HCC’s Interim Report of the Sector Inquiry Into Fintech

HCC’s Interim Report of the Sector Inquiry Into Fintech

January 2022
Author: Ifigeneia Argyri, Kyriakides Georgopoulos Law Firm

On 22 December 2021, the Hellenic Competition Commission (‘HCC’) published the Interim Report[1] of the Sector Inquiry (‘SI’) initiated pursuant to article 40 of Law 3959/2011, on the financial technologies sector[2] (‘FinTech’). This was in cooperation with the Bank of Greece (BoG), further to a public consultation on October 30th, 2020, and the sending of an online questionnaire to 153 companies active in the provision of the financial technologies sector, both traditional (i.e. banks) and start-up providers.

Whilst FinTech is a new sector, at an early stage of development in Greece, it is experiencing rapid growth, due to the recent significant increase in the adoption of electronic banking and electronic payment services, as well as the strengthening of the activity of the new categories of financial service providers, following the liberalization of the market, through the implementation of the Second Payment Services Directive (PSD2).

The provision of FinTech services offers significant benefits to consumers and businesses, as it contributes to the development of innovative products, which present significant advantages over traditional financial services, favouring thus the provision of integrated and more tailor-made services and fostering the entry of newcomers in the market, such as start-ups; however, potential competition issues may arise due to the characteristics inherent to FinTech technology (e.g. the use of platforms, big data and algorithms).

In this vein, the HCC has taken the initiative to investigate in depth the competitive conditions prevailing in the FinTech sector with a view to identifying practices that are able to harm consumer welfare and impede innovation and competitiveness in Greece in the wider sector. The said SI focuses inter alia into the competition analysis between ecosystems and the role of Big Techs (i.e. the big tech giants of the digital economy).

Key takeaways

  1. Preliminary points

The Interim Report states that at this stage of the SI it may be premature to draw definitive conclusions as to the existence of restrictions or distortions of competition beyond the issues identified below, since the current state of the markets is still fluid and evolving.

  1. Potential problems identified

Taking into account the participants’ responses to the market investigation, the HCC has reached several conclusions in the Interim Report and identified potential competition issues, which are summarized as follows:

  • A broader issue identified, related to all the markets under investigation, refers to the possibility of leveraging the market power of incumbent providers in the banking and insurance sectors and Big Techs, from one market to another, through the use of massive and multi-layered databases, possibly through self-preferencing or enveloping practices;
  • It is not excluded that the aforementioned may possibly create conditions of foreclosure vis-à-vis those who cannot -at least at the same cost- collect and/or process the same level of valuable information;
  • The Interim Report highlights the possibility for exclusion of small and/or start-up companies (e.g. through the refusal of access to data) or even their exploitation (e.g. overcharging for access to data practices) to access user data.

According to the Interim Report, the above problems may be partially covered by sectoral legislation, however, HCC must be alert to take action against conduct that is not fully addressed, particularly where this takes place at the level of an ecosystem and not just a single relevant market. However, the absence of regulation in other markets (e.g. InsurTech), as well as the development of ecosystems, raises the question of the application of competition law in order to address relevant issues.

With regard to payment services, the absence of a case–by–case approach to licensing requirements in line with the discretion provided by the PSD2 may result in higher barriers to entry for FinTech start-ups, whose licensing would entail increased costs, which could lead to situations of unequal opportunities between incumbent payment service providers and those based on new technologies. The same applies to national legislation on electronic money.

  1. Interim Report Proposals

In light of the above, the HCC suggests several initial proposals, the most important of are the following:

General proposals:

  • The potential establishment of an open banking implementation body, eventually in cooperation with the Bank of Greece, in case distortions of competition are identified despite the existing regulatory framework, to avert, inter alia, practices consisting in leveraging of the power of incumbents in the banking and insurance sectors but also regarding BigTechs by means of the use of multi-layered databases (through self-preferencing or enveloping practices) and in general to address data access issues.

