The AdC identifies barriers to entry of new FinTech firms and recommends measures to promote choice for consumers and companies in financial services in Portugal

Press Release 04/2018
The AdC identifies barriers to entry of new FinTech firms and recommends measures to promote choice for consumers and companies in financial services in Portugal
The Portuguese Competition Authority - Autoridade da Concorrência (AdC), identified barriers to entry of new firms based on innovative technologies applied to the financial sector – the so-called FinTech, in Portugal. These barriers mainly relate to the regulatory framework and the risk of market foreclosure of FinTech entrants by incumbent banks.

The AdC launches a public consultation to an issues paper on Innovation and Competition in the Financial Sector in Portugal, highlighting that the innovative technologies into the financial sectors and the new FinTech entrants may play a key role in promoting choice and increased access to credit and other financial services for consumers and companies, notably SMEs in Portugal. FinTech entrants may introduce competition in a market characterised by high concentration and low contestability, thereby enhancing consumer welfare.

As a result, FinTech may also contribute to the modernisation and greater efficiency of the financial sector as a whole. In effect, Fintech brings important innovations to payment services, crowdfunding, and other innovative technologies such as robo-advisory. New technologies have also been introduced in the insurance sector (InsurTech), and brought new products, services and business models. These developments reduce costs, broaden the range of consumer choice and represent an opportunity to increase financial inclusion by widening the coverage of consumers and business with more limited access to the traditional financial services.
However, Portugal has had a slow response in adapting to these market developments vis-à-vis other countries. New FinTech entrants to Portuguese financial markets have faced barriers to entry and expansion that have compromised their ability to offer new products and services that appeal to consumers.

The AdC identified a risk of market foreclosure by the incumbent banks by hindering FinTech entrants’ access to key inputs, namely client account data and settlement and clearing infrastructures. The AdC has also identified a set of specificities of the Portuguese retail payment systems that are likely to entail added difficulties for FinTech entrants.

The AdC has also identified barriers to innovation and entry in the market by FinTech entrants that follow from the regulatory framework.
The AdC highlights the pressing relevance of Portugal proceeding with the transposition of PSD2 to the national legal framework. This Directive, embedded with principles of openness, innovation and competition, is important to alter the current status quo that is preventing the full benefits of technological innovation from being realised.

A key aspect of the PSD2 is the access by new FinTech entrants to client account data. This Directive, along with the General Data Protection Regulation, puts an end to the banks’ exclusive access to client account data, while strengthening the security of both financial services and information.
In what concerns crowdfunding, mainly provided by FinTech firms, the AdC identified barriers to entry and expansion in the market of both a regulatory and non-regulatory nature (e.g., associated with lack of consumer trust).
Given the relevance of crowdfunding as an alternative source of funding for SMEs and consumers with restricted access to capital and credit, it is key to ensure that the regulatory framework applicable to crowdfunding is proportionate and eliminates legal uncertainty to all the relevant parties.
AdC Recommendations for promoting innovation and competition
The AdC advocates for the adoption of a regulatory framework that allows FinTech and InsurTech to test innovative products, services and business models in a live market environment, while safeguarding the interest of consumers and preserving system security – the so-called regulatory sandboxes.
These regimes play a key role in mitigating barriers to entry and reducing legal uncertainty, enhancing contestability in financial services markets. The benefits of these regulatory regimes apply across the different financial services covered in the AdC’s Issues Paper, namely payment services, crowdfunding, InsurTech and robo-advisor.

The AdC puts forward a number of recommendations regarding payment services, aimed at the Government and the Bank of Portugal. In particular, the AdC highlights the relevance of a timely regulatory response to market developments, and further recommends that the transposition of PSD2 is not subject to further delay. The AdC recommends that, in the context of implementing PDS2, the legislator and sectoral regulator reduce the degrees of freedom granted within the obligations for incumbents to grant access to the necessary inputs to provide their services.

The AdC further recommends that measures to facilitate access to the settlement and clearing system (SICOI) are considered, so as to reduce the reliance of FinTech entrants on incumbent banks. This should be achieved through adequate, proportionate and non-discriminatory requirements for access to the settlement and clearing system, while adequately safeguarding the security and integrity of the system. In addition, the AdC highlights that it is important to ensure the direct participation of the payment institutions in the systems and agreements pertaining to instant payments.

The AdC further recommends that, during the transition period and until the regulatory technical standards (RTS) come into force, new entrants should be able to provide their services. In this regard, it is key that the Bank of Portugal monitors the credit institutions who manage payment accounts to ensure that they do not block or obstruct the use of payment initiation and account information services.

The State, as a consumer of goods and services, also plays a key role in shaping demand while procuring financial services. The AdC thus recommends that public tender procedures are designed with technologically neutral specifications.
The AdC further puts forward a set of recommendations on crowdfunding that are based on the principles of efficient regulation, namely necessity, proportionality and non-discrimination. In particular, the AdC recommends that the Government, the CMVM (the Portuguese Securities Market Commission), the Bank of Portugal and other competent authorities promote legal certainty and the proportionality of regulatory requirements, grant new FinTech entrants access to the Portuguese Central Credit Register (CCR) and promote financial literacy relating to crowdfunding.
The AdC launches a public consultation to the Issues Paper Technological Innovation and Competition in the Financial Sector in Portugal, and welcomes all interested parties to submit comments, within 30 working days, to the following e-mail address
 16 April 2018