Digital Currency Stack Concentration And Payment Ecosystem Control

Introduction

Digital currency stack concentration refers to the accumulation of market power across several interconnected layers of a digital-money and payment ecosystem—for example:

1. central-bank or settlement infrastructure;
2. commercial-bank payment rails;
3. card networks and account-to-account payment systems;
4. digital wallets;
5. mobile operating systems and app stores;
6. payment gateways and processors;
7. stablecoins and token issuers;
8. cryptocurrency exchanges;
9. identity, authentication and fraud-prevention infrastructure;
10. data, cloud and API infrastructure.

The competition concern is not merely that one undertaking has a large market share in one payment service. The more serious concern arises when a firm controls several vertically or horizontally connected layers, allowing it to discriminate against rivals, self-preference its own payment services, restrict interoperability, exploit transaction data, raise switching costs, or make access to the wider digital economy conditional upon use of its infrastructure.

Digital payments therefore create a potential stack-control problem: control at one layer can reinforce market power at another.

1. Meaning Of Digital Currency Stack Concentration

A simplified digital-payment stack can be represented as:

Currency / Settlement Layer
↓
Payment Rail
↓
Processing / Clearing
↓
Wallet / Account Layer
↓
Device / Operating System
↓
Application / Merchant Interface
↓
Data / Identity / Authentication

Concentration becomes particularly problematic when the same undertaking—or a small group of interoperable undertakings—controls multiple layers.

For example, a platform could simultaneously control:

• the mobile operating system;
• the device's NFC functionality;
• the default wallet;
• authentication;
• payment-processing APIs;
• merchant data;
• advertising;
• and an affiliated financial service.

The platform could then potentially make competing payment providers technically inferior even without formally prohibiting them.

2. Why The Payment Ecosystem Is Particularly Vulnerable To Concentration

A. Network Effects

Payment systems become more valuable as more consumers and merchants participate.

A payment network with millions of users attracts more merchants; more merchants attract more users.

This can produce a feedback loop:

Users → Merchants → Transactions → Data → Better service → More users

Once a network reaches substantial scale, entry becomes difficult.

B. Two-Sided Market Effects

Payment platforms generally connect at least two groups:

• consumers;
• merchants.

Often there are additional sides:

• banks;
• payment processors;
• developers;
• advertisers;
• fintech providers.

A platform may therefore subsidise one side while extracting revenue from another.

Competition authorities must consequently avoid assessing market power solely through consumer prices.

3. Vertical Foreclosure

A vertically integrated payment ecosystem can exclude competitors by controlling an essential upstream input.

Examples include:

• access to NFC;
• payment APIs;
• authentication;
• tokenisation;
• settlement;
• wallet functionality;
• merchant acquiring;
• transaction data.

If a dominant platform gives its own payment product preferential technical access while rivals receive inferior access, this may constitute foreclosure through infrastructure.

4. Self-Preferencing

Self-preferencing occurs where an ecosystem operator gives its own payment service preferential treatment.

Examples include:

• default-wallet placement;
• preferential API access;
• better authentication;
• lower transaction latency;
• superior tokenisation;
• privileged access to transaction data;
• automatic selection of an affiliated wallet;
• ranking its own payment product above rivals.

The competition concern is amplified when users face substantial friction in changing the default provider.

5. Interoperability And Access

Interoperability is particularly important in digital currency ecosystems.

A dominant payment infrastructure provider might restrict:

• API access;
• wallet interoperability;
• account portability;
• NFC access;
• QR-code interoperability;
• token portability;
• stablecoin conversion;
• merchant acceptance;
• cross-platform payments.

A refusal to interoperate is not automatically unlawful. Competition law generally requires additional circumstances demonstrating exclusionary effects or abuse of dominance.

6. Data Concentration

Payment transactions generate extremely valuable data.

Such data can reveal:

• purchasing behaviour;
• merchant relationships;
• transaction frequency;
• geographic activity;
• consumer preferences;
• creditworthiness indicators;
• business relationships.

A dominant firm combining payment data with:

• search data;
• advertising data;
• social-network data;
• location data;
• device data;

may obtain a substantial competitive advantage.

The resulting concern is sometimes described as data-driven foreclosure.

