Get Ready, Retailers: The Digital Markets Act Changes Everything -Here's What You Need to Know

Picture this, around early 2025,you stroll into your favourite coffee shop, craving a caffeine fix. Instead of fumbling with cash or plastic, you whip out your phone, tap your contactless wallet, and bam! A steaming cappuccino materialises. But here's the twist -that near-field communication (NCF) tap doesn't just pay the barista, it fuels your loyalty meter and seamlessly stores points for your next visit. A digital record of the transaction is automatically loaded into your phone’s wallet. No clunky cards, no paper receipts, no forgotten loyalty schemes, just smooth, secure, and cheaper transactions for both you and the shop. Now that is exciting for all payment geeks, right?

This future is not a pipedream, it is the reality brewing thanks to the European Commission’s Digital Markets Act (DMA). Buckle up, because things are about to get fascinating for coffee lovers and everyone else who enjoys seamless in-store shopping. The DMA forces change, and this change transfers power back to consumers and merchants. Imagine a world where your phone becomes a loyalty powerhouse. Every tap unlocks rewards, not just from one shop, but across a network of participating businesses. It is loyalty 2.0, streamlined and effortless. Payment processing costs are expected to shrink while convenience soars. Forget hidden charges and legacy payment systems. The DMA paves the way for lower transaction costs, benefiting both merchants and customers. Security gets a caffeine boost also. The DMA prioritises secure transactions, keeping financial information safe and sound.

The European Commission’s DMA was first signed into EU law in 2022. The regulation is designed to protect data privacy and ensure fair competition in digital markets. It defines six big-tech gatekeeper companies and assigns them specific compliance requirements. These gatekeeper companies are required to comply with the DMA as of 6^th March 2024.

Who are the six big-tech gatekeeper companies on the European Commission’s hit list?

• Alphabet (i.e. Play App Store, GooglePay, etc.)
• Amazon (marketplace, AmazonPay, etc.)
• Apple (App Store, ApplePay, etc.)
• ByteDance (TikTok)
• Meta (Facebook messenger, WhatApp, etc.)
• Microsoft (LinkedIn, etc.)

For some reason, Samsung escaped the European Commission’s list. However, DMA compliance requires these six gatekeepers and third-party companies – which use an even longer list of core services, including searching, advertising, payments, marketplaces, operating systems, and internet browsers – to obtain explicit consent for collection and use of EU consumers’ personal data.

These comprehensive regulations will have significant implications for retailer payments. Apple and Google will have to implement changes to be DMA- changes which will impact contactless payments. DMA compliance will include new APIs enabling developers to use NFC technology in their banking and wallet apps throughout the European Economic Area. That is the EU-27, excluding the UK, thanks to Brexit.  

The fintech walled garden is no longer walled

For Apple, these changes create new options for developers, including how they can distribute apps on the Apple iOS platform, process payments, use web browser engines in iOS apps, request interoperability with the iPhone and iOS hardware and software features, access data and analytics about their apps, and transfer App Store user data.

The changes are available for developers who distribute apps in any of the EU-27 member states and only apply to apps available and distributed to users in the EU. Apple has been quick to state publicly that the DMA will require changes to its walled garden which could make its secure ecosystem open to greater risks for its users and developers. Apple says there will be a greater possibility for malware, fraud and scams, illicit and harmful content, and other privacy and security threats. To reduce risks and deliver a secure experience for users in the EU, Apple is introducing new levels of protection, including notarisation for iOS apps, authorisation for marketplace developers, and disclosures on alternative payments. ByteDance (i.e., TikTok) last December asked whether their designation as a gatekeeper could be delayed but that was quickly denied by the EU.

PayPal, not a gatekeeper company according to the European Commission, could be one of the fintech companies to take advantage of the DMA and access the NFC technology within the ApplePay and GooglePay wallets. Consumers could pay in-store using their PayPal or their bank account via a contactless mobile wallet.

Unified commerce

The DMA will have implications for the commission fee earned by Apple and Google for in-app purchases – but we do not cover that topic here.  Once the DMA comes into force, face-to-face contactless payments will be the ones in which retailers will gain the most. Users will be able to initiate payment transactions from a third-party banking or wallet app at compatible NFC terminals, including mobile devices. Users can manage their preferred default contactless payment app through a new setting for contactless payments and launch the default contactless payment app by double-clicking the side button or when the iPhone detects an NFC field at compatible terminals.

Consumers will be able to pay via a contactless payment without a MasterCard, Visa or Amex card stored in their mobile wallet. Consumers would be permitted to select their preferred method of payment. Using a smartphone contactless payment the transaction could be completed using PayPal, Open Banking, TikTok, WeChat Pay, or any other alternative payment method. Retailers will be in a strong position to accept faster, more secure, and more cost-effective alternatives to the international card networks. Finally, because the EU is pushing to open the digital payment ecosystem, retailers will be able to accept contactless payments in their physical stores using an alternative payment method. Whereas prior to the DMA they could only achieve this for their online stores.  

Open for Alternative Payment Methods

Wallet and open banking app developers are responsible for complying with certain industry and regulatory requirements, such as being licensed to offer payment services in the EEA, and conforming to industry security standards, such as the PCI DSS and EMVCo standards. It has meant that alternative payment methods in-store have had very limited or zero success until the announcement of the DMA.

What will change on 6^thMarch 2024? On that date, probably nothing. It will take at least 6 to 12 months for all the different payment service providers in the entire acceptance ecosystem to align, make the necessary technical changes and take advantage of the DMA.

The DMA removes the digital barriers for greater payment innovation and competition. It creates a new portal for amore convenient, secure, and rewarding retail payments experience. If you want to know more about how the DMA could change your business to better serve your clients, contact Edgar, Dunn & Company, or the author.

‍The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).