The mobile payments systems ("m-payments") ecosystem encompasses hardware manufacturers, operating system developers, application developers, data brokers, coupon and loyalty program administrators, payment card networks, telecommunications providers, advertising companies, brands and end merchants. Smart phones and payment cards, by themselves, have invited scrutiny from competition regulators, and it is likely that the convergence of the multitude of players, technologies and participants for the development of m-payments will be closely monitored by competition regulators.1

The European Commission ("Commission") has already examined three transactions relating to m-payments.2 It is also understood that the Commission has in December 2013 constituted a group bringing together officials from several departments covering antitrust law, technology, consumer rights, industry and the internal market to examine new payment technologies. Sets of competitors have formed mobile payment joint ventures in the United States as well.3

The nature of mobile commerce is changing at a rapid pace, and the competition regulators will focus on issues that impede the development of the market through exclusionary conduct, either collective or unilateral, and erection of artificial barriers to entry. The next section will discuss issues related to a completion analysis that different actors in the m-payments ecosystem need to be aware of when launching products or entering into collaborative arrangements.

Potential Competitive Concerns in M-Payments Ecosystem

1. Standard-setting and restrictive effects

The Commission has recently published a Green Paper4 in which it has expressed its concerns that companies controlling the standards, and, hence, interoperability, would dominate the whole payment chain: the device itself, the application platform and security management.5 The Green Paper further states that standardization work on m-payments should ensure full interoperability between m-payment solutions and favor open standards to enable consumer mobility.6

While technical standards have already been developed7 for Near Field Communications ("NFC")8, further developments are still expected.9 For example, no standards exist to enable customers to pay, redeem coupons and claim loyalty points at the same time with their mobile handsets.10 In this relation, development of closed standards and specifications that the whole industry would be forced to use and that the standard-developing company/companies would have the freedom to license or not and establish conditions relating to their use would attract scrutiny from competition regulators.

Participants to the standard-setting process would need to ensure that participation in standard-setting is unrestricted, that the procedure for adopting the standard in question is transparent and that the standardizations agreements contain no obligation to comply with the standard. Further access to the standard is to be provided on fair, reasonable and non-discriminatory terms.11

2. Creation of market power and diminishing innovation

Joint ventures, strategic alliances and other collaborations among competitors are already an important component in the m-payments ecosystem. In markets where innovation is an important competitive force, this may increase the firms' ability and incentive to bring new innovation to the market and thereby, the competitive pressure on rivals to innovate in the market. However, increased market power as a result of such commercial arrangements may include the ability to diminish innovation.12 Network effects13 heighten the importance of technology in the m-payments ecosystem.

In order to process payments securely, the presence of a secure element ("SE")14 is necessary. Usually, mobile network operators ("MNOs") would have the content management rights15 and control the access to the SE if it is placed inside the SIM ("Subscriber Identification Module") card. There is an apprehension that if the only viable technologies are SEs that are controlled by MNOs, then control of the SEs may create market power for MNOs. This would reduce competition or diminish innovation in m-payment technologies.16 For example, the Commission has examined whether the MNOs that had entered into a joint venture arrangement for providing mobile wallet services17 had the technical or commercial ability to block/degrade/subordinate/deactivate their competitors' mobile wallets using an SE, such as embedded SE.

Diminishing innovation is not as problematic if alternative security solutions exist that do no require access to be granted by the MNO. In such a situation, the owner/controller of the SE would be unable to exercise market power.

3. Impact on fees

Financial institutions currently are the main players in the payments industry. Competition regulators have had long-standing competition concerns, particularly in relation to the levy of interchange fees. The competition regulators would examine the establishment of structures that could perpetuate the current model for generation of fees.

M-payments systems open the market to other sectors, such as telecom and operating system manufacturers, all of which would want a share of the revenues. The Commission's Green Paper considers that MNOs seem to be seeking to retain control of the m-payments business, at least in their role of security manager for the service.18 A concern that has been raised is that if the only viable technologies are SE solutions that are controlled by MNOs, then MNOs may seek to exercise market power by collecting substantial transaction fees on all m-payments.19 The development of the revenue sharing model is therefore likely to be closely scrutinized by the competition regulators.

4. Exclusivity and tying arrangements

The combination of products in related markets may confer the ability and incentive to leverage a strong market position from one market to another via tying, or other exclusionary practices. Technical tying occurs when the tying product is designed in such a way that it only works with the tied product and not with the alternatives offered by competitors. Contractual tying entails that when purchasing the tying good, the customer undertakes only to purchase the tied product and not the alternatives offered by competitors.20

In relation to m-payments systems, there is a complementary relationship between the issue of payment cards and the provision of digital wallet services that could give rise to conglomerate effects.21 Such conglomerate effects may be facilitated through exclusionary practices, such as tying. In relation to the creation of a joint venture for providing digital wallet services by issuers of payment cards, an important part of the analysis would be whether (i) the joint venture would have the ability to restrict the use of payment cards in its digital wallet to cards of the parent companies, (ii) there are sufficient alternative issuers of payments cards, (iii) there are competing digital wallets supporting the use of competing financial institutions other than the parents of the joint venture and (iv) the parents would restrict the ability of use of payment cards issued by them in competing digital wallets.22 Harm may be considered to arise if a joint venture denies some key element to a rival.

