Analysis of Competition Commission of India’s Approach towards Antitrust Issues in Unified Payment Transactions (UPI) Sector

It is no secret that digital payments in India have exploded over the last five years as data and smartphone usage has increased. The National Payments Corporation of India’s (hereinafter NPCI) Unified Payment Interface (hereinafter UPI) technology has been the primary driver of this expansion. CAGR of 414 percent was recorded for UPI transactions in FY 2019-20 in India. Immediate Payment Service (hereinafter IMPS) technology is used to conduct UPI transactions between two bank accounts. As India has observed digital payments in abundance, along with such explosion, India has also observed the abuse in the market by the dominant platforms providing such transaction facilities. Such abuse in the market by the dominant platforms providing such transaction facilities is dealt with by section 4 of the Competition Act, 2002. As per this section dominant position means where an enterprise has the power to operate independently in the relevant market or where the operations of competitors are affected by moves of such enterprise. Further, the term is defined under Article 86 of European Treaty as, “a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers”. Being dominant is not a crime but using such dominance to harm healthy competition in the relevant market is crime in the eyes of the Act.

One such situation can be very well understood by analysis of the Competition Commission of India (hereinafter CCI) orders XYZ vs. Alphabet INC. (hereinafter Google Pay Case).


Relevant Markets & Dominance

Prior to abuse of dominance, one must understand the relevant market where such abuse is noticed, in the present Google pay case, the CCI set forth three relevant markets which are as follows: “market for licensable smart mobile device operating systems in India and the market for app stores for android mobile operating systems”, relying upon the CCI order in case no. 39 of 2018. Further third market “Market for apps facilitating payment through UPI” was delineated considering the immense usage of UPI for the transaction by the Google FY 2017-2020 surpassing other virtual payment options as RBI report.

Further in these former two markets, Google was considered to be enjoying the dominant position reason being, in the first market of India’s mobile operating system (hereinafter OS) android was deemed for 80%, in addition to that in the market of android mobile’s app stores the play store was used for 90% of the app downloads.

Furthermore, the once earlier two essentials are established i.e. relevant market & dominance, there are few instances prescribed by the Act of 2002, any of which if established would amount to an abuse of such dominance by the enterprise in the relevant market. The instances are:

  1. “Imposition of inequitable, biased or unfair constraints
  2. Undertaking practices that restrict or denies access to a competitor in the market
  3. Taking improper advantage of the dominant position of one market to enter another”

Allegations & Approach of CCI

In the present Google pay case, U/s 4 of the Act, in a total of six allegations were raised against Google for abusing its dominant position those are:

  1. “Exclusivity Regarding Mode of Payment for Purchase of Apps and In-App Purchases (hereinafter IAPS)
  2. Pre-installation and prominence of Google Pay on Android Smartphones
  3. Search manipulation and Bias by Google in favour of Google Pay
  4. Prominent placement of Google Pay on the Play Store
  5. Search advertisement manipulation on the Play Store
  6. Exclusivity Requirement Imposed by Google Resulted in Unfair Terms Being Imposed on Users”

The court in the present matter keenly contemplated each of the six allegations and considered only the former two allegations as appropriate and the rest were dismissed on either absence of sufficient substantial evidence or inadequate jurisdiction to hear the contentions.

CCI took into consideration the first allegation that Google has framed anti-competitive policies which runs into two folds, first being it refrains the app developers to use any other mode of payment other than Google’s very own payment system (Google Pay) to carry out transactions related to purchasing of apps and In-App purchases. Imposition of such policies leaves the developers in a “take it or leave it” situation where they have no option to go with. Apart from excepting such discriminatory and biased payment policy of Google or else they have let go the 90% of the targeted Indian android smartphones users which are using the Google Play Store for purchasing of apps. Even on the other hand side, the 90% of the android using Indian population has no other option available at hand other than installation of Google Pay to make successful payments for such apps purchases. Here the policy imposed an irrational and unfair obligation on the users as well as app developer to restrain from considering the other potential options in the market.

