Embedded Finance Platform Control and Transaction Dependency

1. Introduction

Embedded finance refers to the integration of financial products directly into non-financial digital platforms. Instead of leaving an online marketplace, mobility application, e-commerce platform, accounting application, social platform, or business-management system to obtain financial services separately, users receive those services within the platform itself.

Examples include:

embedded payments;

digital wallets;

buy-now-pay-later services;

embedded lending;

merchant financing;

insurance;

payroll services;

banking-as-a-service;

payment processing;

stored-value accounts;

embedded investment products.

The competition-law concern arises when the platform becomes so deeply integrated into a user's transactions that customers, merchants, lenders, payment providers, and competitors become economically dependent upon the platform.

The platform can consequently evolve from being merely a digital intermediary into a financial transaction gatekeeper.

2. Meaning of Transaction Dependency

Transaction dependency exists where an undertaking's customers or business partners cannot realistically transact without using the undertaking's platform or infrastructure.

For example:

Merchant → marketplace → embedded payment system → customer → settlement → merchant bank

If the marketplace controls both the customer relationship and the payment infrastructure, the merchant may become dependent on the platform for completing transactions.

The dependency becomes stronger where the platform controls:

identity verification;

authentication;

payment authorization;

transaction data;

customer accounts;

settlement;

credit scoring;

merchant visibility.

3. The Embedded-Finance Ecosystem

The basic ecosystem can be represented as:

Platform → Users → Merchants → Payments → Credit → Data → Financial Services

The platform may initially provide only a marketplace.

Over time it can add:

payment processing;

wallet services;

merchant credit;

consumer credit;

insurance;

investment;

financial analytics.

This creates opportunities for vertical integration and ecosystem leverage.

4. Why Embedded Finance Creates Competition Risks

Embedded finance can generate substantial efficiencies.

It may:

reduce transaction costs;

improve convenience;

expand financial inclusion;

reduce fraud;

improve underwriting;

accelerate payments;

lower customer-acquisition costs.

But the same integration can produce significant barriers to competition.

Potential concerns include:

tying;

bundling;

self-preferencing;

exclusive dealing;

foreclosure;

discriminatory access;

data advantages;

excessive switching costs;

interoperability restrictions;

refusal to provide access;

leveraging of platform dominance.

5. Platform Control Over Transactions

A platform controlling the transaction layer may obtain information concerning:

customer purchases;

merchant revenues;

payment histories;

refunds;

chargebacks;

credit behaviour;

transaction frequency;

consumer preferences.

This data can provide a substantial competitive advantage in adjacent financial markets.

For example, a marketplace could use merchant transaction data to offer its own loans while restricting rival lenders' access to comparable information.

This produces a possible data-driven foreclosure problem.

6. The Transaction Gatekeeper

The most important concept is the transaction gatekeeper.

A platform becomes a gatekeeper when businesses depend on it to reach customers or complete transactions.

For example:

Merchant → Platform → Customer

If the platform also controls:

Merchant → Payment → Credit → Settlement

it may control several critical stages of the commercial relationship.

The platform can then potentially influence not merely whether a transaction occurs, but which financial provider participates in the transaction.

7. Tying and Bundling

Suppose a dominant marketplace requires merchants to use its payment service.

The platform could argue that this produces:

lower fraud;

faster settlement;

improved customer experience;

better security.

Those may be legitimate benefits.

However, competition concerns arise if the payment requirement is primarily designed to prevent independent payment providers from competing.

A competition authority would examine:

dominance in the tying market;

separate demand for the tied product;

coercion;

foreclosure;

objective justification;

efficiencies.

8. Self-Preferencing

Embedded finance creates an especially strong self-preferencing risk.

Suppose a platform operates:

a marketplace;

a payment service;

a lending business.

It might give its own financial products:

better visibility;

faster approval;

lower transaction costs;

preferential ranking;

privileged access to transaction data.

Independent financial providers may technically remain on the platform but become commercially ineffective.

This is a form of platform-mediated foreclosure.

9. Exclusive Dealing

A platform might require merchants to:

use its payment processor;

obtain loans through its financial subsidiary;

use its wallet;

purchase its insurance;

avoid competing financial services.

