Digital Markets, Competition and Consumers Bill (Fourth sitting)

(Limited Text - Ministerial Extracts only)

Committee stage
Thursday 15th June 2023 Public Bill Committees

[Seema Malhotra]

I will have to move on.

Christian Owens: I started Paddle about 11 years ago to help small software companies and developers to sell their products internationally. Today, we do that for around 5,000 businesses, a number of which are based in the UK. We provide payment services. We help those businesses to take payments all around the world and to pay local taxes and be compliant with the various regulations of wherever it is they sell.

For the last 10 years we have had constant inbound from our customers—who we support by processing payments and paying their taxes for them online for the web or desktop-based version of their products—saying, “Why can’t I use Paddle for my iOS or Android app?” We have tried on numerous occasions to figure out a solution to that, but we are simply prevented, on the basis of the terms and conditions of the app stores, from allowing those developers to process transactions via any mechanism that is not controlled by Apple and Google. For us, we are explicitly prevented from competing. I have no problem if Apple or Google build a better solution than us—that should win. Today, we are not even allowed to try.

[The Parliamentary Under-Secretary of State for Science, Innovation and Technology (Paul Scully)]

Q I just have just a couple of follow-up questions, because I think I got most of what I need from that. On the merchandise area, you say you cannot get out the receipts. Presumably, you have another mechanism, because you have got to ascribe some of it to the authors, or do you author all the books yourself? How do you process who has bought what on that side of things, rather than the back office bit?

Kelli Fairbrother: We are monitoring, on our own side, the transactions to be able to control entitlements, because we actually have to control the rights of the books for individuals who have purchased them. The risk for us is that a lack of ability to reconcile at the level of an individual transaction actually puts us at a degree of risk, in terms of our ability to manage the 100% accuracy of what we have delivered. The other interesting thing that happens, on the returns side, is that a customer could read the entire book and go to Google and get a return. I am only getting informed of that after the fact; I cannot really challenge the fact that the return was probably invalid. That is another example.

[Paul Scully]

Q I know you saw the other panel. You have come out and put your head above the parapet, as it were, whereas a lot of companies would not. Why is that? How is your relationship with the app stores? You have a wider relationship with the app stores—do you see the positive side as well?

Kelli Fairbrother: I think the internet is global, and there are plenty of options out there. We are not convinced that we are not sending our own customers to Apple and Google, as an example. Customers are finding us, and they are being forced into particular ways to buy. Yes, there might be some benefit, but I am not convinced that the global internet would not provide me that same benefit and do it in a more competitive way.

[Paul Scully]

Q Briefly, Christian, you talk about Apple or Google having a different, better system that you could then access. What do you think you would need to do to have the assurance that that system was safe and secure for what you are offering?

Christian Owens: We have been doing this for 11 years, exclusively for digital products and for software companies; we have worked with thousands around the world and sell billions of pounds worth of digital and software products a year. This is something that we are very familiar with. Really, one of the main reasons that companies come to Paddle is so they can do that in a compliant manner. With the nature of digital commerce being so international, and dealing with various regulations and things like this around the world, coming to a trusted third party that is able to navigate all of those things for you—but, in our instance, do so in a way that is economically viable for these businesses—is what we have been doing for the last 10 years.

We have a tried and tested solution that has been working, and that many millions of consumers have used over the last 10 years. It is just that we are prevented from selling in this single medium.

[Paul Scully]

Q So you would be okay if they set standards for you to reach to have access?

Christian Owens: Absolutely.

[Paul Scully]

Q One final question: do you think the Bill, as is, gives you the speed and depth of remediation that you need to level that playing field?

Kelli Fairbrother: We think the Bill is a great first start. We think that it will give the digital markets unit the powers to move quickly. We would love to see timelines around the conduct requirements built in. We think this is a great opportunity for the UK to take a leading role in creating a free and fair ecosystem in the mobile space.

Christian Owens: I have nothing to add.

[The Chair]

Minister Hollinrake?

[The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)]

I have no further questions.

[Vicky Ford (Chelmsford) (Con)]

Q Do you see Google and Apple acting in collusion and taking similar moves, or are they different moves? Do you see examples where they are putting similar blocks against businesses?

