Financial regulation in the age of the platform economy

Abstract

Platform businesses allow for collaboration with nontraditional partners and bring together different categories of customers, in the financial context savers and investors or lenders and borrowers, creating large, scalable networks of users. Their entry into finance promises potential benefits to consumers in the form of new products, lower prices, wider choice, and enhanced consumer experience. At the same time, their new business models and technologies potentially threaten the dominant position of traditional financial services providers and create challenges for regulators. Platform businesses can use their preferential access to customer data to skim off high-quality loans, leaving only low-quality customers for other lenders. Their ability to offer complementary nonfinancial services that cannot be supplied by FinTech start-ups and banks can make it difficult or unattractive for customers to switch to alternative providers. This danger is especially acute when BigTech firms have monopoly power in other markets that complement financial services.