7. Digital Currency And Stablecoin Concentration

Stablecoins introduce another potential layer of concentration.

A large stablecoin issuer could control:

• issuance;
• redemption;
• reserves;
• settlement;
• wallet integration;
• exchange liquidity;
• merchant acceptance.

If widely adopted, such an issuer could become a quasi-infrastructure provider.

Competition questions may therefore arise concerning:

• reserve access;
• interoperability;
• exchange listing;
• wallet compatibility;
• discriminatory transaction fees;
• redemption;
• access to settlement infrastructure.

8. Lock-In And Switching Costs

Digital payment ecosystems can make switching costly through:

• stored credentials;
• loyalty programmes;
• merchant integration;
• authentication systems;
• subscriptions;
• recurring payments;
• transaction histories;
• device defaults;
• accumulated reputation.

Consequently, a nominally "free" payment service can still possess significant market power.

9. Tying And Bundling

A dominant digital ecosystem may tie payment services to another product.

For example:

access to a dominant marketplace → requires the platform's wallet.

Or:

use of a mobile ecosystem → preferential access is given to its affiliated payment service.

Tying becomes particularly concerning where:

1. the undertaking is dominant in the tying market;
2. the products are distinct;
3. customers are coerced or strongly induced to obtain the tied product;
4. the conduct is capable of foreclosing competition.

10. Excessive Transaction Fees

Concentration can also facilitate exploitative pricing.

Potential examples include:

• excessive merchant fees;
• wallet fees;
• payment-processing charges;
• cross-border transaction fees;
• stablecoin redemption charges.

However, competition authorities must distinguish legitimate recovery of infrastructure costs from exploitative abuse.

11. Algorithmic Payment Discrimination

AI and algorithms can intensify ecosystem control.

A dominant platform could algorithmically determine:

• transaction approval;
• fraud scores;
• merchant visibility;
• payment routing;
• transaction fees;
• credit access;
• wallet recommendations.

If the algorithm systematically disadvantages competing payment providers, the relevant conduct may amount to technologically implemented exclusion.

12. Relevant Competition-Law Theories

The principal legal theories include:

Article 101 / Section 1-type concerns

Agreements among payment providers could involve:

• market allocation;
• interchange-fee coordination;
• restrictions on interoperability;
• collective exclusion;
• information exchange.

Article 102 / Abuse-of-dominance concerns

Potential abuses include:

• refusal to supply;
• discriminatory access;
• tying;
• bundling;
• self-preferencing;
• exclusionary rebates;
• excessive pricing;
• leveraging dominance into adjacent payment markets.

Merger control

Acquisitions can create concentration between:

• wallets and payment processors;
• banks and fintechs;
• exchanges and stablecoin issuers;
• mobile platforms and payment services;
• payment networks and merchant-acquiring businesses.

13. Major Case Laws

1. United States v. Visa Inc. and Mastercard Incorporated

The litigation surrounding Visa and Mastercard's rules concerning merchants and alternative payment systems is highly relevant to payment-ecosystem control.

The broader competition issue concerned the ability of major card networks to impose rules affecting merchants' ability to use or encourage alternative payment methods.

Principle

Payment-network rules can have competition significance when network operators possess sufficient market power to restrict merchants' ability to use competing payment mechanisms.

Relevance

The case illustrates the importance of examining network rules as instruments of ecosystem control, rather than analysing payment prices in isolation.

2. United States v. American Express Co. (2018)

The U.S. Supreme Court examined American Express's contractual restrictions on merchants steering customers toward cheaper payment alternatives.

The Court treated the credit-card system as a two-sided transaction platform, requiring competitive effects to be considered on both sides of the platform.

Principle

In a two-sided transaction platform, competition analysis must account for the interaction between the different sides of the platform.

Relevance

This is particularly important for digital wallets, payment apps and stablecoin ecosystems because consumers and merchants are economically interconnected.

3. Ohio v. American Express Co. (2018)

This decision reinforced the two-sided-platform approach.

The Court held that the relevant market analysis had to account for both:

• cardholders; and
• merchants.

Principle

A platform's competitive effects cannot necessarily be evaluated by examining only one group of users.

