Financial technology companies, known as ‘fintechs,’ are an increasingly prominent and disruptive presence in the financial services market. While these technologies are having a significant impact on the competitive landscape, the European Commission and national competition authorities have expressed concern as to whether the current competition legal framework is equipped to deal with the challenges created by these new technologies, some of which we discuss in the article.

BLOCKCHAIN: NEW SCENARIOS FACILITATING COLLUSION? 

Trade finance, payments, clearing and settlement, and syndicated loans have already started to embrace blockchain due to its speed, security and transparency. 

But the spread of blockchain technologies has also drawn the attention of competition authorities, who question whether this new structure could facilitate collusion.1 In most cases, the EC and NCAs already have the necessary enforcement tools to ensure compliance with competition law, although they must be alive to new challenges posed by the technology. For instance, blockchain’s structure may allow for more sophisticated implementation of an agreement to collude, allowing for easier detection of deviation from the agreement and a more accurate retaliation method. 

Blockchain also enhances transparency, which could prompt competition authorities to more readily bring allegations of tacit collusion.2 In this regard, competition authorities should be reminded that whereas explicit collusion constitutes a ‘by object’ infringement, companies cannot be prevented from “adapt(ing) to [the] existing and anticipated conduct of their competitors” 3 as long as they do not overtly collude. Tacit collusion scenarios are much less clear and common and need to be assessed more rigorously under an effect-based assessment. 

REFUSAL TO GRANT ACCESS TO BANK USERS ACCOUNT DATA 

Online payment services providers need access to the bank account user’s data to operate, and this data is owned by the banks. Competition concerns could arise where the bank is found to have a dominant position (as it is the sole owner of its customers’ data), in which case it could be an abuse to refuse fintechs access to its customers’ data once the customer has agreed to provide access to it. This would be the case if it can be established that: (i) only the bank where the customer has an account has access to the payment data of that customer; (ii) payment service providers need account data, which is not substitutable for other information, hence it is indispensable or essential for fintechs to compete in the market; and (iii) banks have incentives to foreclose fintechs if they offer competing products on the basis of the bank account data. Therefore, potential enforcement of competition law in relation to Article 102 TFEU may be around the corner. 

In October 2017, the EC carried out inspections of banks in Poland and the Netherlands under suspicion of access to bank customers’ account data being blocked by banks even when customers gave their consent to it.4 This investigation is currently ongoing but shows how these concerns may materialize in the EU.

POTENTIAL INTEROPERABILITY PROBLEMS IN THE FINTECH SECTOR

Competition concerns have also been raised in relation to Apple’s mobile payment system, Apple Pay, as Apple does not grant access to its near field communication (NFC) technology to other online payment services providers:

• At European Union (EU) level, Commissioner Vestager recently confirmed that the EC is paying attention to developments in this area, but referred to the fact that there currently operate in the market “several mobile payment solutions based on existing card payment systems, where the mobile device acts as technical interface between the consumer and the merchants, while the transactions remain based on tokenised card credentials.”5 She noted as examples systems such as Google Pay and Samsung Pay. Therefore, while it seems the EC considers that consumers currently have access to alternative payments methods, it will be carefully monitoring developments in this market. 

• Outside the EU, various banks asked the Australian Competition and Consumer Commission (ACCC) whether they could jointly bargain with and boycott Apple to get access to its NFC.6 While the ACCC accepted that this would increase competition in mobile payment systems, it found that the public benefit of this would be outweighed by likely distortions of competition elsewhere, in particular: (i) it would affect Apple’s business model by which it provides an integrated hardware-software offering to compete with Google’s Android devices; (ii) it is uncertain how competition may develop in these nascent and rapidly evolving markets (e.g., contactless card payments and mobile payments on smartwatches) and the ACCC did not want to artificially influence or hamper innovations in this area; and (iii) Apple Pay and other digital wallets could help increase competition among banks by facilitating switching between card providers. 

The EC and NCAs will be closely monitoring developments in the mobile payment services market, and not just in respect of Apple.  

MERGER CONTROL CHALLENGES IN THE FINTECH SECTOR

For competition authorities, substantive merger analysis in the fintech sector can be complex since a traditional analysis of market shares and market definition can fail to capture the reality of fintech market dynamics. For instance, fintech mergers are data intensive, and the combination of datasets through mergers could give incumbents a competitive advantage which is not reflected in market shares. 

In addition, as fintech target companies are often start-ups with either zero or very low turnover, they can escape merger control in turnover-based jurisdictions as the EU. In October 2016, the EC debated whether a reform of the merger jurisdictional thresholds is necessary, but it is unclear whether legislative reform can be expected any time soon or at all. Companies should be aware that some countries, including Austria and Germany, have introduced jurisdictional thresholds based on transaction value and that the EC may be monitoring the functioning of the new test when considering its own merger thresholds.

CONCLUSION

Looking forward, there could be further significant changes in the financial services space if large high-tech companies, such as Facebook and Google, enter the market. Given the large amount of consumer data held by such companies, they could gain an unprecedented competitive advantage; e.g., being able to factor in an individual’s frequent internet searches to offer more tailored services. Competition authorities will no doubt pay attention to how this could potentially impact the competitive sphere.

The EC’s focus on fintech is reinforced with the recent announcement of a new financial stability and financial technology unit within the EC’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union. Therefore, it is essential that companies operating in this sphere are aware of the competition issues that new market structures such as blockchain can present and how best to deal with these.