Competition Law and Programmable Finance Competition Issues

1. Introduction

Programmable finance refers to financial arrangements in which transactions, payments, assets, financial rights, or contractual conditions can be automatically executed through software, smart contracts, APIs, distributed ledgers, tokenized assets, or other programmable infrastructure.

Examples include:

smart-contract-based lending;

programmable payments;

tokenized securities;

decentralized finance (DeFi);

automated market makers;

programmable escrow;

blockchain settlement;

tokenized deposits;

algorithmic investment products;

automated collateral management;

programmable insurance;

machine-to-machine payments.

Programmable finance creates new competition-law questions because software can perform functions traditionally performed by financial intermediaries. At the same time, control over the underlying technology, liquidity, data, APIs, wallets, validators, payment rails, or application interfaces can create new forms of market power.

The central competition-law concern is therefore:

Who controls the programmable financial infrastructure, and can that control be used to restrict competition in financial products or services?

2. Structure of Programmable-Finance Markets

A programmable financial ecosystem can contain several layers:

Blockchain / settlement infrastructure

↓

Smart-contract protocols

↓

Wallets and interfaces

↓

Financial applications

↓

Users, merchants and investors

There may also be:

banks;

payment networks;

exchanges;

custodians;

data providers;

oracle providers;

cloud infrastructure;

stablecoin issuers;

liquidity providers.

Competition may therefore occur between firms at the same layer and between vertically integrated ecosystems.

3. Relevant Product Markets

The first competition-law question is market definition.

Possible markets include:

programmable payment services;

crypto-asset exchange services;

stablecoin payment services;

blockchain settlement;

smart-contract infrastructure;

tokenized securities;

digital-asset custody;

financial data/oracle services;

DeFi lending;

automated market-making;

wallet services.

A broad market such as "financial services" may conceal important competitive distinctions.

For example, traditional bank transfers and programmable blockchain payments may impose different degrees of competitive constraint depending on:

cost;

speed;

programmability;

settlement finality;

regulatory requirements;

interoperability;

consumer acceptance.

4. Network Effects

Network effects are particularly important.

A financial protocol becomes more useful when:

more users join;

more liquidity is available;

more developers build applications;

more merchants accept it;

more assets become compatible.

This creates a potential feedback loop:

Users → Liquidity → Applications → More Users → More Liquidity

A successful protocol may therefore develop substantial competitive advantages even without traditional physical infrastructure.

5. Liquidity as a Competitive Advantage

In financial markets, liquidity can be comparable to a network effect.

A platform with deep liquidity can offer:

lower spreads;

faster execution;

reduced price impact;

greater transaction capacity.

Competitors with little liquidity may struggle to attract users.

This creates a possible entry barrier.

A competition authority may therefore need to investigate whether a dominant protocol has obtained liquidity through:

genuine efficiency;

superior technology;

network effects;

or through exclusionary conduct.

6. Smart Contracts and Competition

Smart contracts automatically execute predetermined conditions.

They can reduce:

transaction costs;

intermediary involvement;

settlement delays;

enforcement costs.

However, smart contracts can also make exclusionary arrangements automated and persistent.

For example, a protocol could technically prevent:

certain competitors from accessing liquidity;

certain tokens from interacting with a system;

competing interfaces from accessing functionality.

This creates an important distinction between software neutrality and programmable exclusion.

7. Programmable Exclusion

Traditional exclusion may involve a human decision:

"Do not supply this competitor."

Programmable finance can encode the same result directly into software:

"This address, token, application or protocol cannot interact with the system."

Competition law must therefore potentially examine not only contractual restrictions but also:

smart-contract code;

governance rules;

protocol parameters;

API permissions;

token standards;

whitelist/blacklist mechanisms.

8. Interoperability

Interoperability is a fundamental competition issue.

Suppose Protocol A controls a large financial ecosystem but refuses interoperability with Protocol B.

The restriction could potentially prevent B from accessing:

liquidity;

users;

payment functionality;

settlement infrastructure;

data.

However, interoperability restrictions may also have legitimate reasons involving:

cybersecurity;

fraud;

compliance;

operational stability.

Therefore, refusal to interoperate is not automatically unlawful.

9. API Access

Programmable finance frequently depends upon APIs.

