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Making Innovation More Competitive: The Case of Fintech

53 Pages Posted: 12 May 2017 Last revised: 30 Aug 2017

Rory Van Loo

Boston University School of Law; Yale Law School

Date Written: August 20, 2017


This Article examines recent financial technology (“fintech”) developments to diagnose the federal regulatory architecture surrounding innovation. Startups offer artificially intelligent financial assistants, touchless payments, and other potentially game-changing products for individuals. Yet unlike more lightly regulated industries such as retail goods, in consumer finance barriers to entry have insulated the largest businesses from competition. Regulatory insulation helps explain why too big to fail banks have become bigger, U.S. innovation has lagged that of foreign countries, and consumers pay higher prices.

Taking an institutional lens to this problem reveals an overlooked shortcoming in financial regulation: The organizational design of the administrative agencies responsible for enforcing competition. The current framework was built in the wake of financial instability and consumer protection crises, and its organizational design reflects those priorities. Competition enforcement for consumer finance is spread across five entities, including the Department of Justice and the Federal Reserve, each of which focuses on other industries or missions. In particular, agencies whose primary goal is to prevent banks from failing have insufficient incentive to ensure those same banks face competition. As a result, no regulator is optimally structured either to develop licenses suitable for startups or to address banks’ anticompetitive conduct.

The stakes of getting innovation competition right are increasing. Effective competition enforcement could enable new entrants to reduce the size of the largest banks—providing a partial market solution to taxpayer bailouts and to a major economic stability threat. It would also force U.S. banks to prepare for an increasingly borderless financial world in which virtual currencies bypass regulators. Inept competition enforcement could bring opposite results. As Google, Microsoft, and Facebook have shown, technology firms tend to capture higher market shares than those in other industries, often well over 60 percent. If a large bank were to attain similar shares, it could destabilize the financial system. Reallocating competition authority to a motivated financial agency would better position regulators to safeguard the future of finance.

Keywords: Securities and Exchange Commission, Federal Deposit Insurance Corporation, Federal Trade Commission, Office of the Comptroller of the Currency, monopoly, Amazon, two-sided markets, safety and soundness, credit

Suggested Citation

Van Loo, Rory, Making Innovation More Competitive: The Case of Fintech (August 20, 2017). UCLA Law Review, Vol. 65, No. 1, 2017. Available at SSRN:

Rory Van Loo (Contact Author)

Boston University School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

Yale Law School

127 Wall Street
New Haven, CT 06511
United States

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