Exclusivity can produce efficiencies, but it can also prevent rival financial providers from achieving sufficient scale.

This is especially problematic where the platform already controls a large customer base.

10. Data Monopolization

Data is potentially the most important competitive asset in embedded finance.

A platform may know:

transaction volume;

payment history;

merchant performance;

customer purchasing behaviour;

default risk;

seasonal demand.

A rival lender may have no equivalent dataset.

The platform can therefore potentially use its downstream transaction data to strengthen its position in upstream or adjacent financial markets.

11. Network Effects

Embedded financial platforms can exhibit several network effects.

More merchants attract more consumers.

More consumers attract more merchants.

More transactions generate more data.

More data improves:

fraud detection;

credit scoring;

recommendations;

underwriting.

Improved services attract more users.

Thus:

Users → transactions → data → better financial services → more users

can create a self-reinforcing ecosystem.

12. Switching Costs

Transaction dependency becomes particularly problematic when switching is costly.

A merchant may have to change:

payment infrastructure;

accounting integration;

customer records;

settlement arrangements;

credit facilities;

fraud systems;

APIs.

Consequently, the merchant may remain on the platform even if competing financial services are cheaper.

13. Interoperability

Interoperability is therefore central.

A dominant platform could potentially restrict:

API access;

payment interoperability;

wallet portability;

account portability;

transaction-data portability.

Such restrictions can make competing financial providers less attractive.

The competition issue is particularly serious where the platform controls a commercially indispensable interface.

14. Refusal to Deal

A dominant embedded-finance platform might refuse access to a third-party financial provider.

For example, it might deny access to:

payment APIs;

transaction information;

merchant accounts;

identity-verification systems.

The legal question becomes whether the platform controls an indispensable input and whether exclusion eliminates effective competition.

The essential-facilities doctrine becomes relevant here.

15. Relevant Case Laws

1. United Brands v Commission

United Brands Company v Commission, Case 27/76

The European Court of Justice established important principles concerning dominance and the ability of an undertaking to act independently of competitors, customers and consumers.

Relevance

In embedded finance, market power should not be assessed solely by looking at financial-service market share.

A platform may possess substantial bargaining power because merchants and consumers are dependent upon its ecosystem.

Relevant indicators include:

network effects;

switching costs;

transaction dependency;

control over data;

ecosystem integration.

16. Commercial Solvents v Commission

Commercial Solvents Corp. v Commission, Joined Cases 6/73 and 7/73

The Court addressed the use of dominance at one level of a market to restrict competition at another level.

Embedded-finance relevance

A platform may dominate a marketplace while also competing in:

payments;

merchant lending;

insurance;

credit scoring.

Using marketplace power to exclude rival financial providers would raise a classic leveraging concern.

17. Bronner v Mediaprint

Oscar Bronner GmbH & Co. KG v Mediaprint, Case C-7/97

The Court established demanding conditions for compulsory access to infrastructure controlled by a dominant undertaking.

Embedded-finance relevance

Suppose a platform controls an infrastructure that competitors need to reach customers or complete transactions.

Bronner requires careful examination of:

indispensability;

inability to duplicate;

elimination of competition;

objective justification.

Not every commercially useful platform is automatically an essential facility.

18. Microsoft v Commission

Microsoft Corp. v Commission, Case T-201/04

The case concerned refusal to provide interoperability information to competitors.

Embedded-finance relevance

The analogy is particularly strong where embedded-finance competitors require access to:

APIs;

authentication systems;

payment interfaces;

technical information.

A dominant platform's control over interoperability may become a means of excluding competing financial services.

19. Google Shopping

Google Search (Shopping), Case AT.39740; General Court Case T-612/17

The case concerned Google's preferential treatment of its own comparison-shopping service within its general search infrastructure.

Embedded-finance relevance

A marketplace could similarly privilege its own:

wallet;

lending service;

insurance product;

payment system.

The issue is whether the platform uses its control over the transaction environment to favour its own downstream financial service.

20. Google Android

Google Android, Case AT.40099

The European Commission examined contractual restrictions involving Google's mobile ecosystem.

