On April 29, 2021, the French Competition Authority (“FCA”) issued its opinion on the competitive situation in the payment sector (the “Opinion”).[1] Although the Opinion concludes that recent developments—including the introduction of new technologies in payment activities and the proliferation of FinTech companies—are “overall procompetitive”,[2] it raises a number of areas of potential concern on which the FCA pledges to keep a close eye. The Opinion particularly stresses the risks stemming from the expansion of BigTech in the sector.
A sectoral enquiry
The FCA’s sectoral enquiry was prompted by new technological developments and market dynamics that have affected the payment sector in recent years. New technologies include remote and contactless payment solutions, payment through smartphones or connected watches (e.g., Apple Pay, Google Pay, Samsung Pay), cloud computing, and block-chain technologies. A wide and diverse range of non-banking players— so-called FinTech—have entered the payment sector offering innovative services to consumers. FinTech companies interact with traditional banks in various ways—cooperation agreements, acquisition of shareholding interests, and financial support from banks to boost FinTech and support their own digital transition. Aside from FinTech, so-called BigTech, i.e., GAFAM (Google, Amazon, Facebook, Apple and Microsoft) and BATX (Baidu, Alibaba, Tencent and Xiaomi), also recently entered the payment sector.
The Opinion aims at examining the functioning of the sector from a competition law perspective and does not qualify behaviour on a defined market under Articles 101 and 102 TFEU. Nevertheless, the Opinion makes a number of findings concerning (i) market definition, which it considers to be a complex exercise in the sector, given in particular the two- or multi-sided nature of markets, (ii) barriers to entry and expansion, (iii) competitive advantages held by the different categories of players—traditional banking actors, FinTech, and BigTech; and (iv) potential areas of concern. Those findings can be summarized at a high level as follows.
Traditional banking actors
The FCA finds that traditional banking actors benefit from a range of competitive advantages: a unique experience in conforming with complex payment service regulations, strong notoriety and reputation when it comes to security and client data protection, solid customer bases, and experience in designing payment solutions.
The FCA considers that some of those advantages may lead to competition risks. In particular, the Opinion insists that banks can restrict access to clients’ account information necessary for the provision of payment services by FinTech companies, despite EU directives on payment services. According to the Opinion, APIs allowing FinTech to access banks’ data are not fully operational and therefore hinder FinTech’s development. However, the Opinion dispels claims that banks could use lobbying wrongfully, noting that lobbying efforts are legitimate and do not fall within the ambit of competition law unless they qualify as an anticompetitive agreement or an abuse of dominant position. Finally, while certain players claimed during the FCA’s enquiry that acquisitions of FinTech companies by banks could weaken competition, the Opinion concludes that, based on the analyses conducted for the purpose of this sectoral enquiry, it did not find that such acquisitions could be considered “killer acquisitions”: the acquisitions of stakes in FinTech companies “neither had as their sole objective to prevent the entry of potential competitors nor hindered innovation from FinTech”.[3]
FinTech
The FCA finds that FinTech actors are essentially pro-competitive because they offer new services to consumers. The Opinion notes that FinTech actors benefit from lower fixed costs and greater agility compared to banking players. Indeed, FinTech companies do not have to maintain costly banking offices and interbank infrastructures, and typically rely on cloud computing to store data. Some of them also rely on existing distribution networks—for example, Orange Bank relies on Orange’s existing telecom stores. While the Opinion does not identify any competition concerns related to FinTech, it reports that banks raised concerns over the economic sustainability of the sector because (i) FinTech actors rely on existing payment systems without bearing their costs and (ii) new entrants do not offer a number of non-profitable services.
BigTech
Unsurprisingly, the Opinion raises strong concerns over BigTech players. It notes that they benefit from a massive volume of user data, considerable financial power, and low marginal costs. The Opinion called for “vigilance” with regard to two points in particular: (i) data collection and exploitation by BigTech and (ii) conditions for access to contactless payment solutions through smartphones.
Data. The Opinion finds that BigTech companies (i) benefit from a very wide community of users and infrastructures serving their other (non- financial) solutions, which allows for economies of scope; and (ii) can exploit very significant volumes of data from users of their non- financial services which, combined with data- analysis technologies, allow BigTech to tailor offers to customers’ preference. The Opinion finds that this confers an “unprecedented market power” [4] to BigTech which could be leveraged to exclude players on neighbouring markets, such as the payment solutions market.
Access to mobile payment solutions. The Opinion explains that BigTech players, which design smartphones and/or operating systems, have created mobile payment solutions (e.g., Apple Pay, Google Pay, Samsung Pay). Yet they can open or restrict access to the near-field- communication (“NFC”) antennae of their smartphones, which is necessary for contactless payments, thereby locking consumers into a closed system. The Opinion refers to the ongoing investigation of the Commission into Apple Pay, and notes that other practices relating to access to NFC antennae could be anticompetitive.
Takeaways
The Opinion makes a number of findings which will be useful to anticipate, to some extent, the FCA’s analysis—both in terms of market definition and substantive assessment—in future merger cases. While it cautiously states that past acquisitions of FinTech companies by banks did not constitute killer acquisitions, this does not exclude the risk that the FCA will refer an acquisition in the payment sector falling below the EU and French merger control thresholds on the basis of the new Article 22 referral guidelines. Finally, the Opinion makes it clear that the French watchdog is carefully monitoring the practices of BigTech in the payment sector.
[1] FCA, Opinion 21-A-05 of April 29, 2021 on the sector of new technologies applied to payment activities.
[2] Opinion, para. 394, free translation.
[3] Opinion, para. 394, free translation.
[4] Opinion, para. 359, free translation.