expect to see further efforts by national and international regulatory bodies to come to grips with the financial, economic, and regulatory aspects of fintech activities through proactive regulatory efforts such as this.