EU Digital Markets Act explained

The Digital Markets Act (DMA) is a landmark European law that aims to rein in the dominance of tech companies that “gatekeep” access to their users, and diversify access to their platforms. 

The “gatekeepers” – Alphabet, Amazon, Apple, ByteDance, Meta, Microsoft – must comply with the rules by March 6 2024. 

In light of this deadline, we’ve seen some major updates from several of these companies which broaden access to their platforms for other businesses. Read on for the details that may affect your business.

The reforms empower business users to choose an alternative payment service provider other than the platform's native offering in areas such as Apple’s in-app payments⁠. This opens up opportunities to pick and choose between payment solutions to cut costs and deliver better end user experiences. 

In this article, we explain the DMA, its implications for business users, and how it affects payments. Come back to this page for updates as Big Tech continues to evolve in line with the regulations.

What is the Digital Markets Act (DMA)?

The Digital Markets Act is one of several new regulations proposed by the European Commission and passed into law by the European Parliament between 2020 and 2024. In the spirit of fair market competition, the law challenges certain tech companies over their “power to act as private rule-makers,” per the European Commission.  

The law only applies to technology companies which offer major platforms for businesses to reach end users of digital services such as social media, cloud services, advertising, and app marketplaces. It curbs the controls that these companies have over business and end users.

Provisions of the Digital Markets Act are mainly codified in Regulation (EU) 2022/1925. However, implementation of the reforms are so recent that specifics are still unfolding. The Commission has committed to carrying out market investigations as needed, and “update dynamically the obligations for gatekeepers when necessary.”

What is the purpose of the Digital Markets Act?

European lawmakers hope the DMA will increase fairness and boost competition on digital platforms including Google, Apple, and Amazon. The law itself describes the problem of “gatekeepers” who operate services which “are structurally extremely difficult to challenge or contest by existing or new market operators, irrespective of how innovative and efficient those market operators may be.” So the reforms aim to foster market conditions that allow innovative newcomers to challenge incumbent digital platforms (source: https://eur-lex.europa.eu/eli/reg/2022/1925).

A major principle of the regulation is not to prioritize a platform’s own services above that of its competitors. For example, Google has reduced the prominence of Google Flights on some search results pages to allow for a more fair presentation of rival flight comparison results.

The idea is that businesses offering competitor services to the Big Tech companies should have more equal access to those platforms’ users. Another principle is to challenge “unfair conditions for businesses” which may include overly stringent usage restrictions and high fees. The law also prescribes how gatekeepers are allowed to employ user data for purposes such as advertising.  

Consequences of non-compliance with the Digital Markets Act

Gatekeepers who do not comply could face fines of up to 20% of their total worldwide annual turnover or even structural action such as divestiture of certain parts of their business.

The European Commission can also issue periodic penalty payments of up to 5% of the company's total worldwide daily turnover in the preceding financial year. Repeated infringements could lead to temporary bans on business mergers.

Who are the gatekeepers, and what do they control?

Six gatekeepers were announced in September 2023 – Alphabet (owner of Google and YouTube), Amazon, Apple, ByteDance (owner of TikTok), Meta (owner of Facebook, Instagram and WhatsApp), and Microsoft – after identifying themselves as meeting the European Commission’s criteria. 

The legislation leaves room for future gatekeepers to emerge if they meet the criteria – which we’ll explain more fully in the section, “Which companies are within the EU Digital Markets Act scope?”

First of all, though, these are the “core platform services” from the six gatekeepers which must comply with the Digital Markets Act by the March 6 deadline:

• Alphabet: Google Ads, Android Mobile, Google Chrome browser, Google Maps, Google Play, Google Search, Google Shopping, and YouTube
  
• Amazon: Amazon Ads, and Amazon Marketplace
  
• Apple: App Store, iOS operating system, and Safari browser
  
• ByteDance: TikTok
  
• Meta: Facebook, Facebook Marketplace, Instagram, Messenger, Meta Ads, and WhatsApp
  
• Microsoft: LinkedIn, Windows PC operating system

These are the services to watch for opportunities to better access to end users, and changes to business terms and conditions that promote fairness and interoperability.

How are gatekeepers responding to the DMA?

All of the companies identified by the European Commission as gatekeepers have publicly responded to the market regulation ahead of the March 2024 compliance deadline. Most are announcing updates to their digital platforms, although several have contested their designation under the scope of the law. 

ByteDance filed an appeal against the designation of TikTok as an “entrenched and durable” gatekeeper – with the company noting it “fully support[s] the principles of the DMA”. This has not been ruled out yet.

ByteDance also applied for an interim order with the EU General Court. Unfortunately for the vertical video-sharing platform, the General Court of the European Union rejected its appeal in February because it could not prove that it needed it urgently to prevent ‘serious and irreparable damage’.

