How new EU directives will impact e-commerce marketplaces – and how payment technology can help

The Digital Services Act (DSA) and the Digital Markets Act (DMA), two pieces of legislation that were recently passed adopted by the EU update rules and regulation when using digital services, are to come into force shortly.

Although European regulators usually claim to have big tech in mind when creating new rules, these guidelines often have an impact all European companies — especially online platforms such as marketplaces.

So what do European businesses, and e-commerce marketplaces in particular, need to know – and can payment technology continue to support the delivery of payment services in such a fragmented market? We asked the experts.

What does the DSA mean for e-commerce?

The DSA aims to give users more control over what they see online. This limits the use of sensitive user data for targeted advertising and gives users more information about why certain content is recommended to them.

“The marketplace needs to know the business of its sellers and conduct the necessary due diligence.”

It also allows users to flag illegal goods, services, and content, contest content choices, and demand redress for any damage or loss. The DSA further restricts Big Tech by allowing users to choose the algorithm for their feeds.

For George Sinanis, Chief Operating Officer at neobank Viva wallet UK, the new regulations can be both a challenge and an opportunity for European e-commerce companies.

The DSA makes it necessary for platforms to know who are the sellers who offer products on their platform. Sinanis says that in crowded marketplaces, consumers naturally want to know if products and services are reliable and credible — simply put, if something is worth their money or not.

“The marketplace needs to know their sellers’ businesses and perform the necessary due diligence (KYB – Know Your Business) to ensure service quality, which leaves them two options: either set up a rigorous onboarding process or find a partner to do it for them,” he says.

What does the DMA mean for e-commerce?

The DMA claims to specifically target Big Tech “gatekeepers” – defined as marketplaces with a market cap of at least €75 billion or annual sales of at least €7.5 billion – with the aim of creating a level playing field.

“It’s not sweeping legislation that puts shackles on every single tech company out there.”

The regulation will provide guidelines for big platforms to prevent them from imposing unfair conditions on businesses and consumers. In addition, users can switch between platforms without losing their data, allow installation of third-party app stores, and allow apps to use third-party payment systems.

Dimple Patel, chief operating officer at independent boutique platform Trouva, says Gatekeeper’s definition ensures only a handful of big tech companies are targeted: “It’s not sweeping legislation that’s unique to every single tech company out there shackles.”

Sinanis says the DMA is forcing big tech to enter into business partnerships that benefit all players. For payments, this means that Big Tech platforms allow several other app stores for which they can integrate other payment methods.

Harry Xenophontos, director of global strategic partnerships at Viva Wallet, says this will also help online platform sellers to define their own terms in partnerships.

“For example, it will allow marketplaces to choose their own payment processor or payment systems and help them set their own prices and other terms, since they won’t be forced to pay the gatekeeper a large margin,” he says.

How can small and medium-sized technology companies stay ahead of the curve?

The guidelines carry significant fines for non-compliance – up to 20% of sales for violating the DMA and up to 6% for violating the DSA – and the risk of being banned from working for a certain period of time or being barred from working in the EU altogether.

Xenophontos says so Cross-border payment providers like Viva Wallet simplify the application of DSA and DMA obligations to marketplaces by providing pre-packaged, out-of-the-box compliance Marketplace Payment Solutions across Europe, which despite the fragmented legal framework is considered a single payments area.

“E-commerce businesses could leverage the experience and expertise of payment providers who are already using seamless and automated advanced technologies.”

He adds that operating in 24 different countries also makes the company agile in adapting to different markets: “Localized products help platforms to simplify their omnichannel marketplace offerings while meeting local regulatory requirements.”

According to Patel, e-commerce startups could look at the new regulations from a benefit analysis perspective.

“Look at potential cost savings and who is making your payments,” she says. “If you have an app, you can now also use third-party payment providers within an app, which was not possible before.”

Sinanis agrees, saying that businesses, especially marketplaces in both the digital and offline worlds, shouldn’t waste time looking for legal advice or waiting for service providers and the market to adapt – instead, they should choosing a solution that can be integrated quickly and easily Ease.

“Ecommerce businesses could leverage the experience and expertise of payment providers who already use seamless and automated advanced technologies and have KYB processes in place,” he adds.

Paving the way for social responsibility – and growth?

Although compliance can be painful for all businesses in the short term, the experts say the directives will ultimately result in a fairer and more transparent landscape, paving the way for sustained growth in Europe’s e-commerce ecosystem.

“The purpose of the legislation is mainly to drive more innovation and create a more competitive environment, which will result in a much stronger growth profile for European technology over the long term,” says Patel.

“We also need to do it in a more responsible way — and that’s really, really important when we think about the power that big tech companies have in terms of social impact, consumer behavior, public opinion and so on.”

For Xenophontos, the new regulations to make e-commerce platforms more reliable for users play to the power of smaller players to adapt quickly. He adds that even big tech players should look for meaningful partnerships to keep up with the competition.

While it remains to be seen how the guidelines will be enforced in practice, European laws often impact global standards – and DMA and DSA could be the start of big tech being kept in check globally.

“Fintechs like Viva Wallet are aligning product strategies to help companies keep up with regulation while realizing their growth potential,” says Xenophontos.

Patel agrees that the regulations present an opportunity for startups to gain a competitive advantage.

“We also need to do it more responsibly — and that’s really, really important when we think about the power that big tech companies have in terms of social impact, consumer behavior, public opinion and so on.”