Google accused of anticompetitive app payment policies in India

The Competition Commission of India is investigating of Google’s policies around its mobile payment service in India, which are alleged to have a detrimental effect on app developers incorporating payment solutions in their apps.

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The Competition Commission of India (CCI) has begun a formal investigation of Google’s mobile payment service following accusations of manipulative practices in the way the company promotes it in its Play Store app distribution platform.

The CCI, the statutory body responsible for enforcing India’s 2002 Competition Act, ordered the antitrust probe against the internet giant on Monday, following up a complaint against Google’s parent company Alphabet filed by an unnamed informant in February.

The informant alleged that Google has abused its dominant position in the market for licensable mobile operating systems such as Android, the market for app stores for Android, and the market for apps facilitating payment through India’s Unified Payment Interface (UPI), giving its apps an advantage over those from competitors.

Google launched its UPI-based mobile payment app Tez in 2017, rebranding it Google Pay (GPay) the following year. The app allowed payments between bank accounts or directly, peer to peer.

Google’s promotion of its own app is alleged to have harmed users and developers in three ways.

First, through its control over the Android OS and Play Store, Google is said to have unfairly privileged its app over those of competitors on the Play Store, Android OS, and Android-based smartphones by skewing search results and rigging featured app lists in favor of Google Pay.

Google denied the allegation in a response to the CCI, saying, “Google does not favor the GPay app (Tez) in Play’s search rankings and these allegations are wholly misconceived. Google ranks search results in Play based on multiple criteria that do not favor the GPay app (Tez). [...] Google does not grant unmerited prominence to GPay in Play and both Google and non-Google services, including Google’s rivals, can and do appear in Users’ Choice, Editors’ Choice, and Top Charts lists. Regardless, these lists and awards do not foreclose competition and they are not essential for success of an app.”

App developers’ conflict

Second, the complainant accused the company of mandating app developers to use Play Store’s payment system and Google Play In-App Billing for charging their users for the purchase of apps on Play Store and for in-app purchases. This, the informant pointed out in another letter to CCI in June, is similar to what Apple was doing in Europe, resulting in an investigation by the European Commission.  Additionally, like Apple, Google charges app developers a 30% commission for allowing them to use the Play Store’s payment system and Google Play In-App Billing.

The CCI report states: “Considering that Play is the dominant source of downloading apps in the Android OS (90% of the downloads) and its condition requiring use of application store’s payment system for paid apps and in-app purchases, it appears that Google controls the significant volume of payments processed in this market.”

That, it noted, has allowed Google to charge commission fees of up to 30%, while other payment processing solutions charge significantly lower fee for processing payments.

CCI’s initial view is that mandatory use of Google’s app store payment system restricts app developers’ choice of payment processing system.

Google denied that it was charging too much: “Google’s 30% (and in certain circumstances, 15%) service fee is not arbitrary. It is market based, legitimate, and pro-competitive as the service fee allows Google to cover third party fees and support its significant and continued investments in Play, including the vast resources it develops for developers,” it said.

However, the CCI notes in its report that developers pay a separate $25 fee to have their apps listed on the platform. “The Play Store is being adequately compensated by the app providers for acting as a distributor, without the need for paying any commission. Accordingly, the 30% additional commission is alleged to be one-sided, arbitrary and onerous,” the report states.

The third way in which Google is alleged to have caused harm is in imposing unfair terms on users that require them to use Google Pay, a service that is alleged to store customer data outside India in defiance of the Reserve Bank of India’s data localization directive and guidelines issued by the National Payments Corporation of India.

The 30% solution

In the same week CCI opened its investigation the NPCI, an umbrella organization for operating retail payments and settlement systems in India, announced that third-party app providers (TPAPs) will not be allowed to process more than 30% of the total volume of transactions on the UPI framework from January 1st, 2021.

Google criticized the move, saying it will hinder the nation’s burgeoning digital payments economy.

One thing is for sure: it will limit Google India’s operations.

There are now over 2 billion UPI transactions each month, NPCI said. Two apps, Walmart’s PhonePe and Google Pay, account for 80 percent of those transactions between them, with Paytm a distant third. Companies exceeding the 30% cap will be given two years from January 2021 to reduce their share in a phased manner.

NPCI wants to avoid a monopoly in the UPI space. While its new rule will affect the growth of PhonePe and GPay in India, it will boost Paytm and Reliance Jio Payment Bank, as they have bank permits.

Chat service WhatsApp became the latest to offer a UPI payment service when it went live on November 5. It will be allowed to expand its UPI user base in a graded manner starting with a maximum registered user base of twenty 20 million in UPI.

With India being WhatsApp’s biggest market—it had 400 million users there last year—it could have taken the biggest bite of the UPI transaction share. However, with the new NPCI rule, it too will be limited to a maximum 30% share.

Copyright © 2020 IDG Communications, Inc.

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