Competition

Competition and disruptive innovation in financial markets

 

OECD Reviews of Innovation PolicyCompetition delegates held a hearing on disruptive innovation in financial markets on 26 October 2015. This hearing examined selected financial market innovations, with a particular view to enhancing competition authority awareness of new and developing competitive alternatives. It focused on:

- Peer-to-peer lending;
- Crowdfunding of equity;
- Virtual currencies; and
- Innovative payment / currency exchange solutions.

Many new businesses have recently attempted to benefit from market inefficiencies that established financial institutions have been unwilling or unable to explore. Some, if not most of these new entrants are part of the wave of disruptive innovation that has been affecting other sectors of the economy.

Disruptive innovation, as discussed in OECD (2015), consists of product or business model breakthroughs that bring radical changes in the market, especially by reducing costs of service delivery:

  • such innovations have the potential to take substantial market activities from pre-existing products and firms;
  • providing that regulation permits and enables such activity; and
  • to increase consumer welfare and the growth of the economy.

Regulation can facilitate disruptive innovation, but it can also pose obstacles to it. Particularly because of widespread regulation of financial markets, much of which exists to protect consumers, regulations may at times enable transitions to new business models, but often can slow down or prevent such transitions. Competition authorities can play an important role alongside other relevant regulators in advocating regulation that allows beneficial new competition to emerge, while taking due account of key rationales for financial market regulation, such as prudential concerns and the need for consumer protection.

» Read the Secretariat Issues note Note de réflexion and a contribution from BIAC.

» Read the speech delivered by Mary Starks, Director of Competition, Financial Conduct Authority, UK

» Detailed Summary of discussion | Compte rendu détaillé

RELATED POLICY ROUNDTABLES

Disruptive innovations and their effect on competition, 2015

Vertical Restraints for On-line Sales, 2013

Digital Economy, 2012

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