Embedded-finance relevance

The case demonstrates how contractual arrangements within an ecosystem can affect competitive opportunities.

Comparable restrictions could arise where an embedded-finance platform requires merchants or users to adopt its own financial services as a condition of obtaining access to the broader platform.

21. Slovak Telekom

Slovak Telekom a.s. v Commission, Joined Cases C-165/19 P and C-166/19 P

The case concerned exclusionary conduct involving access to telecommunications infrastructure.

Embedded-finance relevance

The broader principle applies to infrastructure-dependent markets.

Where financial providers depend on a platform's infrastructure to reach customers, discriminatory or exclusionary access conditions may produce foreclosure.

22. Deutsche Telekom

Deutsche Telekom AG v Commission, Case C-280/08 P

The case concerned exclusionary pricing involving access to infrastructure.

Embedded-finance relevance

An embedded-finance platform could potentially impose access charges that make independent providers economically unviable.

The analysis would examine whether the pricing structure effectively prevents equally efficient competitors from operating.

23. American Express

Ohio v American Express Co., 585 U.S. 529 (2018)

This United States Supreme Court case concerned the two-sided nature of the credit-card transaction platform.

Relevance to embedded finance

This is particularly important because embedded-finance platforms can be two-sided or multi-sided markets.

For example:

Consumers ↔ Platform ↔ Merchants

Changes affecting one side may influence the other.

Competition analysis therefore cannot always consider merchants and consumers as completely independent markets.

The case highlights the importance of understanding the economics of transaction platforms.

24. AmEx and Two-Sided Markets

The significance of American Express extends beyond payment cards.

An embedded-finance platform may simultaneously serve:

consumers;

merchants;

financial institutions;

advertisers;

lenders.

The platform's competitive strategy on one side may affect competition on another.

For example, subsidized consumer payments might be financed through higher merchant fees.

Consequently, competition authorities must evaluate the overall platform economics.

25. Market Definition

Potential relevant markets may include:

Payment services

merchant acquiring;

payment processing;

digital wallets.

Credit

merchant lending;

consumer lending;

BNPL.

Platform services

marketplace intermediation;

app-based transaction services.

Financial infrastructure

identity verification;

transaction authentication;

payment APIs.

A single embedded-finance ecosystem may therefore contain multiple overlapping relevant markets.

26. Ecosystem Leverage

One of the central concerns is ecosystem leveraging.

A platform might use:

Marketplace dominance

to strengthen:

Payment dominance

which then strengthens:

Lending dominance

which produces:

More transaction data

which further strengthens:

Marketplace dominance.

This can create a reinforcing competitive cycle.

27. Killer Acquisition Risk

A dominant platform may acquire emerging financial technology companies before they become serious competitors.

Potential targets include:

payment start-ups;

digital-wallet providers;

lending platforms;

financial-data companies;

identity-verification providers.

The competition concern is that an acquisition may eliminate a future competitor or neutralize an innovative technology.

Traditional turnover-based merger thresholds may sometimes fail to capture strategically important start-ups.

28. Algorithmic Credit Discrimination

Embedded lenders can use platform data to make automated lending decisions.

The platform may possess information unavailable to independent lenders.

This can create competitive advantages through:

superior credit scoring;

lower default rates;

personalized pricing;

faster underwriting.

The competition issue arises if rivals are denied equivalent access to the relevant data while the platform uses its privileged information to expand its own financial services.

29. Margin Squeeze

A platform controlling both:

an upstream transaction infrastructure; and

downstream financial services

could theoretically impose conditions that squeeze independent competitors.

For example:

High platform access fee + low price for platform's own lending service

could make it difficult for rival lenders to compete.

This raises a potential margin-squeeze theory.

30. Predatory Pricing

A platform may initially provide:

free payments;

subsidized credit;

zero-fee wallets.

This can attract users and merchants.

If the platform subsequently uses ecosystem control to recover losses from complementary services, authorities may need to examine whether the strategy is legitimate competition or exclusionary conduct.

The analysis should account for the economics of the entire platform rather than looking at a single transaction in isolation.

