Tying WhatsApp with WhatsApp Pay: Did CCI miss a trick?

BY KUNAL SINGH AND VAIBHAV MEHRISHI, SECOND-YEAR STUDENTS AT VIPS, NEW DELHI

Introduction

Recently, WhatsApp announced the rollout of its much-awaited Unified Payments Interface (‘UPI’) enabled payments feature, WhatsApp Pay, on its online instant messaging platform. With this, WhatsApp will now offer payments feature apart from instant messaging, audio and video calls with individuals/groups. Although WhatsApp has been in the news, for about two years, regarding WhatsApp Pay about its potential anti-competitive implications, it received clearance from the National Payments Corporation of India in February 2020 to roll out its payments feature.

A case was filed before the Competition Commission of India (‘Commission’) challenging WhatsApp Pay on the ground that WhatsApp has ‘technically tied’ its payments feature with the online messaging platform. In the existing literature, technical tying refers to when a product (‘tied product’) is physically integrated or tied into another separate or distinct product (‘tying product’) so that both cannot be used independently, and a consumer is forced to buy the tied product with the tying product. Such an arrangement is generally prohibited under Section 3(4)(a) of the Competition Act, 2002 (‘The Act’).

However, the case was ruled in favour of WhatsApp, with the Commission stating it pre-mature, among other things. The offering of both messaging and payments feature within a single unified platform, WhatsApp, raises anti-trust concerns. In this blog post, the authors argue that WhatsApp’s integration with WhatsApp Pay constitutes a technical tie-in arrangement and critically analyses the Commission’s approach.

Test To Determine Technical Tying

To establish ‘technical tying,’ the following conditions have to be fulfilled:

  1. There has to be the presence of two separate and distinct products capable of being tied.
  2. The entity should be dominant in the market of the tying product.
  3. The consumer should not be given the liberty to buy the tying product without the tied product.
  4. The concerned tie-in arrangement should have anti-competitive effects in the market.

CCI’s Observations

In the case of Harshita Chawla v. Union of India, as mentioned above, the Commission observed that WhatsApp Messenger and WhatsApp Pay constitute two separate and distinct products and belong to two different relevant markets. It also held that WhatsApp is a dominant player in the relevant, ‘market for OTT messaging apps through smartphones in India,’ and thus is capable of exercising its dominance in the relevant market of the tied product, i.e., digital payments market.

Regarding the third and fourth conditions, the Commission was not satisfied with their fulfillment and held that these two conditions are not met in the present case. The authors argue that the Commission’s observation regarding the third and fourth conditions was a misdo and took a short-sighted approach to address the problem.

Applying The Test To The Case of WhatsApp Pay

Regarding the third condition

The third condition to establish technical tying is that the consumers should not have the liberty to use the tying product independently of the tied product. Regarding this, the Commission observed that the consumers are at free will to use WhatsApp Pay or any other UPI enabled payments application and are not exclusively coerced/mandated to use WhatsApp Pay by WhatsApp. In the eyes of the Commission, the absence of the element of ‘coercion’ fails this case to meet the third condition. 

However, in Microsoft Windows Media Player’s case, the European Commission (‘EC’) held a different view on the element of coercion. It held that the third condition to establish technical tying is met once it is established that the tying product is not available exclusive of the tied product in the market. In the present case also, WhatsApp Pay comes automatically installed with WhatsApp, and the consumers cannot use either of them independently of each other.

Also, in Microsoft Internet Explorer’s case, the EC held that it is immaterial whether the user is coerced to use or not to use the product. Free availability of the tied product with the tying product has the potential of foreclosing the fair competition in the relevant market of the tied product. In the present case, WhatsApp Pay is freely available to anyone who installs/updates WhatsApp, and thus there is a possibility of the potential foreclosure of the competition. The authors argue that the reasoning adopted by the Commission while addressing the third condition is flawed on the above grounds, as it did not apply the observations made in more mature and developed jurisdictions surrounding tie-in arrangements. The Commission should have taken into account the possible foreclosure of competition in the market of digital payments.

