EU Regulation Forces Retailers to Rethink Loyalty Programs

Read anything about the recent March 7 enforcement date for the EU’s new Digital Markets Act (DMA) and you’ll inevitably see a focus on big tech companies, potential fines and a general sense that this is a salvo in the EU’s desire to become “a digital cop.” Some of that is accurate and relevant. But when the dust settles on the DMA, the biggest and most immediate impact may be at retail.

“Buckle up, because things are about to get fascinating for coffee lovers and everyone else who enjoys seamless in-store shopping,” said Mark Beresford, who heads up the Retailer Payments Practice for London’s Edgar Dunn & Company . “The DMA forces change, and this change transfers power back to consumers and merchants. Imagine a world where your phone becomes a loyalty powerhouse. Every tap unlocks rewards — not just from one shop, but across a network of participating businesses. It is loyalty 2.0, streamlined and effortless.”

Loyalty 2.0. In order for retailers to achieve that, they need first to understand the general tenets of the DMA — because it does represent a dramatic shift in the regulatory landscape of digital platforms, aimed at fostering a more competitive digital market. The most important element is the new designation of dominant platforms as “gatekeepers.” These gatekeepers are defined as companies who 1) have a strong economic position, significant impact on the internal market and are active in multiple EU countries 2) have a strong intermediation position, meaning that it links a large user base to a large number of businesses and 3) has (or is about to have) an entrenched and durable position in the market, meaning that it is stable over time if the company met the two criteria above in each of the last three financial years.

If that sounds like Apple, Alphabet, Meta and other big tech power players, you’re right. The DMA has been tagged by some analysts as a curb on big tech, ensuring they do not abuse market dominance to the detriment of competitors and consumers. But when you look past the effect on big tech and look at the DMA from a retailing and consumer standpoint, the EU aims to enhance consumer choice, foster innovation, and protect user privacy. It will impact a wide array of digital services, including online marketplaces, social networks, content-sharing platforms, and more.

And as it takes affect, the Digital Markets Act (DMA) will enable retailers to leverage a broader array of digital platforms and technologies to reach consumers. The DMA encourages the creation and adoption of more sophisticated and personalized loyalty programs, facilitated by the DMA’s mandates on data portability and interoperability between services. Retailers will have access to a wider spectrum of digital interactions, empowering them to tailor offers more effectively to individual consumer preferences, with the outcome of enhancing customer engagement and loyalty.

As Beresford explains it, the DMA opens the market up for more retail payment methods and will foster their interoperability. Among the changes he expects: face-to-face contactless payments and transactions from a third-party banking or wallet app.

“Consumers will be able to pay via a contactless payment without a MasterCard, Visa or Amex card stored in their mobile wallet,” he said. “Using a smartphone contactless payment the transaction could be completed using PayPal, Open Banking, TikTok, WeChat Pay, or any other alternative payment method. Retailers will be in a strong position to accept faster, more secure, and more cost-effective alternatives to the international card networks. Finally, because the EU is pushing to open the digital payment ecosystem, retailers will be able to accept contactless payments in their physical stores using an alternative payment method. Prior to the DMA,f they could only achieve this for their online stores.”

The DMA’s influence also extends to payment processing. By facilitating alternative payment methods and potentially reducing the dominance of gatekeeper platforms, the DMA paves the way for retailers to adopt more cost-effective and innovative payment solutions, which could lower transaction fees and foster a more competitive landscape for payment services.

Big tech has responded to the DMA over the past month. Apple has announced sweeping changes across iOS, Safari, and the App Store to comply. The introduction of over 600 new APIs, enhanced app analytics, support for alternative browser engines, and diversified payment processing options marks a significant transformation in Apple’s approach to its European operations. Apple says its adjustments are designed to open up the iOS platform to greater competition and innovation, allowing for alternative app marketplaces and payment systems. These changes, while broadening the scope for app distribution and monetization, also introduce potential risks related to security and privacy. Apple has been proactive in implementing safeguards like app notarization and developer authorization to mitigate these risks, ensuring that the integrity of its ecosystem remains intact. Despite these efforts, Apple admits that there will be new challenges in balancing open access with security and user protection.

Google’s approach to DMA compliance emphasizes extensive engagement with stakeholders, including the European Commission, industry peers, and consumer associations. Key changes include modifications to search result algorithms, the introduction of choice screens for browsers and search engines on Android and Chrome, and new consent protocols for linking Google services.

Google has also expanded the capabilities for developers and advertisers on its platform, providing them with more autonomy over billing systems and enabling greater access to data analytics. This move is designed to foster a more open and competitive environment for app development and digital advertising.

Google’s initiative to allow third-party apps and app stores on Android reflects a significant shift towards a more open mobile ecosystem, according to the company. By facilitating alternative billing options and improving the interoperability of third-party app stores, Google says it is addressing some of the core concerns that the DMA seeks to remedy, namely the dominance of gatekeeper platforms in controlling app distribution and monetization.

The DMA’s enforcement will eventually create a new playing field for in-store as well as online commerce in the EU, particularly in how retail transactions and loyalty programs are structured. For consumers, a more integrated and seamless shopping experience, with loyalty rewards and transactions streamlined through digital wallets, becomes a tangible reality. That reality will be facilitated by the DMA’s push for open access to NFC technology and the dismantling of barriers to alternative payment methods. Does that create Loyalty 2.0? Time will tell.