The former fold of the policy made it mandate to install the Google pay for payment whereas the second fold imposes an unfair condition on the app developers by the imposition of the unjust rate of commission charges i.e. 30% (15% in certain cases) on every purchase of App through Play Store which is relatively very high compared to what other platforms have to offer. It is already very much established that Google had a firm hold of 90% over the market of android mobile’s app stores i.e. the play store which was used for the (installation of Apps) over the android phones, and as per the first fold the policy makes it crystal clear that only Google Pay must be used to make the payments, Despite having various other alternatives available in the market offering much lesser commission rate for per payment, the hands of the developer are tied due to such unfair and discriminatory policy. As a result of policy, the relevant market observed a blanket restriction/ denial of access to other potential competitors in the relevant market to compete against Google pay. Furthermore, Google made an effort to enter and create dominance in UPI transaction Market by indulging in anti-competitive practices using its dominant position in the app store market.

In the lights of the above-raised allegation, after scrutinizing the facts and shreds of evidence the CCI conclude that imposition of such inequitable, biased or unfair constraints through the policy, restriction/ blanket denial to access the UPI transaction market over other potential competitors and Google’s effort to enter and create dominance in UPI transaction Market by indulging into anti-competitive practices using its dominant position in the app store market such undertaking of the Google had established the essentials of the abusive practices in terms of section 4 of the Act.

Subsequently CCI took account of the second allegation, here CCI took the cognizance of Google incentivizing the original equipment manufacturer (hereinafter OEM) to pre-install certain Google application such as Chrome, drive, etc. portraying them as a default application, via its Mobile Application Distribution Agreement (hereinafter MADA) which is a pre-requisite to secure the Google licenses for Android OS, along with such agreement Google formulated another Revenue Sharing Agreement (hereinafter RSA) with OEMs which guaranteed financial incentives to OEMs for pre-installation of the Google Pay app in there smartphones (such agreement is optional not a mandate), such “must-have” character of the Google’s apps along with another financial incentivizing agreement strategy gave Google Pay app an upper hand in the relevant market of UPI transaction over other potential virtual payment apps considering the dominant position of the Google over relevant markets of “market for licensable smart mobile device operating systems in India and the market for app stores for android mobile operating systems”.

Thus, in light of the above-raised allegation, after scrutinizing the facts and shreds of evidence the CCI conclude that formulation and implementation of such agreements by Google with the OEMs has the aptitude to adversely affect the competition in the relevant market of UPI transaction.

Concept of ‘status-quo bias’ & Critics

In the present case, CCI referred to the principle of “status-quo bias/ power of default” which was observed in the (Google Android) by the European Commission. As per this principle, the consumer tends to keep the system on the default factory setting (with conception of getting superior user friendly access). In this case of Google Android it was held by EC that, the strategy of Google to pre-install certain application incentivize the consumer to use and not shift to other application even of higher potential due to “status-quo bias effect”, and such practice has an adverse effect on the healthy competition in the market such conclusion was backed by the substantial evidence of consumer behaviour in the European Market. Whereas in the present case CCI without observing any substantial evidentiary value applied the same principle to the Indian market, the Indian consumer’s behaviour cannot be assumed to be identical to that of the European consumer, the reason being the pre-installation or the “status-quo bias effect” is not the sole driving factor in Indian Market.  Availability of the application at the local merchants, UPI systems bestowing a higher level of incentives or success rate of transaction, viability and efficiency by the banks while performing the transaction there are such other factors which considered by the Indian consumers before making a rational decision.

Moreover, as the NPCI report competitor payment application PhonePe enjoys a majority of 44% share in a virtual transaction in the year 2021 whereas Google Pay enjoys just 35% of the share, in addition, that another competitor PayTm has the vantage of improvised users experience of less transaction failure rate by direct vertical linkage with financial institutions (banks). Both competitors of Google Pay has made substantial growth over the past year of 2021 despite Google’s dominance in the other Markets and its RSAs with the OEMs. It is of utmost importance to recall the fact that RSAs are not a mandate agreement, the OEMs are free to approach any other UPI payments app for much higher incentives. So in my opinion considering the above argument and discussion, the CCI has an errored in passing of its order to some extent.

Author: Amey Jadhav – an intern at Khurana & Khurana, Advocates and IP Attorney,  in case of any queries please contact/write back to us via email

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