Relevance

Digital payment ecosystems similarly operate through interconnected consumer and merchant sides. A payment service might subsidise consumers while monetising merchants.

4. Mastercard Inc. v. Merricks (UK/EU competition-law relevance)

The Mastercard interchange-fee litigation concerned the effects of Mastercard's multilateral interchange fee arrangements.

The UK Supreme Court addressed important issues concerning collective proceedings and competition damages.

Principle

Competition-law analysis of payment-card arrangements can involve complex questions concerning:

• interchange fees;
• merchant costs;
• pass-on;
• collective harm.

Relevance

The case demonstrates that concentrated payment networks can produce effects extending throughout downstream merchant markets.

5. European Commission v. MasterCard Inc. (C-382/12 P)

The European Court of Justice upheld the European Commission's competition-law concerns regarding Mastercard's multilateral interchange fees.

The case is one of the leading authorities on competition restrictions within payment-card systems.

Principle

Rules governing payment networks may restrict competition where they increase merchant costs and influence the competitive conditions under which payment services are supplied.

Relevance

It demonstrates that seemingly technical payment-network rules can have significant competition effects.

6. Commission v. Google Android (C-48/22 P)

Although not exclusively a payment case, the Google Android litigation is highly relevant to digital stack concentration.

The European Commission examined Google's contractual restrictions concerning Android devices, including arrangements involving default placement and ecosystem access.

Principle

A dominant digital ecosystem can potentially leverage control over an upstream platform into adjacent markets through contractual and technical restrictions.

Relevance

The same theory can apply to digital payments where a mobile operating-system provider uses control over the device or operating system to favour its own wallet or payment service.

7. Google Shopping (Google Search and Shopping, Case AT.39740)

The European Commission found that Google had abused its dominant position by favouring its comparison-shopping service in search results.

Principle

A dominant platform may not use control over an important infrastructure layer to systematically favour an affiliated downstream service where the conduct produces exclusionary effects.

Relevance

The self-preferencing principle is directly relevant to digital-payment ecosystems.

A platform controlling search, mobile devices, app distribution and wallets could potentially favour its own payment service in similar ways.

8. Microsoft v. Commission (T-201/04)

The Microsoft interoperability case concerned Microsoft's refusal to provide interoperability information necessary for competing work-group server products.

Principle

Control over a strategically important technological interface can become a competition issue where interoperability restrictions materially impair rivals.

Relevance

The principle is highly transferable to:

• payment APIs;
• NFC interfaces;
• wallet interoperability;
• authentication systems;
• payment-routing protocols.

14. How Stack Concentration Can Produce Competitive Harm

The principal chain is:

Infrastructure control
↓
Technical advantage
↓
Reduced interoperability
↓
Higher switching costs
↓
User lock-in
↓
More transaction data
↓
Improved ecosystem advantage
↓
Competitor foreclosure

This creates a potentially self-reinforcing concentration cycle.

15. Payment Data As A Competitive Moat

Suppose Platform A processes 70% of transactions within an ecosystem.

It can potentially obtain information concerning:

• purchasing behaviour;
• merchant performance;
• transaction frequency;
• consumer demand;
• fraud patterns.

Platform A can then use those data to improve:

• lending;
• advertising;
• pricing;
• fraud detection;
• marketplace ranking.

Competitors that do not have comparable transaction data may consequently become less competitive.

This creates a data-network-effect feedback loop.

16. Essential-Facility Considerations

Certain payment infrastructure may become sufficiently indispensable to generate an essential-facility-type argument.

However, competition law generally does not treat every commercially important facility as an essential facility.

The strongest case arises where:

1. the facility is effectively indispensable;
2. duplication is impractical;
3. access is objectively necessary for competition;
4. refusal is capable of eliminating effective competition;
5. there is no adequate objective justification.

The Microsoft interoperability litigation provides an important analytical reference point.

17. Merger And Acquisition Risks

Digital currency stack concentration can also arise through acquisitions.

Potential transactions include:

Wallet + payment processor

Payment network + fintech

Stablecoin issuer + exchange

Bank + digital-wallet provider

Cloud provider + payment infrastructure

Mobile OS + payment platform

The key question is not merely whether the acquired company has a large current market share.

