Platform-Based Business Models and Financial Inclusion: Policy Trade-Offs and Approaches1

Three types of digital platforms are expanding in financial services: (i) fintech entrants; (ii) big tech firms; and (iii) increasingly, incumbent financial institutions with platform-based business models. These platforms can dramatically lower costs and thereby aid financial inclusion—but these same features can give rise to digital monopolies and oligopolies. Digital platforms operate in multisided markets and rely crucially on big data. This leads to specific network effects, returns to scale and scope, and policy trade-offs. To reap the benefits of platforms while mitigating risks, policy makers can: (i) apply existing financial, antitrust and privacy regulations, (ii) adapt old and adopt new regulations, combining an activity and entity-based approach, and/or (iii) provide new public infrastructures, such as digital identity and retail fast payment systems. These public infrastructures, as well as ex ante competition rules and data portability, are particularly promising. Yet to achieve their policy goals, central banks and financial regulators need to coordinate with competition and data protection authorities.