Proposals regarding payment services:

  • With regard to possible inadequacies of the regulatory regime on licensing requirements, the amendment of the regulatory framework so that the restrictions imposed are necessary and directly related to the operational and financial risks posed by the FinTech companies, in order to reduce barriers to entry for FinTech startups.
  • To address issues arising in relation to different API standards, possibly hindering payment services, in order to achieve efficient, safe, and non-discriminatory access to payment accounts data.
  • Uniform standards for QR codes.
  • Ensuring rights of access, under FRAND conditions, to the technical infrastructure deemed necessary to support the provision of payment services.
  • The possibility of introducing more specific and proportionate regulations adapted to the new digital environment, which could reduce compliance costs of FinTechs to the legislative framework relating to anti-money laundering and KYC, taking into account the risk level of the client on a more customized basis, if possible.

Proposals regarding InsurTech:

  • With a view to tackling potential anti–competitive issues arising from the ability of large companies to use massive databases with personal data they may hold in a market in which they are already active through their entry into new service/product markets, it is suggested that the open or shared use of user data (possibly under FRAND conditions and/or through data pools) and the regulation of relationships within technological trading ecosystems, in particular with regard to the abuse of the power relationship within ecosystems may provide further solutions. It is also suggested in the Interim Report that further exploring the relationship between personal data and competition policy as to the possibility of anticompetitive use of the former will better define the scope of competition rules and the ability of the HCC to intervene.

 

  1. Next steps

The HCC has launched a public consultation inviting all interested parties to submit their comments and views on the Interim Report either by participating in the public consultation that will be organized by the HCC in the first quarter of 2022, and/or by submitting their views in writing in the form of a memorandum, at fintech@epant.gr by  January 30th, 2022.

 

[1] https://www.epant.gr/files/2021/fintech/FINTECH_interim_report.pdf

[2] The Financial Technologies sector constitutes the provision of financial services exclusively through innovative information and communication technologies, i.e. digital payment and banking services, investments, insurance, and digital services offered in the financial sector by technology companies acting as intermediaries (not traditional providers of banking and financial products), either start-ups or Big Techs (Apple, Google, Facebook, Amazon, etc.) to Greek internet users.

January 2022
Author: Ifigeneia Argyri, Kyriakides Georgopoulos Law Firm

On 22 December 2021, the Hellenic Competition Commission (‘HCC’) published the Interim Report[1] of the Sector Inquiry (‘SI’) initiated pursuant to article 40 of Law 3959/2011, on the financial technologies sector[2] (‘FinTech’). This was in cooperation with the Bank of Greece (BoG), further to a public consultation on October 30th, 2020, and the sending of an online questionnaire to 153 companies active in the provision of the financial technologies sector, both traditional (i.e. banks) and start-up providers.

Whilst FinTech is a new sector, at an early stage of development in Greece, it is experiencing rapid growth, due to the recent significant increase in the adoption of electronic banking and electronic payment services, as well as the strengthening of the activity of the new categories of financial service providers, following the liberalization of the market, through the implementation of the Second Payment Services Directive (PSD2).

The provision of FinTech services offers significant benefits to consumers and businesses, as it contributes to the development of innovative products, which present significant advantages over traditional financial services, favouring thus the provision of integrated and more tailor-made services and fostering the entry of newcomers in the market, such as start-ups; however, potential competition issues may arise due to the characteristics inherent to FinTech technology (e.g. the use of platforms, big data and algorithms).

In this vein, the HCC has taken the initiative to investigate in depth the competitive conditions prevailing in the FinTech sector with a view to identifying practices that are able to harm consumer welfare and impede innovation and competitiveness in Greece in the wider sector. The said SI focuses inter alia into the competition analysis between ecosystems and the role of Big Techs (i.e. the big tech giants of the digital economy).

Key takeaways

  1. Preliminary points

The Interim Report states that at this stage of the SI it may be premature to draw definitive conclusions as to the existence of restrictions or distortions of competition beyond the issues identified below, since the current state of the markets is still fluid and evolving.