When entering into exclusivity arrangements, companies should consider factors such as the freedom that the joint venture's members have to participate in multiple m-payment systems, the extent to which the members—individually or collectively—have market power with respect to the denied element and the availability of adequate substitutes for that element.


1 OECD Roundtable on Competition and Payment systems, See para 4.2 of note by United States, dated 19 October 2012.

2 Case No COMP/M.6314 – Telefónica UK/Vodafone UK/ Everything Everywhere/JV dated 4 September 2012, Case No COMP/M.6956 - Telefonica/Caixabank/Banco Santander/JV dated 14 August 2013 and Case No COMP/M. 6967- BNP Paribas Fortis/Belgacom/Belgian mobile wallet dated 11 October 2013.

3 Isis, a joint venture including most of the major American mobile phone network providers, and Merchant Customer Exchange, a joint venture of many merchants Members of MCX include Wal-Mart, Target, CVS, Sears, Lowe's and Shell Oil.

4 Green Paper, "Towards an integrated European market for card, internet and mobile payments," dated 11 January 2012.

5 Green Paper, "Towards an integrated European market for card, internet and mobile payments," dated 11 January 2012, para 4.4.1., p.17.

6 Ibid., p.16.

7 See Commission decision of 4 September 2012 in Case No COMP/M.6314 – Telefónica UK/Vodafone UK/ Everything Everywhere/JV, paragraphs 370, 373 and 376.

8 NFC is a type of wireless communications technology that can be used to effect a payment where two devices, such as a smart phone and reader, communicate through short-range radio waves.

9 Financial Times report dated 1 October 2013 by Jeevan Vasagar, "Visa, MasterCard and American Express are proposing a new industry standard to make online payments more secure, by eliminating the need to enter account numbers when shopping online or on mobile devices."

10 See Commission decision of 4 September 2012 in Case COMP/M.6314 Case No COMP/M.6314 – Telefónica UK/ Vodafone UK/Everything Everywhere/JV, paragraph 379.

11 Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal cooperation agreements. See Commission decision of 4 September 2012 in Case COMP/M.6314 Case No COMP/M.6314 – Telefónica UK/Vodafone UK/Everything Everywhere/ JV, paragraph 253.

12 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, OJ C 31, 5 February 2004, paragraphs 8 and 38.

13 Network effects occur where users' valuations of the network increase as more users join the network. For example, as new customers enter a telephone network, this might add value to existing customers because they would be connected to more people on the same network. If customers benefit from being on the same network (e.g., due to incompatibility with other networks), an incumbent with a well-established network might have an advantage over a potential entrant that is denied access to the established network and so has to establish its own rival network. Guideline of the Office of Fair Trading: Assessment of market power, paragraph 5.21.

14 An SE could be located on the (i) Subscriber Identification Module ("SIM") card; (b) on a (micro) Secure Digital ("SD") card that can be integrated in some mobile handsets, including, at the same time, the NFC technology; (c) on an external device, such a Universal Serial Bus ("USB") key; (d) in the chip that is embedded in the mobile handset's hardware ("embedded SE"); and (e) in the cloud.

15 Content management rights allow the holder, for example, to load the initial keys governing access, the application code and confidential data for personalization or to update data or code.

16 OECD Roundtable on Competition and Payment systems, See paragraph 5 of note by United States, dated 19 October 2012.

17 There are two approaches to what is commonly described as a mobile wallet. First, a container wallet, which, at a minimum, provides the consumer with an overview of all applications that are loaded into the SE and allows a consumer to select which payment cards are switched on and off and to set priorities between them. This mobile wallet serves as a container for all the consumer's virtual payment cards and allows the configuration of the SE even from different card issuers, in a similar fashion to a consumer having several payment cards physically in his or her wallet. Second, an app-centric wallet, which contains only one application that can include several cards, but from the same issuer. Each individual card stored on the SE is represented by a corresponding application on the mobile handset. A card belonging to an individual service provider therefore shows up as an individual application on the mobile handset. In the physical world, it would be equivalent to a plastic card. See Commission decision of 4 September 2012 in Case COMP/M.6314 Case No COMP/M.6314 – Telefónica UK/Vodafone UK/Everything Everywhere/ JV, footnote 3.

18 Green Paper, "Towards an integrated European market for card, internet and mobile payments." dated 11 January 2012, paragraph 4.4.1., pg.17.

19 OECD Roundtable on Competition and Payment systems, See paragraph 5 of note by United States, dated 19 October 2012.

20 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, OJ C 31, 5 February 2004, paragraph 97.

21 Case No COMP/M.6956 - Telefonica/ Caixabank/Banco Santander/JV dated 14 August 2013, para 73.

22 Case No COMP/M.6956 - Telefonica/ Caixabank/Banco Santander/JV, paragraphs 75 to 88.

Originally published Spring 2014

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