Today the ACM released the results of its market study into the role of Big Techs in the payments market. The summary makes for interesting reading. It goes something like this:

– right now Big Techs tend to focus on collaborating with payment providers to provide technology solutions to enable payments to work inside their ecosystems, but they are at least thinking about entry into payments itself;

– entry is less motivated by a desire to compete with banks, but rather to compete with each other in order to have the best ecosystem for customers;

– being gatekeepers to important digital platforms could – in the event of entry – give Big Techs the power to leverage their dominance into tipping the payments market;

– changes to PSD2 or other competition law intervention might be needed to ensure Big Techs don’t foreclose rival payments providers and that their ecosystems remain open access

If you can hear a distant ringing in your ears, that’s the sound of the efficiency offence alarm, going off in central Den Haag.

The year is 1865. Lord Palmerston’s Liberal government passes the Locamotive Act, a response to intense political lobbying from the railway and horse-drawn carriage industry. The act famously put in place a 4 mph speed limit, together with a requirement that vehicles have someone walk in front waving a red flag. The objective of the regulation was simple: ensure that powered vehicles were complementary to the existing dominant modes of transport – serving only the last mile from stations to the local destination.

The Act stayed in place for over 30 years. Meanwhile a British engineer called Edward Butler invented the first ever petrol internal combustion engine – together with other clever inventions like spark plug ignition. He started to turn his invention into a precursor of the automobile with a three-wheel ‘Petrol Cycle’. But, thanks to the enduring strictures of the Red Flag Acts, he would write in 1890 that “the authorities do not countenance its use on the roads, and I have abandoned in consequence any further development of it” – eventually Butler broke up his car and sold the parts for scrap.

At the same time as Butler was abandoning his innovation in Britain – erstwhile crucible of the industrial revolution – something quite different was happening elsewhere in Europe – in a country that has always had a somewhat looser relationship with its speed limits. In 1886 Karl Benz patented what is now regarded as the first true automobile. Other competing engineers including Wilhelm Maybach and Gottleib Daimler were also active innovators, developing the early technology and designs which underpin Germany’s modern day car manufacturing giants.

Using new technology to break into an established market and turn it upside down is a fundamental part of the story of human development. And it’s an area where regulators categorically do not know the answer. The law of unintended consequences looms large and casts a long shadow. I learned recently that the explosion of the craft gin market in the UK (the number of distilleries increased from around 20 to over 400 in the last ten years) owes its sudden and rapid success to the overturning of the archaic ‘Gin Act’ of 1751. The Act was a response to a somewhat manufactured sense of public outcry at the debauchery of gin drinkers (immortalised in Hogarth’s depiction of “Gin Lane” shown below) – in part owing to lobbying by the brewing industry (Gin Lane was release alongside another picture of “Beer Street” – which showed a group of merry and well-behaved beer drinkers). The Gin Act stayed in place for over 250 years. It was finally repealed only in 2008 – after a legal battle by an innovative potential entrant who would go to establish the first new gin distillery in London in almost a century.

“Gin Lane” by English artist William Hogarth

So this takes us back to Big Tech and digital payments. The ACM worries that they might offer such convenient payments – so well integrated into their range of platform services – that traditional rivals might not be able to hold a candle. Of course, the banks would perhaps rightly feel the unfairness of being faced with a threat of technology driven disintermediation just as regulation forces them to give access through ‘open banking’ like never before. Indeed, some of the most rapid digital platform success stories (think Uber, Airbnb) have been fuelled as much as anything by ‘regulatory arbitrage’ – where clumsy and burdensome regulatory rules creates an unlevel playing field that makes traditional providers vulnerable.

The answer, though, is not necessarily to level the playing field with ever more regulation to ensure everyone is equally tied up by the rules. Regulators in Europe must take seriously the idea that innovation is not guaranteed. Forcing a level playing field between old and new technology – all attractively labelled as “pro-competition regulation” – is ever so tempting. But faced with ever increasing threats of intervention, how are we to know that the master engineers of the 21st century won’t, like Edward Butler, look at launching their new products in Europe and conclude “the authorities do not countenance its use…and I have abandoned in consequence any further development of it”