Kelli Fairbrother: Yes. It is interesting, because there are differences between the two ecosystems. Whereas I do get transaction-level data from Google, for example, I do not get it from Apple. Apple moved first to lower the price points from 30% to 15%, and Google took at least another six or 12 months after Apple moved to create that small business tier. Generally, they seem to be both on this path of using their dominant market positions to extract as much value from me. The question I would love to hear Google answer when they come in later is that these are our customers; my customers are also your customers. I just do not really understand why, if you can see that there is actual consumer harm happening, you are not working yourselves to address it.

--- Later in debate ---

[Andy Carter]

Q This will be the final question from me. If we look at the Bill overall, is there anything that it does not tackle that you think it should?

Christian Owens: In its current form—as it is now—this is a very good Bill, and I really encourage it to go through without being watered down any further. It is great as it stands; it is a great start. I think that it is going to allow small businesses in this country to be more competitive and not be giving away a third of their revenue, effectively, to Apple and Google.

Kelli Fairbrother: I agree.

[Paul Scully]

Q This is a question that I forgot to ask Kelli earlier about payment. You said something about Apple paying you over a period of time. Is it not automated? Is there any reason why it cannot be? Late payments are always an issue for small businesses. You were talking about Stripe, which pays on a regular basis. Is this not on a regular basis as well?

Kelli Fairbrother: It is regular in the sense that the company takes a month of data and then pays me a month and some days later. So it happens every month, but it is happening every month on a timeline that is, again, at least five times as long as what I would be getting—using Stripe as an example.

[The Chair]

I thank our witnesses for giving evidence today. We will move on to the next panel. Thank you very much.

Examination of Witness

Tom Morrison-Bell gave evidence.

--- Later in debate ---

[Seema Malhotra]

Q So you do not accept any of the examples we have heard of consumer harm.

Tom Morrison-Bell: Well, I think there are some things to unpack. For example, payment systems have been mentioned. We have agreed commitments with the CMA—I believe they are out to market testing at the moment—on offering a range of payment systems. When it comes to app stores, 99% of app users pay 15% or less on fees. There are important details here.

[Paul Scully]

Q Tom, it is good to see you. Thank you very much for coming in front of us. We have had some quite punchy evidence sessions before this, so it is important that we get a balanced view. Obviously you are not here to speak for all of big tech and everything that has been going on. Let me give you a minute or two to give the other side of the argument about how you are benefiting, as you see it, the kinds of companies represented in the previous session and in the session before that.

Tom Morrison-Bell: Generally speaking, Google is estimated to provide around £55 billion of economic activity a year in the UK, as a starting figure. We have multiple products. It depends where you look. Workspace is our productivity suite, with word processing and similar, and is estimated to have saved 600 million hours for workers around the UK through more effective communication and speedier software. As I have said, tools like search and maps are free, and they also support businesses across the country to be more effective. That drives £55 billion in economic activity.

There is also our Play store. Android is open source and a free operating system that is available free to mobile device manufacturers, and they can make their own versions. That has substantially driven down the cost of handsets around the world and has been a huge contributor to making sure that people can have access to the internet at lower rates. The Play store itself is estimated to support about 240,000 developer jobs in the UK alone. That drives revenues for them of about £2.8 billion. Across the board, there is substantial benefit.

[Paul Scully]

Q I know that you are broadly supportive of the Bill, although there are areas that you disagree with. Could you address the comments in our previous evidence sessions that were aimed specifically at Google? Until the Bill is passed, what can you do in the meantime to start addressing some of those issues?

Tom Morrison-Bell: There are two things there. First, what is most important about the regime is that consumers are at the heart of it, and that it is for the regulator, with the powers that it is given, to make the assessments as to whether practices are pro-consumer or not.

What we also think is important is that on one side we have very large and open-ended powers, with products and markets that drive a lot of consumer benefit, and on the other a need for more robust checks and balances to ensure that consumers really are at the heart of the regime. In a sense, it is less about what company X says about company Y than about the coherence of a regime to ensure that consumers are at its heart and that the Government’s ambition for driving innovation without blanket requirements on firms or unduly burdensome regulation is realised.

[Paul Scully]

Q I have a final question on appeals. You talked about full merits. I understand the need to get the balance right in being fair to both sides, but how do you answer the charge? My biggest fear about the consistent level of JR is whether it is just used to kick things down the road, before starting on full merits, as we heard on Tuesday about the significant element of competition law from a competition expert. Basically, it would be used to outspend and outbox opponents.

Tom Morrison-Bell: Of course. There are two questions about appeals to address. One is speed, which I will come to, and the other is why there are good, principled reasons for that being the right standard.

