Currently, there are a number of large digital companies with established technology platforms that act as a credit broker, introducing consumers to credit cards or finance companies with whom they have partnered. The technology company’s level of involvement varies, from having an exclusive partnership to promote a lender, to white labelling finance products for a provider.
The FCA’s assessment of the consumer credit market identified two additional strategies that big technology firms could adopt to enter the market. The first is to act as a BNPL provider, utilising some of the purchase data on their own platform as a simple and initial consumer credit check. The second entry point would be for them to act as a credit reference agency, using their consumer data on past purchases to create a credit score, which could then be sold on to lenders.
Initially, there could be benefits for consumers, such as lower prices, by driving existing providers to be more competitive. By using their own data and leveraging artificial intelligence, it could also lead to the development of more innovate products. The application of more data would lead to greater efficiency for lenders, as well as allowing consumers to make more informed financial decisions.
In the long term, the FCA predicts that large technology companies could adversely affect competition in the market. The potential risk is that they will gain power by leveraging their user base and direct them towards particular products. By limiting access to certain products by actively promoting some, or giving consumers favourable terms on their own products, it could lead to higher prices and the growth of inferior products in the market. If technology companies gained control of a significant share of consumer credit it could affect credit risk and affordability assessments.
While technology companies have not taken these steps yet, the FCA will continue to monitor the situation closely. They are also looking at developing its regulatory approach in response to feedback from its paper on the situation, so that the industry is better prepared for such a shift in lending providers.
