Open banking and competition in the payment markets: Access regulations as a remedial blueprint

Abstract

The aim of this thesis is to assess the long-term effects of Open Banking regulation on competition and innovation in the payment markets. To this end, the thesis uses a concept of the platform ecosystem as a focal point of competition law analysis. It defines two types of competition in the payment markets: competition between financial platforms (inter-platform competition) and competition between participants of the same platform (intra-platform competition).
The existing literature on Open Banking does not address how the access regulation affects inter-platform competition in the payment markets in the long term, focusing almost exclusively on intra-platform competition and economic efficiencies of Open Banking regulation. The academic literature does not explain how the regulation can inadvertently pave the way to a radical platformisation of the industry and dominance of a few selected players (e.g. big banks or Big Tech companies).
Based on the analysis of the EU Second Payment Services Directive and Open Banking regulation in the UK, this thesis devises a model that reconciles vigorous intra-platform competition through mandatory access to bank customer accounts with effective inter-platform competition through the creation of end-to-end payment systems. The thesis shows that piecemeal adjustments to current Open Banking regulation are needed to strike the right balance between inter-platform and intra-platform competition. In particular, it argues that access regulation should be complemented by measures aimed at promoting inter-platform competition and by the ring-fencing obligation on the digital platforms active across several markets. The ring-fencing obligation should prevent the Big Tech companies from combining bank customer data with data from other markets. Bank customer data should not be used for profiling customers and gaining competitive advantage beyond the payment markets. Neither should the data collected in other markets be combined with the bank customer data to enter the payment markets.
The thesis also stipulates conditions for applying the Open Banking framework to other industries as proposed by policymakers. It advocates ‘smart’ or ‘minimum viable’ regulations as opposed to generic access regulations and promotes a product-driven, rather than obligation-driven approach. Policymakers should identify products whose delivery is impaired due to blocked access to customer accounts so that regulations help ‘unlock’ their value. Finally, this thesis examines the interplay between Open Banking regulation and competition law and provides some recommendations for competition authorities. It specifically explores how behavioural remedies
(such as continuous access to customer data) can be implemented through the competition law toolkit.
This research informs our understanding of the impact of data access regulation on the competition in the financial sector and provides the guidance for adopting similar regulations in other data-driven industries.

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ORCID for Hedvig Schmidt: orcid.org/0000-0002-0549-1377

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