Evaluation of Indian Payment System under Competition Act, 2002
The concern of development and competition has a special interplay with mobile payment systems. Such services are a private sector response to a development problem, due to the lack of access by huge swathes of the population to the financial system. Competition dynamics are gaining greater importance in the payment sector as the services are having one of the two most important economic functions; payment for goods and services. The costs of monopoly (or oligopoly) in this market can, therefore, have more significant social consequences. This article evaluates the Indian payment system under Competition Act, 2002.
1. Whether the all Payment system is based on “Service”
Sec 2(u) of the Competition Act defines ‘service’ as ‘service of any description which is made available to potential users and includes the provision of services in connection with the business of any industrial or commercial matters such as banking’.
Since payment which is based on NEFT, RTGS, UPI would fall within the purview of a ‘service’.
But in case of card payment system when we use PoS or ATM service, physical debit/credit card turn into an essential thing to complete the transaction, we cannot use the service until we have a physical debit/credit card. As per section 2(7) of Sales of Goods, Act, “goods means every kind of movable property other than actionable claims and money.” Hence, to complete the transaction with PoS and ATM service, the good required.
The word “enterprise” is defined under sec2 (h) of Competition Act, 2002. “enterprise” means a person or a department of the Government, who or which is, or has been, engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the provision of services, of any kind, or in investment, or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, either directly or through one or more of its units or divisions or subsidiaries, whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or at different places, but does not include any activity of the Government relatable to the sovereign functions of the Government including all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defence and space.
In the payment system the concept of UPI with the BHIM app was initiated by the National Payment Corporation of India; Hence, NPCI is the relevant enterprise for UPI. If compared to other UPI applications such as Google Pay, Phonepe that are connected and linked to a specific bank, BHIM was mandated to integrate into all NPCI software applications, giving it a unique status among other UPI apps. Whereas in card-based payment, the associated payment based companies MasterCard, RuPay, etc., it may be difficult to identify who is the real enterprise, i.e. “the bank or associate company’’, Where, RuPay, a payment scheme also launched by the National Payments Corporation of India (NPCI), offers a domestic, open-loop, multilateral system that allows all Indian banks and financial institutions in India to take part in electronic payments. The concept of ‘enterprise’ is, therefore, more likely to include a bank, as it is the bank that provides such facilities.
3. Relevant market
As per Section 2(t) of the Competition Act, the ‘relevant product market’ means all those products or services which are regarded as interchangeable or substitutable by the consumer, because of characteristics of the products or services, their prices, and intended use. At prima facie, one can say that the relevant market as the ‘provision of payment system’ considering that the issue in question involves banks. It should be pointed out here that for a complete and informed analysis that the relevant product market cannot be limited to the provision with one payment system by each bank.
When we pay with a card, generally, the bank issues the card in association with VISA, MasterCard, Rupay. The CCI held that ‘For transactions processed by VISA and MasterCard, the Competition Commission says the transactions routed through EFT Switches of the banks to the international switches of VISA and MasterCard, which are deployed outside the territory of India. Therefore, the transactions on the international switches would not form part of the relevant market’
As for card payment system CCI pronounced that ‘Payment card network based on electronic payment systems, which used to accept, transmit, or process transactions made by payment cards (debit or credit) to transfer information or funds among issuers, acquirers, merchants, and card users. A card payment network is an entire ecosystem whose components of an electronic fund transfer system such as ATMs, POS terminals, and core banking systems and have already been considered in the analysis of the relevant product market’.
Whether mobile payment systems represent a distinct relevant market, separate from established online payment systems?
In the BNP Paribas/Fortis/Balgacom/Belgian Mobile Walletcase, The EU Commission dealt with several of market definition related problems, specifically the issue of whether mobile wallet and mobile payment services contribute to the same market as classical online and offline services. The investigation carried out by the Commission explains a vibrant market with interconnected plus complimentary services, making it hard to identify a clear boundary here between various payment markets.
In the case of mobile payment vs. the current online payment system, there is no unanimous agreement as to whether these two payment methods are separate markets. Several relevant mobile payment system features (such as simplicity of use, user-friendliness and accessibility) may put them in a specific market, but all such aspects of payments are likely to co-exist from a merchant’s perspective. Hence, they may be considered complementary. Same ambiguity arises from the survey on whether mobile payments and traditional offline payment networks are part of the same market. The same applies to the meaning of the offline markets, online mobile wallets services and payment wallets. The problem of identifying a market is still an open one.
The Indian central bank, RBI has not categorized both Mobile banking and Internet banking separately and considered the internet banking is in the electronic payment system and mobile-based banking in other payment instrument category. But, in the High-Level Committee report, on the Deepening of Digital Payment to the RBI has used words the mobile banking and internet banking.
Each UPI has a unique virtual address to the bank which provides it, but no single bank could be said to be dominant in the relevant market when taken collectively. As the Act did not define the idea of collective dominance, it may be difficult to define a sole dominant position. India scrutinizes to introduce the principle of collective dominance by amending its laws on competition. The Competition (Amendment) Bill 2012 addresses the possibility of adding language which would enshrine the collective / joint dominance principle. It will do so by inserting ‘jointly or singly’ under Section 4(2) after the term ‘group.’ Where the European Court of Justice already recognized the collective / joint dominance theory in which a dominant position may be held by many firms and abused.
RuPay Product Overview, NPCI, https://www.npci.org.in/product-overview/rupay-product-overview
Financial Software and Systems Private Limited vs M/s ACI Worldwide Solutions Private Limited &Ors, CCI, case no. 52 of 2013.
 Ibid, point 44 of the decision at page 10.
NandanNilekani, Status of Digitization of Payments, High Level Committee on Deepening of Digital Payments, (2019), https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/CDDP03062019634B0EEF3F7144C3B65360B280E420AC.PDF .
 Municipality of Almelo and Others v EnergiebedrijfIjsselmij NV, (1994) ECLI:EU:C:1994:171;