verifone

The Competition Commission of India (CCI) has slapped a penalty of Rs 4.48 crore on point-of sale (POS) terminal provider Verifone India for abusing its dominant position and imposing restrictive deals for providing software development kits (SDKs) to developer Atos Worldline India  which operates in the areas of hi-tech transactional services, consulting and technology services. Download the CCI order here (pdf)

Atos in India is a third party processor (TPP) for financial services and also develops value added services such as loyalty programmes, gift cards, bill payment, top-up, money transfer, dynamic currency conversion. As a third party processor, Atos tracks the flow of events between a card holder swiping his card and finally receiving a printed receipt at POS terminals and relies on regular updates of Verifone’s SDKs.

The director general (DG) of the CCI  reported that during the period of investigation i.e., from 2010 to the date of filing of information in 2012, there were mainly two players in the relevant market, Verifone and Ingenico. In terms of the number of POS Terminals sold, the market share of Verifone was 57%, compared to 43% of its nearest competitors. In the same period, banks procured about 5.8 lakhs of POS Terminals which belonged to Verifone, and  only procured 50,000 terminals from Ingenico. Accordingly, the market share of Verifone in terms of sale of POS Terminals to banks is estimated around 70% vis-à-vis 30% of Ingenico.

Atos’ allegations in the case

Atos alleged that following Verifone’s acquisition of Venture Infotek in August 2010, Verifone issued a termination letter for its SDKs in September 2010 alleging breach of Source Code License Agreement (SCLA) which was signed between them in July, 2009 for a particular model of a POS terminal. Atos further said that Verifone has made significant inroads in the VAS business since then and viewed it as competition in the market and sought to directly to impair VAS providers operating in the market.

Despite the letter, Atos said that it used to get regular updates from Verifone for its SDKs from the period of September 2010 to December 2011 without any restrictions.

In January 2012, Atos received a revised deal where Verifone sought to impose unreasonable restrictions for the use of its SDKs. Atos said that the deal was a complete departure from existing business practices in the industry for several years.

The CCI report also further says that Verifone delayed the supply of software kernels which caused heavy revenue loss to Atos. Between the period of January 2012 and July 2012, Verifone also allegedly  made repeated attempts to force Atos  to agree to the terms and conditions as set out in the draft SDK agreement failing which it threatened to withdraw the SDK support for the Atos’ business.

Terms of Verifone’s deal

– During the investigation, the DG found the Verifone imposed three disclosure requirements on Atos:

  • Disclose to licensor from time to time the activities relating to licensed software
  • What value added software it has created
  • What it intends to create using the licensed software.

“By way of this restriction, Verifone was trying to get access to confidential commercial information from the VAS providers and to exploit the lucrative VAS market. The requirement of prior disclosure to Verifone about the VAS developed by the Informant (Atos) amounts to imposition of unfair condition on the Informant and it limits the provision of VAS services,” the CCI report noted.

– Verifone also inserted a clause that Atos will not “not use the licensed software to develop any payment software that directly or indirectly interacts with any acquiring bank”

CCI’s ruling

– The DG investigation showed no other POS Terminal vendor in India or outside India put any restrictions on development of applications or other restrictive clauses similar to SDK agreement of Verifone. From the report:

The intent of the Verifone seems to be to exploit the VAS players by either restricting them or sharing the revenue with them because VAS market is highly profitable and has recurring benefits.

– The CCI decided to impose a penalty of 5% of Verifone’s turnover for three years based on the financial statements submitted. The penalty was calculated as follows:

CCI penalty

Dismal state of POS terminals in India and our take

According to the Reserve Bank of India (RBI), currently there are only two companies in India which are prominent  players in the POS terminals market: Verifone and Ingenico. India has an abysmal number of point-of-sale terminals at merchants. According to latest RBI data, the total number of POS terminals in the country are 1,125,675 as of April 2015. Compare that to 564,707,913 debit cards and 21,288,891 credit cards in circulation.

It’s therefore no wonder that an Ernst and Young report points out that the country has the lowest POS terminal penetration in the world. The report further adds that there are only 693 machines per million of India’s population, compared to similar emerging countries such as Brazil, which has 32,995 terminals per million people and China and Russia, each of which has around 4000 terminals per million people.

This calls for more competition in the digital payments space especially in the POS terminals space where basic SDKs for devices should not be held under unfair terms for third party developers who wish to develop their own products. Perhaps the RBI could take steps to allow more hardware providers to avoid such skews.

Image source: Atos