As I said, the Competition Act has appeal on the merits as the appeal standard. These interventions are much more akin to what the Competition Act does. In both 2013 and 2019, the Government consulted on whether to lower the threshold in the Competition Act to judicial review. In both cases, it was decided not to do so. Indeed, in 2013, the competition appeal tribunal itself made a submission that that would not be appropriate, because it had seen cases overturned or sent back to the CMA.

Furthermore, in recent weeks, an interesting paper by the former head of the Government Legal Service, Sir Jonathan Jones, appeared as a law article. He said specifically with regard to the DMU that, with those very open-ended powers on the one side, the current proposals—his quote, not ours—give rise to “concerns about due process”, because of the imbalance. There are strong and principled reasons why.

There is also the speed point, which needs to be addressed. That is in line with the regime and, as when we worked on the Privacy Sandbox, we want this to be a speedy regime, to accelerate it. We have shown good will in real examples of how we have tried to make that participative approach work. But there are other existing regimes in which, by and large, the CMA is given time limits to which it has to respond. That is evident in gas or electricity prices, postal services, civil aviation, parts of financial services, parts of water and numerous other precedents in the UK of time-limited appeals. There is, however, scope to ensure that we end up with consumers at the heart. It is important—these are complex products—that at the end of the day we are able to have a system in which someone can scrutinise whether the decisions are right or wrong for consumers and companies. It is not just about whether due process has been followed.

[Kevin Hollinrake]

Q No doubt you are right that there are consumer and business benefits from what Google does, so thank you for the investment you made to ensure that that is the case. We will always intervene—or we should intervene—where there is market failure. We believe that there is market failure in certain areas here, so this is in that context.

On innovation, we are keen that you continue your R&D spend and innovate. Is there anything in the Bill that will make you think twice about innovation? We asked other witnesses and they cannot see any issue, but some concerns have been raised with us. Do you feel that you might have to talk to the regulator or CMA before you develop a new product? Is that a rational concern that you have?

Tom Morrison-Bell: The Privacy Sandbox is probably the best example of perhaps any company, as far as I am aware. That is the only model to date that could be a bit like the participative approach. That is a really good example of where we were able to come to the regulator to say, “Look, when it comes to competition, there are trade-offs. In this case, it is privacy, with us phasing out cookies, with competition, because maybe you have to use different Google advertising technologies.” We would like the competition authority and the privacy authority to make sure that both their concerns are met before we roll things out. That is good, because it prevents costly roll-outs that might have to be rolled back, and regulators are aware, consumers have clarity and other businesses in the ecosystem have clarity as well. It is true that that required numerous months of consultation with the regulator, but I think there is the opportunity for the participative approach to work well. Again, because you have this open-ended and flexible system, it is important that there are checks and balances in place.

[Kevin Hollinrake]

Q I think the question I am trying to ask is: you are not honestly saying that you are going to stop innovating because of this Bill, if becomes an Act?

Tom Morrison-Bell: No. We are really committed to the UK, which is a special market for us. We employ 6,500 people here. But those checks and balances are important to make sure that you know that your decision is right or wrong, not just whether due process has been followed.

[Anna Firth (Southend West) (Con)]

Q I am sure we all agree that we want to put consumers at the heart of the regime. I want to put to you the very specific and powerful example that we have heard this afternoon, which I do not think you have really answered, from a British start-up in Cornwall selling electronic books. If it does it on an app, it will have to pay up to 30% in payment processing charges, and the payments can be delayed by as much as two months. If it does it with a web-based approach, where there is competition for payment processing—it uses Stripe, for example—it will pay 3% to 4% in processing charges and receive those payments within seven days. How can it possibly be in the best interests of my residents and businesses in Southend-on-Sea not to address that huge distortion in the market, with a huge monopoly and another system where there is more free competition?

Tom Morrison-Bell: With respect, I think that if you look at the broader Play system as a whole, 99% of all users of the Play store—those developers—pay 15% or less on their fees. By and large, the fees are staggered. That means that companies that make less money get to enjoy the benefits of the ecosystem in the same way as larger companies, which may pay larger fees.

On the payments point specifically, we are in discussions with the CMA, as I said. There are two different billing models, which are being agreed on and are out for market testing, so there is ongoing discussion in a constructive way with the CMA that will bring forward those two new payment methods.