APIs can permit third parties to access:

account information;

payment functionality;

transaction execution;

market data;

liquidity;

identity verification.

A dominant financial platform that restricts API access may potentially raise competition concerns where access is important for effective competition.

10. Data and Oracles

Smart contracts often require external information.

Oracle services provide data such as:

asset prices;

interest rates;

exchange rates;

market indices;

real-world events.

An oracle can therefore become an important competitive bottleneck.

If one oracle becomes dominant, control over the data feed could potentially influence competing financial applications.

This creates a possible chain:

Data → Oracle → Smart Contract → Financial Product

Competition authorities may therefore need to consider vertical relationships between data providers and financial applications.

11. Stablecoins and Competition

Stablecoins can function as programmable payment instruments.

Competition questions may concern:

interoperability;

access to exchanges;

wallet compatibility;

merchant acceptance;

reserve arrangements;

redemption infrastructure.

A dominant stablecoin could benefit from strong network effects.

If wallets, exchanges, merchants and applications predominantly support one stablecoin, competing stablecoins may face significant barriers to expansion.

12. Payment Networks and Programmable Finance

Programmable payments may compete with traditional card and payment systems.

Important competitive variables include:

transaction fees;

settlement speed;

merchant acceptance;

security;

interoperability;

programmability;

fraud protection.

The competition-law experience involving card networks is therefore highly relevant.

13. Case Law 1 — Visa and Plaid

United States v. Visa Inc. and Plaid Inc.

The U.S. Department of Justice challenged Visa's proposed acquisition of Plaid.

The DOJ alleged that Plaid was developing a potentially disruptive alternative to Visa's online-debit business and that the acquisition would eliminate a nascent competitive threat. Visa and Plaid subsequently abandoned the transaction. (Department of Justice)

Relevance to programmable finance

The case is highly relevant to programmable finance because financial innovation often begins with a technology company that appears relatively small compared with established financial infrastructure.

The case demonstrates the importance of examining:

nascent competition;

technological disruption;

access to financial data;

network effects;

potential entry;

acquisition of emerging competitors.

The DOJ's case materials specifically described Plaid's connections with numerous bank accounts and its potential to develop an alternative payments network. (Department of Justice)

Principle

A competition analysis should not necessarily focus only on the target's current market share. Emerging technology capable of disrupting an established financial network may itself constitute an important competitive constraint.

14. Case Law 2 — Hungarian Banks and Visa/Mastercard Interchange Fees

Gazdasági Versenyhivatal v Budapest Bank and Others, Case C-228/18

The case concerned agreements concerning interchange fees in card-payment systems.

The Court of Justice considered whether the agreement could automatically be classified as a restriction of competition "by object." It held that, given the circumstances, a detailed examination of competitive effects could be required rather than assuming that the agreement was inherently restrictive. (Eur-Lex)

Relevance

Programmable finance may involve:

common protocol rules;

common fee structures;

governance arrangements;

transaction fees.

Where competing financial institutions coordinate through technological infrastructure, Article 101-type principles can become relevant.

Principle

The existence of technologically coordinated financial infrastructure does not eliminate the need to examine the economic and competitive context of the arrangement.

15. Case Law 3 — Mastercard I

Commission v Mastercard / Mastercard Interchange Fees

The European Commission's Mastercard proceedings concerned multilateral interchange fees and rules governing card-payment systems.

The Commission concluded that certain arrangements restricted competition and imposed remedies. (Competition Policy)

Relevance

The case is important because programmable payment systems may also create rule-based financial networks.

A blockchain protocol or programmable-payment network could potentially have rules governing:

transaction fees;

access;

routing;

settlement;

participation.

The fact that those rules are implemented through code does not necessarily remove them from competition-law scrutiny.

Principle

Technology can change the mechanism of coordination without eliminating competition-law analysis.

16. Case Law 4 — Apple Pay / Mobile Payments

Apple — Mobile Payments, Case AT.40452

The European Commission examined Apple's control over NFC functionality on iPhones.

The Commission had preliminarily considered that Apple held a dominant position concerning mobile wallets on iOS and was concerned that Apple restricted third-party access to NFC functionality used for contactless payments.