Thus, the Commission failed to take a comprehensive understanding and instead took a more literal view of the element of coercion.

Regarding the fourth condition

The fourth condition to establish ‘technical tying’ is that the concerned tie-in arrangement should have anti-competitive effects in the relevant market. The Commission held that the instant case fails to meet the fourth condition to establish a case of ‘technical tying.’ It observed that there is a strong likelihood of a status quo bias in favour of giants already operating in the digital payments market like Google Pay, Paytm, and Phone Pe, and the mere thought of users shifting to WhatsApp Pay after its integration with WhatsApp is far-fetched.

The Commission failed to understand the changing dynamics of the digital payments market with every entity bringing new and attractive marketing and pricing strategies every day to lure more consumers; status quo bias cannot be permanent and is destined to shift to other entities. The Commission itself asserted that WhatsApp is a dominant entity in the relevant market for OTT messaging apps through smartphones in India; and having a user base of 400 million in India, the status quo bias can easily shift in favour of WhatsApp. It will be convenient for consumers to use payments feature (‘WhatsApp Pay’) integrated into the most used messaging platform (‘WhatsApp’), instead of installing a separate application. Thus, the Commission took a parochial view while assessing the establishment of the fourth condition and not discerning future implications.

Further, the Commission held that WhatsApp received approval to function as a payments app only in beta version, and is yet to manifest itself in the relevant market. The Commission reasoned that the number of users using its beta version is less than even 1% of the actual users, and thus it cannot be perceived that WhatsApp will gain a substantial amount of market share just by pre-installing its payment feature on the messaging platform. However, regarding the issue of pre-installation of a feature, the EC took a different stance in the Google Android case. In this case, Google asked manufacturers to pre-install the ‘Google Search App’ and search browser (‘Chrome’) as a condition for distributing license of the ‘Play Store.’ The EC imposed a hefty penalty on Google for imposing illegal restrictions on manufacturers. Thus, the reasoning adopted by the Commission in holding that the present case does not meet the fourth condition is flawed on the above premises.

Lastly, the Commission held that the allegation on WhatsApp regarding the fourth condition is pre-mature. The objective of The Act is to ensure fair competition in the market by prohibiting practices having AAEC. The authors believe that the Commission should have dealt with this issue in a way identical to ex-ante merger review analysis under Section 6 of The Act. The approach used by the Commission of assessing future anti-competitive implications, whilst approving a proposed merger/combination, would have been appropriate in the present case. The Commission should have assessed future anti-competitive implications arising out of WhatsApp Pay’s integration with WhatsApp instead of labelling the information’ pre-mature’, as harm caused by it may be irreversible.

The authors believe that the Commission’s approach in addressing this issue was flawed on the premises mentioned above. The Commission seemed to contradict itself while assessing the dominant status of WhatsApp in the relevant market, while completely ignoring its potential dominant influence on the digital payments market, and adopted a parochial understanding of the issue at hand when there are precedents on the issue of similar nature in more developed jurisdictions.

Concluding Remarks

The digital payments market is precipitating with a spate of new players coming into the market. The UPI enabled payments feature is either introduced by incumbents already operating in their relevant market (‘WhatsApp Pay’) or by relatively new entrants (‘Chillr’). The case of WhatsApp Pay is unique as it is ‘technically tied’ with WhatsApp resulting in the unification of two services (‘messaging and payments) in a single platform, ultimately putting WhatsApp in a position to share its vast user base with WhatsApp Pay, and giving rise to anti-trust implications of a technical tie-in arrangement. The preceding paragraphs analyzed the Commission’s approach, substantiating it with precedents in developed jurisdictions. The objections forwarded by the Commission were flawed as it did not apply the test of technical tying properly. With the continually changing market, constructing a sound jurisprudence surrounding tie-in arrangements is the desideratum to ensure rival competitors and consumers’ welfare.

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