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EU Digital Markets Act explained

EU Digital Markets Act explained

Jul 28, 2022
Ben Ruffels

The Digital Markets Act (DMA), which came into force in November 2022, is a landmark law that aims to promote a fair and competitive digital sector in the EU by reining in the market power of large digital companies that offer intermediary services. 

The DMA imposes stringent requirements on how the world's largest digital platforms⁠—referred to in the legislation as "gatekeepers"⁠—can and can't operate in the EU market, and expands and strengthens existing EU competition law.

The broad scope of the Digital Markets Act impacts many aspects of the continually evolving digital economy. Amongst its reforms, the regulations empower businesses selling through in-scope digital platforms to choose their own payments service provider rather than using the platform's own embedded offering⁠—creating potential new opportunities for those businesses to optimize their payments in a way that suits them. 

In this article, we explain the DMA, how it affects payments, who falls within its scope, and how businesses can meet its requirements.

What is the Digital Markets Act (DMA)?

The Digital Markets Act is a new law that was proposed by the European Commission in 2020 and passed by the European Parliament and the European Council (representing the 27 EU member states) lawmakers in July 2022.

Together with the DMA's companion regulation, The Digital Services Act, European lawmakers want to make Europe "fit for the digital age". The EU's vision is to create a safer digital space in which the fundamental rights of all users of digital services are protected and a level playing field that fosters innovation, growth and competitiveness, both in Europe and globally.

After coming into force in November 2022, DMA rules started to apply from 2 May 2023. Following application, any gatekeepers that met DMA thresholds had to notify the Commission of their core platform services by 3 July at the latest. 

The Commission now has 45 days from the submission of each notification to decide whether a platform meets the thresholds to be designated as a gatekeeper, meaning all checks should be concluded by 6 September 2023. 

Following designation, gatekeepers have six months to comply with DMA requirements, at the latest by 6 March 2024. 

Who and what are the gatekeepers?

So, what exactly is a gatekeeper? Gatekeepers are essentially large online platforms that meet particular criteria outlined by the DMA. Those criteria are:

  • That the platform has a sufficiently strong economic position to impact the internal market while being active in multiple EU countries 
  • That the platform has a strong intermediation position, which means that it connects a large user base to a large number of businesses
  • That the platform has (or will have) an “entrenched and durable” position in the market, which means it has met the first two criteria within each of the previous three years

What is the implementing regulation of the EU Digital Markets Act?

Under the DMA, companies identified as gatekeepers will have to adhere to a set of dos and don'ts. They must actively adopt behaviors that promote openness and competition in the markets while avoiding unfair practices. The legislation takes into account previous market experiences and competition cases to define what constitutes unfair behavior.

In cases where a company does not currently hold an “entrenched and durable” position but is likely to do so in the future, they may be required to follow a proportionate subset of obligations. This is to prevent the gatekeeper from obtaining an “entrenched and durable” position through unfair means in their operations.

How does the DMA impact payments?

From a payment sector perspective, Article 5 of the DMA, which sets out the obligations for companies designated as gatekeepers, includes a key paragraph that promises to drive the unbundling of payments services from gatekeepers' core platform services, delivering more competition and choice for online businesses in terms of their payments options.

Article 5 (7) states:  

"The gatekeeper shall not require end users to use, or business users to use, to offer, or to interoperate with, an identification service, a web browser engine or a payment service, or technical services that support the provision of payment services, such as payment systems for in-app purchases, of that gatekeeper in the context of services provided by the business users using that gatekeeper’s core platform services"

This paves the way for businesses such as app developers to use third-party payment services when trading on a gatekeeper's core platform services rather than the gatekeeper's payment services.   

With the ability to choose an alternative payments service, these businesses and developers will also have more control over how they leverage payments within their ecosystem. They can make payment decisions based on customer preference, acceptance rates, costs, settlement times and other metrics, free from the requirements and limitations currently imposed by gatekeepers.

Get in touch to learn how Checkout.com can support your payment needs in Europe and beyond.

Which companies are within the EU Digital Markets Act scope?

The DMA's rules target the biggest, most dominant and entrenched digital companies offering core platform services in the EU market. They will apply to ten specific core platform services, where these are offered by companies meeting "gatekeeper" criteria.

