Voice of the Industry

The Digital Markets Act (DMA) in Europe is expected to change everything for face-to-face payments

Tuesday 27 February 2024 09:39 CET | Editor: Irina Ionescu | Voice of the industry

Mark Beresford, Director at Edgar, Dunn & Company (EDC), discusses the changes in the payments industry resulted from the adoption of the DMA in Europe, exploring the main benefits for both consumers and merchants.

What this could mean for consumers and retailers

Gatekeepers can act as powerful intermediaries controlling the entry to a sizable segment of consumers and businesses within the digital market. The EU’s Digital Markets Act (DMA) names six ‘gatekeepers’ and in this wide-sweeping legislation we can expect a change to in-store retailer contactless payments. 

Imagine strolling into your favourite coffee shop, craving for a coffee but, instead of fumbling with cash or plastic, you whip out your phone, tap your contactless wallet, and a steaming cappuccino materialises. However, there is a twist — the near-field communication (NCF) tap doesn't just pay the barista, but 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, which makes you forget about clunky cards, paper receipts, or unclaimed loyalty schemes.

This future is not a pipe dream, but the reality brewing thanks to the European Commission’s Digital Markets Act (DMA). 

The DMA forces change that could transfer 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, as 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. Starting 6 March 2024, the named gatekeeper companies will be required to comply with the DMA. 

The six big-tech gatekeeper companies the European Commission’ has named include Alphabet (i.e., Play App Store, GooglePay, etc.), Amazon (marketplace, AmazonPay, etc.), Apple (i.e., App Store, ApplePay, etc.), ByteDance (i.e., TikTok), Meta (i.e., Facebook messenger, WhatApp, etc.), and Microsoft (i.e., LinkedIn, etc.). 

DMA compliance requires these six gatekeepers and third-party companies – which use an even longer list of around 22 core services, including searching, advertising, payments, marketplaces, operating systems, and Internet browsers – to obtain explicit consent for the 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. 

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. Moreover, ByteDance (i.e., TikTok) asked in December 2023 whether their designation as a gatekeeper could be delayed but that was quickly denied by the EU. 

PayPal, who is currently not a gatekeeper company according to the European Commission, could become 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. 

The DMA will also have implications for the commission fee earned by Apple and Google for in-app purchases – but we will further elabore on this in a future editorial. However, once the DMA comes into force, retailers will gain the most out of face-to-face contactless payments. 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 would be permitted to select their preferred method of payment. Using a smartphone contactless payment, the transaction could be completed via 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. 

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.  However, it will take at least six to twelve 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 and creates a new portal for a more 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


About Mark Beresford

Mark Beresford is a Director at Edgar, Dunn & Company (EDC) and has over 25 years of strategic consulting experience in the payments sector. He is responsible for the company’s Retailer/Merchant payments practice, working with omnichannel merchants and payment service providers across the globe.


About Edgar, Dunn & Company (EDC)

Edgar, Dunn & Company (EDC) is an independent global payments consultancy. The company is widely regarded as a trusted adviser, providing a full range of strategy consulting services, expertise, and market insights. EDC expertise includes M&A due diligence, legal and regulatory support across the payment ecosystem, fintech, mobile payments, digitalisation of retail and corporate payments, and financial services.

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Keywords: European Commission, European Payments Council, regulation, payments , payment gateway, compliance, loyalty programme, transactions , merchant, NFC, credit card, debit card, e-wallet, mobile payments, mobile money, marketplace, online payments, contactless payments, digital payments, PCI compliance, PCI DSS, EMVCo
Categories: Payments & Commerce
Companies: Edgar, Dunn & Company
Countries: Europe
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