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The platformisation of the financial services industry has become a problem for regulators to supervise, the EU’s banking watchdog has said, because they do not understand it.
The European Banking Authority (EBA) has published a report that outlines its plans to work out how the European Union’s national competent authorities (NCAs) can cope with the trend towards platformisation in the banking and payments sector.
The EBA believes that the use of digital platforms in the EU’s banking and payments sector offers opportunities for EU consumers and firms. However, it points out that national supervisors are struggling to keep up with the trend.
“It appears that the vast majority of competent authorities currently have a limited understanding of platform-based business models, particularly in the context of interdependencies between financial institutions and technology companies outside the perimeter of competent authorities’ direct supervision,” the EBA says in the report.
This “imperfect understanding” of business models could hinder the monitoring of specific risks, including those arising from financial, operational and reputational interdependencies between financial institutions and technology companies, the report warns.
The EBA has now resolved to help national regulators understand platform-based business models and the opportunities and risks involved.
It wants to help them develop questionnaires for the financial institutions that they regulate to answer. These, it hopes, will ask them about digital platforms and “enabler use”, the better to help the regulators gather information in a proportionate way as the market evolves.
"Enablers" are platforms that usually belong to large technology companies that offer software that links customers to financial institutions and, potentially, to firms that want to promote advertisements in line with the payment histories of users of specific apps. Enablers also offer other services.
The EU-wide “regulator’s regulator” is also encouraging regulators to share information about financial institutions’ reliance on digital platforms and enablers.
Once it has done all these things, the EBA wants to do something to facilitate the aggregation of information about the ways in which financial institutions depend on digital platforms and their enablers.
The idea is to spot firms’ growing dependency on platformisation in the context of both the marketing and distribution of financial products and services and to set up procedures that might help regulators assess “potential concentration, contagion and potentially future systemic risks and which could be taken into account in the context of supervision”.
Since 2020, the EU has wanted to rein in the powers of platforms that its citizens use.
This led it to enact the Digital Markets Act, which might classify various companies, including bigtech firms and payments companies, as gatekeepers and force them to abide by a set of EU-level rules. These rules might allow businesses that use platforms to see the data that they generate.
Another piece of legislation in the pipeline is the EU's Digital Identity proposal. This could force bigtech platforms, such as Apple, to allow EU citizens to use EU-supported mobile wallets instead of paying with Apple's wallets.
The EU is not the only jurisdiction that wants to take a hard line. The UK, the US and Australia have also criticised the rise of bigtech. In the UK, for example, the Financial Conduct Authority's chairperson recently called for legislation to compel online platforms to tackle fraud.
Meanwhile, a senior figure in Australia’s financial services industry has warned parliamentarians recently of a so-called gatekeeper effect taking place in payments as a result of Apple's near-field communication (NFC) infrastructure.
