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 by the OECD in 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.
In October 2015, competition delegates held a hearing on disruptive innovation in financial markets to examine 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
- Innovative payment / currency exchange solutions.