31. Transaction Data as a Strategic Asset

Transaction data can create three forms of competitive advantage:

1. Information advantage

Better knowledge of customer and merchant behaviour.

2. Prediction advantage

Better forecasting of:

demand;

defaults;

customer churn.

3. Pricing advantage

Ability to tailor:

interest rates;

credit limits;

fees;

promotions.

If rivals cannot obtain comparable information, the incumbent may enjoy a durable competitive advantage.

32. Consumer Lock-In

Consumers may become dependent upon:

wallets;

stored payment credentials;

loyalty programmes;

credit histories;

subscriptions;

transaction records.

The cost of leaving the platform may therefore exceed the nominal financial cost.

This produces behavioural and technological lock-in.

33. Merchant Lock-In

Merchant dependency can be even stronger.

A merchant may rely on the platform for:

customer acquisition;

payments;

working capital;

inventory financing;

insurance;

accounting.

Leaving the platform could therefore mean losing multiple business functions simultaneously.

This makes the platform difficult to discipline through ordinary competitive pressure.

34. Interoperability Remedies

Possible remedies include:

Open APIs

Third-party providers receive standardized access.

Data portability

Customers can transfer transaction data.

Payment interoperability

Users can transact through competing payment systems.

Non-discrimination

The platform cannot favour its own financial affiliate.

API transparency

Technical access requirements must be transparent.

Functional separation

Infrastructure and downstream financial services may be separated where necessary.

35. India-Specific Perspective

In India, embedded-finance competition issues may engage the Competition Act, 2002, particularly the provisions concerning:

abuse of dominant position;

restrictive agreements;

vertical restraints;

combinations.

The issues can intersect with financial-sector regulation concerning:

payments;

digital lending;

data governance;

account aggregation;

banking-as-a-service.

A platform may therefore be simultaneously subject to competition regulation and sector-specific financial regulation.

36. Regulatory Tension

Financial regulation may require a platform to impose controls concerning:

KYC;

anti-money laundering;

fraud;

cybersecurity;

consumer protection.

Competition law, however, may seek:

interoperability;

open access;

non-discrimination;

portability.

The correct approach is not to eliminate financial safeguards but to ensure that they are proportionate and competitively neutral.

37. Analytical Framework

A competition authority can assess embedded-finance platform control through the following sequence:

Step 1 — Identify the platform

What ecosystem does the undertaking control?

Step 2 — Identify transaction dependency

Can merchants or consumers realistically transact elsewhere?

Step 3 — Define relevant markets

Consider payments, lending, marketplace services and financial infrastructure separately where appropriate.

Step 4 — Assess dominance

Examine:

market share;

network effects;

switching costs;

data advantages;

entry barriers.

Step 5 — Identify exclusionary conduct

Look for:

tying;

bundling;

self-preferencing;

exclusivity;

discriminatory access;

refusal to deal;

data foreclosure.

Step 6 — Assess effects

Determine whether competitors are actually or potentially foreclosed.

Step 7 — Examine efficiencies

Consider:

security;

fraud prevention;

convenience;

reduced transaction costs;

financial inclusion.

Step 8 — Select proportionate remedies

Preserve legitimate financial safeguards while restoring competitive access.

38. Key Case-Law Matrix

39. Conclusion

Embedded finance can transform a digital platform from a marketplace into a financial infrastructure gatekeeper.

The principal competition concern is not simply that a platform offers financial services. Competition law generally permits firms to innovate and vertically integrate.

The concern arises when the platform uses control over transactions to foreclose competing financial providers.

The most important risks are:

payment-system tying;

self-preferencing;

exclusive financial services;

data monopolization;

API restrictions;

interoperability failures;

transaction-data leveraging;

merchant lock-in;

consumer lock-in;

margin squeeze;

ecosystem foreclosure;

acquisition of emerging competitors.

The principles from United Brands, Commercial Solvents, Bronner, IMS Health, Microsoft, Google Shopping, Google Android, Slovak Telekom, Deutsche Telekom and American Express provide a strong framework for evaluating these risks.

Ultimately, the key question is:

Does embedded financial integration merely make transactions more efficient, or does the platform use transaction dependency to make competing financial services practically incapable of reaching customers?