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The digitalisation of financial services presents formidable tests for incumbent financial intermediaries, firms, exchanges and regulators. The fourth report in the series on The Future of Banking examines the growing impact of technology on financial markets and institutions and identifies the key challenges in payment systems, the use of big data and trading in markets.
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Data can also inhibit competition. Firms obtain data from transactions. More data begets
more activity and still more data, and returns to scale are obtained as firms increase size.
This data feedback loop might create problems for competition since, as a firm becomes
larger, it might monopolise the market. If this happens, the efficiency gains may not be
passed on to consumers, which could be detrimental for welfare. In financial services,
the policy tension is between extending the perimeter of bank regulation to all financial
service providers and thus constraining financial innovation (and implicitly extending
a state protection umbrella to the new entrants) or keeping the new entrants out of the
regulatory perimeter completely and tilting the playing field in their favour.
Snippings 