The ten core platforms that are within the scope of the DMA framework are:

  • Online intermediation services (e.g. online marketplaces, app stores)
  • Online search engines
  • Online social networking services
  • Video-sharing platform services
  • Messenger services ("Number-independent interpersonal communication services")
  • Operating systems
  • Web browsers
  • Virtual assistants
  • Cloud computing services
  • Online advertising services

Companies will be designated as gatekeepers if they meet the following criteria:

  • They have a significant impact on the internal market, which means (a) either an annual turnover of at least €7.5 billion within the EU in each of the past three financial years or (b) an average market capitalization or its equivalent fair market value of at least €75 billion in the last financial year;
  • They provide a core platform service that is an important gateway for business users to reach end users, which means at least 45 million monthly end users in the last three financial years located in the EU and at least 10,000 yearly active business users established in the EU.

Even if a digital company meets the gatekeeper criteria, it won't be subject to DMA rules if the core platform service they provide isn't one of the ten outlined above.  

What are the to do’s of the digital markets act EU ?

The specific aim of the Digital Markets Act is to provide the framework for contestable and fair markets in the digital sector. To this end, it sets out specific obligations⁠—essentially a list of do's and don'ts⁠—that designated gatekeepers must abide by.

Dos:

  • Enable third-party integration with the gatekeeper's own services under specific circumstances
  • Permit business users to access the data they generate while using the gatekeeper's platform
  • Equip companies advertising on the platform with the necessary tools and information for independent verification of their advertisements hosted by the gatekeeper
  • Allow business users to promote themselves and establish contracts with customers independently, outside the gatekeeper's platform.

Don'ts:

  • Giving preferential treatment in ranking to the gatekeeper's own services and products over similar offerings from third parties on the platform
  • Restricting consumers from connecting to businesses outside the gatekeeper's platform
  • Preventing users from uninstalling any pre-installed software or app if they desire to do so
  • Tracking end users outside the gatekeeper's core platform service for targeted advertising purposes without obtaining their consent

How can businesses prepare for the Digital Markets Act?

Although March 2024 may seem like a long way off, businesses selling through gatekeepers' platforms should start preparing now. Building a payments strategy is multifaceted, and it will take time to consider all the options and implications. Starting now gives you time to do this properly and gain a competitive edge over those that delay forming their plans.

The first task should be finding a payments partner to guide you to the right opportunities for your business. Ideally, the partner should be able to provide proactive consultancy and a payments platform that can turn ideas into action.

The key is to build a partnership with longevity. The DMA will not be the last piece of regulation affecting payments—far from it—and innovations in technology and data, and, along with evolving consumer behaviors, will create constantly shifting opportunities and challenges.

To really thrive in the digital economy, you should seek a payments partner that can offer you the expertise, scale, resilience and technical prowess to navigate these forces and keep your business at the forefront of progress. Contact us to learn more and see how we're providing businesses with best-in-class payments to thrive in the digital economy.

What is the purpose of the Digital Markets Act?

EU lawmakers recognize the huge benefits that digital services have delivered for the people who use them. They also see the huge opportunities these services have created for European businesses by supporting their innovation and helping them to reach new customers through cross-border trade.

However, the market power that some large digital platform providers now wield has become an increasing source of concern—particularly the big proportion of digital transactions between EU consumers and businesses they now account for and how their market strength is entrenched by the ecosystems they've built around their core platforms.

In particular, EU lawmakers argue that the largest of these platforms—those that are widely and commonly used—now effectively control access to the digital markets in which they operate, leaving business users in an economically dependent position and potentially exposed to unfair practices.

Additionally, lawmakers fear that new service providers looking to compete with large established digital companies face insurmountable barriers to entry and growth. This denies businesses alternative channels for digital trade that might otherwise help to reduce the ability of the incumbent platform providers to set commercial conditions.

They also see the importance of addressing these concerns now, given the huge scale of the digital economy, its continuing growth and the increasingly important role online platforms play in digital markets.

Consequences of non-compliance with the Digital Markets Act

Under the DMA's provisions on non-compliance and penalties, the European Commission can impose fines on gatekeepers of up to 10% of annual worldwide turnover in the preceding financial year for first infringements and up to 20% of annual worldwide turnover for repeated infringements. It can also impose periodic penalty payments of up to 5% of the company's total worldwide daily turnover in the preceding financial year. Also, the Commission can impose additional remedies in cases of systemic infringements, such as imposing temporary bans on the business's mergers or imposing divestment requirements.

Get in touch to learn how Checkout.com can support your payment needs in Europe and beyond.

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July 28, 2022 8:28
August 29, 2023 7:16