In July 2024, the Commission accepted commitments from Apple that opened access to the relevant NFC functionality for competing payment providers. (Eur-Lex)

Relevance to programmable finance

This is particularly relevant to financial technology because it demonstrates how control over an underlying technological layer can affect competition in downstream financial services.

An analogous problem could arise where a dominant programmable-finance infrastructure controls:

wallet functionality;

authentication;

transaction execution;

APIs;

settlement access.

Principle

Control of essential technological functionality can potentially give an ecosystem operator the ability to disadvantage competing financial applications.

17. Case Law 5 — IMS Health v NDC Health

IMS Health GmbH & Co. OHG v NDC Health GmbH, Case C-418/01

IMS Health concerned access to a pharmaceutical-sales data structure and the circumstances under which refusal to license intellectual-property-related infrastructure could constitute an abuse of dominance.

The Court applied stringent conditions to compulsory access.

Relevance to programmable finance

Programmable finance can create similarly important infrastructures involving:

proprietary financial data;

APIs;

data schemas;

oracle systems;

interoperability standards.

A dominant data or infrastructure provider might control an input that competitors need.

Principle

Competition law may require access to an indispensable infrastructure in exceptional circumstances, but compulsory access is not the default rule.

18. Case Law 6 — Bronner v Mediaprint

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

Bronner concerned access to a newspaper home-delivery system.

The Court established a demanding test for treating refusal of access to infrastructure as abusive.

The case is relevant to programmable finance because decentralized or centralized infrastructure may similarly create claims that a particular system is indispensable.

Application

Suppose a dominant programmable-finance platform controls the only practical route to:

liquidity;

settlement;

wallet interoperability.

A refusal to provide access would need to be examined against the stringent principles applicable to refusal-to-supply cases.

Principle

Being commercially useful is not enough to establish that access is legally indispensable.

19. Case Law 7 — United Brands v Commission

United Brands Company v Commission, Case 27/76

United Brands remains a fundamental authority on:

relevant-market definition;

substitutability;

dominance;

exclusionary conduct.

Relevance

In programmable finance, authorities must determine whether:

DeFi lending;

traditional lending;

crypto lending;

money-market products

actually constrain one another.

The market cannot simply be defined according to technological labels.

Principle

Market definition must reflect actual substitutability and competitive constraints.

20. Case Law 8 — Microsoft

United States v Microsoft Corp., 253 F.3d 34

Microsoft is particularly relevant because it involved a technology platform with:

network effects;

applications barriers;

complementary products;

platform control.

Microsoft's conduct toward the browser market demonstrated how a dominant platform can potentially use control of one layer to influence competition at another.

Relevance to programmable finance

A dominant blockchain, wallet, exchange or financial operating layer could theoretically use its position to disadvantage competing applications.

Potential mechanisms include:

discriminatory API access;

preferential transaction processing;

technical incompatibility;

restrictions on competing applications.

Principle

Platform power can have competitive effects beyond the platform's immediate product.

21. Self-Preferencing

Suppose a programmable-finance platform operates both:

a financial infrastructure layer; and

its own trading or lending application.

It might give its own application:

preferential transaction processing;

lower fees;

privileged data access;

earlier access to liquidity;

superior API functionality.

This could raise self-preferencing concerns.

However, preferential treatment is not automatically unlawful. The legal analysis must establish the relevant market, dominance, conduct, and competitive effects.

22. Vertical Integration

Programmable finance encourages vertical integration.

A single corporate ecosystem might control:

Wallet → Exchange → Settlement → Stablecoin → Lending Protocol

Vertical integration can generate efficiencies.

It may:

reduce transaction costs;

improve security;

reduce settlement risk;

improve user experience.

But it can also create foreclosure risks if the integrated firm prevents rivals from obtaining access to important inputs.

23. Exclusive Smart-Contract Arrangements

Smart contracts can potentially automate exclusivity.

For example:

A liquidity provider receives benefits only if it supplies liquidity exclusively to Protocol A.

Potential competition-law concerns may include:

duration;

market coverage;

market power;

foreclosure;

alternative liquidity sources;

efficiency justifications.

The technological implementation does not itself determine legality.

24. Algorithmic Coordination

Programmable finance creates an unusual possibility: algorithms can independently adjust prices or trading strategies according to predefined rules.

