Abstract
Finance startups are offering automated advice, touchless payments, and other products that could bring great societal benefits, including lower prices and expanded access to credit. Yet unlike in other digital arenas in which American companies are global leaders, such as search engines and ride hailing, the United States lags in consumer financial technology. This Article posits that the current competition policy framework is holding back consumer financial innovation. It then identifies a contributor missing from the literature: the institutional design of federal regulators. Competition authority—including antitrust and the extension of business licenses—is spread across at least five agencies. Each is focused on other missions or industries. The Department of Justice (DOJ), hindered by statutes and knowledge gaps, devotes significantly fewer resources to banking than to other industries in merger review because it leans heavily on prudential regulators. The Federal Reserve and other prudential regulators prioritize financial stability, which conflicts with their competition mandate. No agency has the right authority, motivation, and expertise to promote consumer financial competition.
Innovation has raised the stakes for fixing this structural flaw in finance, and potentially in other heavily regulated industries. If allowed to compete fully, financial technology challengers (“fintechs”) could bring large consumer welfare advances and reduce the size of “Too Big to Fail” banks, thereby lessening the chances of a financial crisis. If allowed to grow unchecked, fintechs or the big banks acquiring them may reach the kind of digital market dominance seen in Google, Facebook, and Amazon, thereby increasing systemic risk. Whether the goal is to benefit consumers, strengthen markets, or prevent crises, a reallocation of competition authority would better position regulators to navigate the future of innovation.