Authorities may need to examine:

• future competition;
• innovation;
• access to data;
• interoperability;
• nascent competitors;
• ecosystem leverage;
• entry barriers.

18. Regulatory And Competition-Law Overlap

Digital payment ecosystems often sit at the intersection of:

• competition law;
• banking regulation;
• payments regulation;
• financial stability;
• consumer protection;
• data protection;
• cybersecurity;
• digital-platform regulation.

A payment system may therefore be subject to both ex ante regulation and ex post competition enforcement.

This is particularly important for systemically significant digital payment infrastructure.

19. Remedies

Competition authorities could consider several remedies.

Structural remedies

• divestiture;
• separation of payment businesses;
• restrictions on acquisitions.

Behavioural remedies

• interoperability obligations;
• non-discrimination;
• API access;
• data portability;
• default-choice screens;
• prohibition of self-preferencing.

Technical remedies

• open APIs;
• interoperable wallet standards;
• NFC access;
• common authentication protocols;
• transparent payment-routing rules.

Data remedies

• data portability;
• data-access obligations;
• restrictions on combining datasets;
• purpose limitation;
• independent data governance.

20. Central-Bank Digital Currency Considerations

CBDCs introduce a distinctive concentration question.

A CBDC could potentially reduce private payment-network dependence by providing a public settlement infrastructure.

However, excessive concentration can arise elsewhere if a small number of:

• wallet providers;
• intermediaries;
• technology providers;
• identity providers;

control access to the CBDC ecosystem.

Therefore, public digital currency infrastructure does not automatically eliminate competition concerns.

The competitive architecture depends upon:

• interoperability;
• open access;
• neutrality;
• portability;
• multiple intermediaries;
• transparent technical standards.

21. Key Legal Test

A useful analytical framework is:

Step 1 — Identify the stack

Which layers does the undertaking control?

Step 2 — Define relevant markets

Identify:

• payment services;
• wallet services;
• payment processing;
• digital identity;
• device functionality;
• settlement;
• data services.

Step 3 — Assess market power

Consider:

• market shares;
• network effects;
• switching costs;
• entry barriers;
• data advantages;
• interoperability.

Step 4 — Identify the conduct

Is there:

• tying?
• bundling?
• self-preferencing?
• refusal to interoperate?
• discriminatory access?
• exclusive dealing?
• predatory/excessive pricing?
• data leveraging?

Step 5 — Measure foreclosure

Ask whether rivals are actually or potentially excluded.

Step 6 — Examine justification

Consider:

• security;
• fraud prevention;
• privacy;
• technical integrity;
• financial stability;
• legitimate efficiency.

Step 7 — Design proportionate remedies

The remedy should restore competition without unnecessarily compromising payment security.

22. Important Distinction: Concentration Is Not Automatically Abuse

A high degree of concentration does not itself establish an infringement.

Competition law distinguishes between:

having market power

and

abusing market power.

Similarly, integration of payment functions can generate genuine efficiencies:

• lower fraud;
• faster settlement;
• reduced costs;
• better authentication;
• improved consumer protection.

The central competition question is therefore whether ecosystem integration is being used to protect or extend market power through exclusionary mechanisms.

23. Six+ Case-Law Takeaway Table

Conclusion

Digital Currency Stack Concentration And Payment Ecosystem Control represents a modern form of competition concern in which market power may arise not from control of a single payment product, but from control over multiple mutually reinforcing layers of digital financial infrastructure.

The most important risks are:

• vertical foreclosure;
• self-preferencing;
• interoperability restrictions;
• wallet and device lock-in;
• data accumulation;
• tying and bundling;
• algorithmic discrimination;
• stablecoin infrastructure concentration;
• payment-network coordination;
• ecosystem-driven merger concentration.

The leading payment cases—particularly American Express, Mastercard and Merricks—show why payment systems require specialised two-sided-market analysis. Meanwhile, Google Shopping, Google Android and Microsoft provide broader principles for understanding how control over a digital infrastructure layer can be leveraged into adjacent markets.

Ultimately, competition policy should focus not merely on the price of digital payments, but on who controls the interfaces, defaults, data, interoperability and technical infrastructure through which digital money moves.