Payment service fintech companies (PSPs)[1] in Nigeria could be at risk of legal and regulatory liability if they pivot to products or services which are in competition with those of the merchants on behalf of whom they “process” payments. But it’s not just about competition. It’s really about whether the competition complies with the rules of competition established by competition law. There are a number of scenarios where such competition law issues can play out on fintech platforms[2]. For instance, there could be competition issues where a PSP which processes payments for an online/digital lender or for an online investment platform decides to subsequently launch a lending or investments product. There could also be competition issues where a PSP that processes payments for e-commerce websites, decides to launch an e-commerce product or service.
This update puts into perspective some of the competition law issues that should go into product development and growth strategy for PSPs and Fintechs generally.
Competition Law
Essentially, competition law is a set of rules that regulate how businesses must compete with each other. It’s almost always about the price that the consumer pays for a service or a product and the need to protect consumers from harmful business practices. However, in a digital economy, access to, control and use of data is also a key element of the market power of technology companies. Very easily, the most valuable “tech” companies are more likely those that have found the most innovative ways to use and analyse data. Some competition regulators take the position that, this means that, access to and use data is as important a tool as “price” in protecting consumers from negative competition[3]. Where for instance, a PSP[4] uses the data collected from its e-commerce users/merchants, to build an e-commerce product or platform which turns out to be in competition with the products of its e-commerce customers and in breach of the relevant competition rules, a legal issue is effectively presented.
What are Some of the Rules of Competition?
There are a couple. One of these, broadly speaking, is that a dominant market player should not abuse its market position[5]. Under this rule, to be in a dominant position is not in itself illegal. However, an abuse of that position to restrict competition is illegal.
In a dispute scenario, a claimant would have to demonstrate, at a minimum, that the defendant PSP (a) has a dominant market position and (b) abused its dominant market position. The relevant market would also have to be delineated.
There are a few points to note in understanding the substance of this competition rule:
1.] With PSPs (as with many other fintech platforms), dominance could be established in one market, whilst abuse can be established in another market[6], meaning that it is not necessary to show that market abuse was committed in the same market where a PSP holds a dominant market position. In the Re: Google[7], dominance was established in the search engine market, while the abusive conduct was established in the shopping services market. In Re: Google, the European Court was particularly concerned about Google’s free Android operating system on concerns that Google may have “stifled choice and innovation in a range of mobile apps and services by pursuing an overall strategy on mobile devices to protect and expand its dominant position in general internet search”.
2.]Some European countries have prescribed competition rules specifically for tech/digital companies. For instance, German competition law specifically allows[8] competition regulators to take into the consideration, the fact that a tech company has access to competition-relevant data, including switching costs and direct/ indirect network effects, in determining the market position of a company[9].
3.]In determining the relevant market, it would not matter much that the new product or service is provided free of charge. Germany revised its “tech” competition rules to provide that the assumption of a “market” would not be invalidated by the fact that a good or service is provided free of charge.
4.]Determining the dominant market position of a platform tech company may depend on much the amount of data it has access to and how it, in fact, uses that data. Strategic Partnerships between fintechs (both local and cross border) are very relevant for this purpose. For context, Nigeria’s Competition Law provides that a dominant position in a relevant market exists where a company enjoys a position of economic strength enabling it to prevent effective competition being maintained on the relevant market and having the power to behave to an appreciable extent independently of its competitors, customers and ultimately consumers.
5.]This competition rule lists broad categories of business behaviour that are most likely to be considered as market abuse. In general terms, a conduct will be considered abusive where such conduct has an adverse effect on consumers or where that conduct is exclusionary in the sense that it reduces the intensity of existing or potential competition. The key point here is that the categories of such harmful business practices are not closed, meaning a court can expand the list if convinced by a Claimant’s lawyer. The European Commission decided that Google had abused its dominant position by stifling competition and giving its own comparison shopping service an “illegal advantage “and prominent placement in search results, whilst demoting rival services. Google was reportedly fined up to €2.42 billion. In a related matter, the European Commission was concerned that Google may have abused its market position with Google Adsense because the product effectively reduced choice by preventing third-party websites from sourcing search ads from Google’s competitors[10].
6.]Competition laws allows by regulators[11], competitors or individual consumers to bring a legal action against PSPs or other tech platform owners.
Contract Law
There could also be some exposure for PSPs under the law of contract. One of such contractual arrangements would be the merchant service contract, which a merchant approves when signing up for a payment service. PSP liability here will depend on a number of clauses, which includes the scope of indemnities provided by a PSP and the scope of the business circumvention clauses. Contractual liability can also depend on the Use of Data clause. A common feature in MSAs, this clause summarises the uses to which user data will be put by a PSP. Uses that are out of the context of this clauses, may expose a PSP to contractual liability without reference to the fairness rules prescribed by competition law.
Banking Regulations?
There could also be some exposure under central banking regulation of the PSP business in Nigeria. The primary regulation concerning PSPs in Nigeria bears anti-competition rules as well. Specifically, the regulations generally prohibit organizations involved in the providing payment services from engaging in any antitrust activity or any act that will lead to an abuse of dominant position, monopoly or unfair competition.
What to Do?
It is not difficult. PSPs and other fintechs need to build competition rules into new products and verticals. Also, consider reviewing your existing products from a competition law perspective.
For additional analysis, please reach out to your Balogun Harold contact or via support@balogunharold.com
[1] Payment service providers generally provide a payment platform allowing financial transactions between buyer and seller.
[2] Competition issues play out on digital platforms generally. These broadly include marketplaces, social networking, search engines, payment systems and video sharing platforms.
[3] This is our broad description of competition that is against the spirit and letter of competition laws
[4] PSPs have access to a variety of data shared/owned by merchants including customer information and transaction volumes
[5] This rule is applicable under Nigerian Competition Law
[6] This principle was established in the case of TetraPak II (Case T-83/91 – TetraPak vs. European Commission [1994] ECR II-755
[7] https://ec.europa.eu/commission/presscorner/detail/en/IP_17_1784
[8] S. 18 (3) (a), Act against Restraints of Competition
[9] The language under Nigerian law is not this specific to technology platform businesses but general enough to address competition issues from a regulatory standpoint. As a general rule, Nigeria’s Competition Law allows its Competition Regulator to among other things, “initiate broad based policies and review economic activities in Nigeria to identify anti-competitive, anti-consumer protection and restrictive practices. Liability under competition rules in Nigeria will also turn on the definition of consumer. A consumer is defined as someone who(a) who purchases or offers to purchase goods otherwise than for the purpose of resale but does not include a person who purchases any goods for the purpose of using them in the production or manufacture of any other goods or articles for sale; or (b) to whom a service is rendered;
[10] Google is appealing this fine https://www.theguardian.com/technology/2017/sep/11/google-appeals-eu-fine-search-engine-results-shopping-service. Google was fined again for Adsense practices and is appealing as well – https://www.zdnet.com/article/google-appeals-1-49b-eu-antitrust-fine-for-illegal-ad-contracts/#:~:text=In%20June%202017%2C%20the%20Commission,dominance%20of%20Google’s%20search%20engine.. Also fined for restrictive practices in Android – https://www.zdnet.com/article/android-antitrust-google-hit-with-giant-4-34-billion-fine-by-europe/.
[11] In May 2019, Spotify, an online platform providing music streaming services, filed a complaint against Apple at the European Commission alleging that Apple limits choice and stifles innovation by acting as both a player and referee, and thereby obtaining an unfair advantage and posing disadvantages to other application developers.
