EBA to focus on the platformization of the financial services industry
The European Banking Authority (EBA) recently published a Report on the platformization of the EU banking and payments sector. It notably identifies a rapid growth in the use of digital platforms, acting as the link between customers and financial institutions. Platformization presents a range of potential opportunities for both EU customers and financial institutions.
In the context of the response to the COVID-19 crisis, the EBA has identified a sharp acceleration in the digitalisation of both front- and back-office processes in the EU’s banking and payments sector, with financial institutions increasingly developing, or engaging third-party, technologies to facilitate customer access to financial products and services through digital means.
As the EBA underlines, the rapid growth in adoption of such digital platforms is also expected to accelerate as financial institutions seek to satisfy their customers’ ‘search for convenience’ and cost reduction. This is consistent with the core drivers of platformization across all sectors of the EU economy.
Helping competent authorities deal with platformization
The reliance of financial institutions on digital platforms for the marketing and distribution of financial services is creating new forms of financial, operational and reputational interdependencies within the EU’s banking and payments sector.
Although now legislative change is needed, the EBA highlights that it might pose challenges for competent authorities in monitoring market developments and any risks arising from these interdependencies.
To address such potential issues, the EBA has identified steps to better monitor market developments and implement changes where needed. Next year, it will help competent authorities to develop their understanding of platform-based business models, and focus on opportunities and risks arising from their support by:
- developing common questionnaires for regulated financial institutions on digital platform and enabler usage, and
- sharing information about financial institutions’ reliance on digital platforms and enablers, in order to facilitate coordinated EU-wide monitoring.
Moreover, the EBA proposes to:
- develop a framework to facilitate the aggregation of information about financial institutions’ dependencies on digital platforms and enablers. It aims to identify cumulative dependencies in the context of the marketing and distribution of financial products and services,
- establish indicators that could help in assessing potential concentration, contagion and future systemic risks, which could be taken into account in the context of supervision, and
- to continue its efforts to foster the sharing of supervisory knowledge and experience about digital platforms and enablers on a sectoral and multi-disciplinary basis, to enhance effective dialogue between authorities responsible for financial sector supervision, consumer protection, data protection and competition.