Payments Trends 2021 - Antitrust and the taming of Big Tech
Part two of our five part 2021 themes series
11 February 2021
There has been a renewed focus on the payments sector and its regulation. COVID-19 and its impact on spending habits and the Wirecard scandal are two of the contributing factors. But what’s next? We explore five themes likely to drive regulatory change for payments, as well as shape the enforcement policies of global regulators over the next 12 months. In part two we look at antitrust and the taming of Big Tech.
Big Tech remains high on global regulators' agendas. Major digital technology firms such as Facebook, Google and Apple have continued to find themselves under increased scrutiny in relation to their data use and alleged anti-competitive behaviour generally, including in financial products. For example, the European Commission announced in June 2020 that it had opened an antitrust investigation into Apple Pay for potentially anti-competitive agreements and the abuse of a dominant position by limiting access to its "tap and go" functionality on iPhones for payments in stores and refusing rival companies access to Apple Pay.
Digital Markets Act / Digital Services Act
The next step is the creation of new "Big Tech" regulators and the establishment of dedicated regulatory regimes that will impact the ability of key tech players to wield market power in rolling out new financial products. The European Commission recently unveiled its far-reaching proposals for regulation of digital platforms and online intermediaries. The Digital Markets Act (DMA) will require digital platforms that are designated as "gatekeepers" to refrain from a long list of practices that are considered to limit competition or otherwise to be unfair. In contrast, the Digital Services Act (DSA) focuses on regulating the way that providers of online intermediary services interact with their customers and users, and their obligations in respect of harmful or illegal content, in order to create "uniform rules for a safe, predictable and trusted online environment".
In combination, the two pieces of proposed legislation will create Europe's most interventionist sector-specific regulatory regime in decades, and would require significant changes to the business practices of large digital sector players, as well as, potentially, smaller competitors. While it is likely to take 18-24 months for final texts to be agreed with the European Parliament and Council of the EU, 2021 will see a flurry of activity and amendments to the proposals.
In the UK, in December 2020, the CMA issued advice to the UK government on the design and implementation of the UK’s new pro-competition regime for digital markets. If implemented, the new regime will govern the most powerful tech firms with strategic market status (SMS) and see the creation of a new Digital Markets Unit (DMU) with powers to set clear rules and impose penalties. The regime will include a new legally binding code of conduct tailored to each firm, the introduction of data access and interoperability requirements, and mandatory merger filings for businesses designated with SMS. The FCA will also be given enforcement and implementation powers in regulated sectors. As with the DMA and the DSA, while the SMS regime is expected to apply to only a limited number of the most powerful digital firms, its overall impact is likely to be much further reaching.
The government has committed to establishing and resourcing a new DMU from April 2021 and is to consult on proposals for a new pro-competition regime in early 2021.
Also in the UK, the Payment Systems Regulator is currently conducting an industry-wide consultation with respect to its September 2020 interim report on the supply of card acquiring services and related competition issues.
In the U.S., companies can expect continued scrutiny of Big Tech as well as greater focus on the financial sector. In autumn 2020, the Antitrust Division of the Department of Justice (DOJ) announced its intended focus, highlighting rapid change occurring in the financial sector and the potential for anti-competitive conduct. In November 2020, the DOJ sued to block Visa’s acquisition of Plaid, a fintech company, and the companies abandoned the transaction in early 2021. Visa’s and Plaid’s decision to abandon their transaction will likely encourage future challenges of US acquisitions by a dominant company of an emerging competitor.