  1. Potential problems identified

Taking into account the participants’ responses to the market investigation, the HCC has reached several conclusions in the Interim Report and identified potential competition issues, which are summarized as follows:

  • A broader issue identified, related to all the markets under investigation, refers to the possibility of leveraging the market power of incumbent providers in the banking and insurance sectors and Big Techs, from one market to another, through the use of massive and multi-layered databases, possibly through self-preferencing or enveloping practices;
  • It is not excluded that the aforementioned may possibly create conditions of foreclosure vis-à-vis those who cannot -at least at the same cost- collect and/or process the same level of valuable information;
  • The Interim Report highlights the possibility for exclusion of small and/or start-up companies (e.g. through the refusal of access to data) or even their exploitation (e.g. overcharging for access to data practices) to access user data.

According to the Interim Report, the above problems may be partially covered by sectoral legislation, however, HCC must be alert to take action against conduct that is not fully addressed, particularly where this takes place at the level of an ecosystem and not just a single relevant market. However, the absence of regulation in other markets (e.g. InsurTech), as well as the development of ecosystems, raises the question of the application of competition law in order to address relevant issues.

With regard to payment services, the absence of a case–by–case approach to licensing requirements in line with the discretion provided by the PSD2 may result in higher barriers to entry for FinTech start-ups, whose licensing would entail increased costs, which could lead to situations of unequal opportunities between incumbent payment service providers and those based on new technologies. The same applies to national legislation on electronic money.

  1. Interim Report Proposals

In light of the above, the HCC suggests several initial proposals, the most important of are the following:

General proposals:

  • The potential establishment of an open banking implementation body, eventually in cooperation with the Bank of Greece, in case distortions of competition are identified despite the existing regulatory framework, to avert, inter alia, practices consisting in leveraging of the power of incumbents in the banking and insurance sectors but also regarding BigTechs by means of the use of multi-layered databases (through self-preferencing or enveloping practices) and in general to address data access issues.

Proposals regarding payment services:

  • With regard to possible inadequacies of the regulatory regime on licensing requirements, the amendment of the regulatory framework so that the restrictions imposed are necessary and directly related to the operational and financial risks posed by the FinTech companies, in order to reduce barriers to entry for FinTech startups.
  • To address issues arising in relation to different API standards, possibly hindering payment services, in order to achieve efficient, safe, and non-discriminatory access to payment accounts data.
  • Uniform standards for QR codes.
  • Ensuring rights of access, under FRAND conditions, to the technical infrastructure deemed necessary to support the provision of payment services.
  • The possibility of introducing more specific and proportionate regulations adapted to the new digital environment, which could reduce compliance costs of FinTechs to the legislative framework relating to anti-money laundering and KYC, taking into account the risk level of the client on a more customized basis, if possible.

Proposals regarding InsurTech:

  • With a view to tackling potential anti–competitive issues arising from the ability of large companies to use massive databases with personal data they may hold in a market in which they are already active through their entry into new service/product markets, it is suggested that the open or shared use of user data (possibly under FRAND conditions and/or through data pools) and the regulation of relationships within technological trading ecosystems, in particular with regard to the abuse of the power relationship within ecosystems may provide further solutions. It is also suggested in the Interim Report that further exploring the relationship between personal data and competition policy as to the possibility of anticompetitive use of the former will better define the scope of competition rules and the ability of the HCC to intervene.

 

  1. Next steps

The HCC has launched a public consultation inviting all interested parties to submit their comments and views on the Interim Report either by participating in the public consultation that will be organized by the HCC in the first quarter of 2022, and/or by submitting their views in writing in the form of a memorandum, at fintech@epant.gr by  January 30th, 2022.

 

[1] https://www.epant.gr/files/2021/fintech/FINTECH_interim_report.pdf

[2] The Financial Technologies sector constitutes the provision of financial services exclusively through innovative information and communication technologies, i.e. digital payment and banking services, investments, insurance, and digital services offered in the financial sector by technology companies acting as intermediaries (not traditional providers of banking and financial products), either start-ups or Big Techs (Apple, Google, Facebook, Amazon, etc.) to Greek internet users.