Others have already succeeded in their requests for exclusion. Following submissions from gatekeepers, the European Commission conducted an investigation that ruled out certain digital services from the scope of the new regulations: Apple’s iMessage, and three services from Microsoft, namely, Bing search engine, Edge web browser, and Microsoft Advertising. 

Find a summary of the major changes announced by gatekeepers, below.

Amazon offers more advertising data control and campaign insights

Amazon has pledged more granularity in pricing reports for Amazon Ads in Europe. From March 6 2024, Amazon advertisers and publishers with European campaigns can access expanded reports on fees paid by the advertiser and received by the publisher for ads displayed on third-party websites and apps.

Business users of Amazon advertising or publishing services in Europe can also opt into or out of disclosing their fee data against their company name (versus inclusion in default aggregated metrics).

Amazon Ads will deliver a new data environment where advertisers can measure campaign performance. The new capability will equip business users to “independently verify the success and impact of their campaigns” alongside existing Amazon reporting tools.

European Amazon customers will be asked for consent to use their personal data for targeted advertising.

Alphabet platforms roll out multiple changes in readiness for DMA

Google has announced several changes to its products and services including:

• Asking users for consent to share personalized data between its platforms and providing the option to unlink services in their Google Account
• Offering users the option to switch their default search engine or browser when setting up a new device
• Testing a new Data Portability API to allow for easy data transfer off Google platforms
• Enhancing safeguards against misinformation about politics 

YouTube will see some changes, including content labels for “altered or synthetic content” that’s made with generative AI. 

Google’s service fees for apps in Google Play remain unchanged in February 2024 compared with 2023 rates.

Apple increases EU tech interoperability in response to the DMA

Apple is opening up access to its users by allowing non-Apple payment processing, app stores and web browsers. Merchants will need to carefully consider whether or not the changes represent a more cost-effective business model on a case-by-case basis, as fees vary according to download volume and choice of payment processing.

Merchants who own apps are free to accept the new rules or stick with the old ones. However, Apple device users in the EU will gain access to third-party tech including non-Apple apps and payment options by downloading the iOS 17.4 software update (released March 2024).

App owners can now offer a link within their app to a web page that collects payments. To do this, merchants implement the ExternalPurchaseLink API. Each time a user clicks such a link, a full-screen message appears, cautioning that “Apple is not responsible for the privacy or security of purchases made on the web.”

Apple is accepting requests for developers to submit requests for interoperability per the DMA regulation.

Apple changes its fee structure on in-app purchases

Under its new scheme, “Alternative Terms Addendum for Apps Distributed in the EU,” Apple is reducing its 30% commission on in-app purchases of digital goods and services. But a few extra fees will apply in certain cases.

As of March 2024, merchants can choose an external payment service provider (PSP) to take payments through apps on Apple devices. Apple’s commission on in-app transactions for digital goods and services is reduced to 17% under the new scheme (or 10% for apps that make under $1 million per calendar year). This only applies to payments in apps from its App Store.

If you choose to use Apple’s App Store payment processing there’s a 3% fee, or you can use an external PSP for a (likely lower) fee. 

Apple device owners can now also use a different contactless payment app or third-party app marketplace as their default. Even better, Apple has agreed to allow third-party mobile wallet apps to work for payments in brick-and-mortar stores outside of the European Economic Area (EEA).

These changes represent a massive opportunity for technology creators to access users of iPhones, Apple Watches and other Apple devices that were previously off-limits.

Under the old system, the only way to install apps on an Apple device was to use the App Store (owned by Apple). And in-app payments had to go through Apple Pay – users could not pay directly with credit cards or use a QR code to navigate off-platform, for instance. 

New app charge per download

Apple has added a new fee that applies to very popular apps. After an app is downloaded one million times within 12 months, app owners pay a “Core Technology Fee” (CTF) of €0.50 for each additional download. This applies to apps downloaded in the App Store or any alternative app platforms on iOS devices.

For example, if you release an app under the new rules and 2.5 million users download it within 12 months, you will pay €62,500 per month in CTF fees alone. 

This is currently an optional fee as Apple says: “Developers can choose to remain on the App Store’s current business terms or adopt the new business terms for iOS apps in the EU.”

You can use the Apple’s app fee calculator to estimate your fees based on different mixes of Apple and non-Apple marketplaces and payment processors.

Microsoft helps users change default programs in Windows

Microsoft announced updates to its Windows 10 and Windows 11 operating systems in line with the compliance deadline for DMA regulation. It has clarified its labeling of operating system components which are separate from its system apps.

Microsoft has also added the ability to uninstall the following programs on its Windows PC operating system:

• Camera
• Photos
• Edge (the web browser) in the EEA
• Bing (search engine) in the EEA
• Cortana (its discontinued voice assistant)

Users of Windows Search in the EEA can now use an alternative search engine (such as Yahoo or DuckDuckGo) instead of Microsoft Bing Search.

Microsoft continues collaborating with Apple, Google to smooth program function across browsers

Work continues on improving cross-browser compatibility of web applications, namely, through a collaborative project between Apple, Google, Microsoft and others known as Interop 2024. For instance, CSS architecture features such as Cascade Layers, :has() pseudo-class, and Container Queries are now interoperable across browsers.

In further efforts to align with the DMA requirement for interoperability, Microsoft also created a “feed providers feature” in the Windows App SDK to allow developers to submit content feeds. This content will be readily available to end users in the EEA through the Windows Widgets Board.

Meta offers ad-free subscriptions and the option to stop cross-sharing user data sharing

Soon after its designation as a gatekeeper in September 2023, Meta launched an ad-free paid subscription offer for European Facebook and Instagram users.

Meta says it continues to “believe in an ad-supported internet”, but it offers controls to its users to opt into or out of data sharing for personalized ads.

Meta then offered Instagram and Facebook users in the EU, EEA and Switzerland the opportunity to unlink data sharing across Meta platforms in early 2024. This meant, for example, that a Facebook Gaming user could choose to unlink their Facebook social profile from their gaming experience for the first time.

Which companies are within the EU Digital Markets Act scope?

The Digital Markets Act targets only the biggest, most dominant digital platforms operating in the EU. The regulation aims to redress the balance of power between major “gatekeepers” of end users and innovative startups or challenger businesses. For that reason, only a very tiny number of businesses will ever fall under the scope of this law. 

The law itself states:

“It is only when a core platform service constitutes an important gateway and is operated by an undertaking with a significant impact in the internal market and an entrenched and durable position, or by an undertaking that will foreseeably enjoy such a position in the near future, that such concerns arise.”

One of the critical phrases in the legal wording is “an important gateway,” which underlines the purpose of this regulation to open up access between businesses (such as software developers) and consumers (such as gamers, readers or other service users) on digital platforms (such as app marketplaces and social media). 

Companies will be designated as gatekeepers if they meet the following criteria:

• They have a significant impact on the internal market, which means (a) either an annual turnover of at least €7.5 billion within the EU in each of the past three financial years or (b) an average market capitalization or its equivalent fair market value of at least €75 billion in the last financial year;
• They provide a core platform service that is an important gateway for business users to reach end users, which means at least 45 million monthly end users in the last three financial years located in the EU and at least 10,000 yearly active business users established in the EU.

When a company meets the gatekeeper criteria, it will only need to align with DMA regulation if it provides one or more of the ten specific “core platform services”. These are:

• Online intermediation services (such as online marketplaces or app stores)
• Online search engines
• Online social networking services
• Video-sharing platform services
• Messenger services (known as "Number-independent interpersonal communication services")
• Operating systems
• Web browsers
• Virtual assistants (including voice assistants)
• Cloud computing services
• Online advertising services

What are the dos and don’ts of the Digital Markets Act EU?

The specific aim of the Digital Markets Act is to provide the framework for contestable and fair markets in the digital sector. To this end, it sets out specific obligations⁠ – including some dos and don’ts – that designated gatekeepers must abide by. Find examples of these below.

Dos:

• Enable third-party integration with the gatekeeper's own services under specific circumstances
• Permit business users to access the data they generate while using the gatekeeper's platform
• Equip companies advertising on their platform with the necessary tools and information for independent verification of their advertisements 
• Allow business users to promote their goods or services and establish contracts with customers outside of the gatekeeper's platform.

Don'ts:

• Favoring the gatekeeper's own services and products in rankings over similar offerings from third parties on the platform
• Restricting consumers from connecting to businesses outside the gatekeeper's platform
• Preventing users from uninstalling any pre-installed software or app (for instance, on a new smartphone)
• Tracking end users outside the gatekeeper's core platform service for targeted advertising without effective consent

How does the DMA impact payments?

From a payment sector perspective, Article 5 of the DMA promises to drive the unbundling of gatekeepers' payment offerings from their core platform services. This aims to increase competition between payment services providers and improve the range of options available on platforms such as Apple Pay.

Article 5 (7) states that a gatekeeper cannot “require” users to utilize its own payment services – for example for in-app purchases – when a business user is providing a service via that gatekeeper’s core platform.

What are the opportunities for businesses in light of the Digital Markets Act?

The DMA paves the way for businesses in Europe to choose from a range of payment services when selling goods, services and digital products over the internet. A huge variety of business types could be impacted by this widening of payment options, including:

• Streaming services, media publishers, and content creators
• App makers and digital marketplace developers
• Gaming services providers
• Education providers, telehealth providers and other online consultants
• Ecommerce retailers
• Vendors of SaaS, communication tools and other types of software

With the ability to choose between payment service providers, business leaders will gain more control over their payments strategies. By comparing acceptance rates, costs, settlement times, and other differences between providers, business managers can better target improved customer experiences and stronger revenue. 

Get in touch so Checkout.com can support your payment needs in Europe and beyond.

‍The contents of this blog post do not constitute legal advice and are provided for general information purposes only.