This raises questions about:

algorithmic collusion;

tacit coordination;

common pricing algorithms;

autonomous trading agents;

information exchange.

Where competing firms deliberately use a common algorithm to coordinate conduct, traditional cartel principles may potentially apply.

The difficult question is determining when algorithmic similarity represents:

independent optimization

versus:

concerted coordination.

25. Smart Contracts and Tacit Collusion

Imagine several competing protocols use similar autonomous pricing mechanisms.

If each independently responds to market conditions, parallel pricing does not automatically establish a cartel.

But if competitors:

communicate strategically;

share commercially sensitive information;

agree on parameters;

use a common mechanism to implement an agreement,

the competition-law analysis becomes much more serious.

Thus:

Code is not a substitute for the legal requirement of proving coordination.

26. Governance Tokens

Many programmable-finance protocols use governance tokens.

Token holders may vote on:

fees;

liquidity incentives;

listing decisions;

protocol upgrades;

access conditions.

Competition questions can arise where competing firms or major market participants hold substantial voting power.

For example, cross-holdings could potentially facilitate:

coordinated governance;

information exchange;

exclusion of competitors.

The competitive effect depends on the structure and actual use of the governance mechanism.

27. Cross-Ownership and Common Control

If competing programmable-finance platforms share:

investors;

governance-token holders;

board members;

infrastructure providers,

competition authorities may investigate whether the arrangement reduces independent competitive decision-making.

This is analogous to traditional concerns surrounding:

structural links;

common ownership;

information exchange.

28. Interoperability and Standards

Programmable finance depends heavily on technical standards.

Standards can improve competition by making different systems interoperable.

But standard-setting can also become exclusionary if dominant participants:

exclude rivals;

discriminate against competing technology;

manipulate technical standards;

make interoperability unnecessarily difficult.

This creates a relationship between technical standard-setting and competition law.

29. Data Portability

Users may have substantial financial histories stored within a particular ecosystem.

If portability is limited, switching becomes difficult.

Competition authorities may therefore examine:

account portability;

transaction histories;

identity information;

wallet compatibility;

financial data access.

Portability can lower switching costs and make entry easier.

30. Predatory Pricing and Subsidization

Programmable-finance platforms may subsidize users through:

zero transaction fees;

token rewards;

liquidity mining;

cashback;

fee rebates.

Low or negative effective pricing can be legitimate.

But where a dominant undertaking uses sustained below-cost incentives to exclude competitors and subsequently exploit its position, predatory-pricing analysis may become relevant.

The mere existence of token incentives does not establish predatory conduct.

31. Loyalty Incentives

A dominant platform could reward users or liquidity providers who commit substantial activity to its ecosystem.

Potential mechanisms include:

token rewards;

lower transaction fees;

exclusive benefits;

governance privileges.

Competition authorities may examine whether these arrangements foreclose competing protocols.

32. Killer Acquisitions

The Visa/Plaid litigation demonstrates the relevance of nascent competition in financial technology. The DOJ alleged that Plaid could become a disruptive competitor to Visa's online-debit business. (Department of Justice)

Programmable-finance markets may generate similar situations where a major incumbent acquires a relatively small:

DeFi protocol;

wallet;

blockchain infrastructure provider;

oracle;

tokenization platform;

programmable-payment startup.

The target's current revenues may not accurately represent its future competitive significance.

33. Essential-Facility Questions

A programmable-finance infrastructure may become extremely important without necessarily being legally indispensable.

For example:

Dominant blockchain → competing applications

A competitor might claim that it cannot compete without access.

Competition law would need to examine:

Is the infrastructure controlled by a dominant undertaking?

Is access indispensable?

Are alternatives realistically available?

Would refusal eliminate effective competition?

Is there an objective justification?

The Bronner and IMS Health principles are particularly useful here.

34. Competition Between Centralized and Decentralized Finance

A major unresolved conceptual issue is whether:

Traditional financial institutions

and

DeFi protocols

belong in the same relevant product market.

The answer cannot be determined merely by technological architecture.

Authorities would need to consider:

functionality;

risk;

price;

users;

regulation;

settlement;

accessibility;

liquidity;

substitutability.

A DeFi lending protocol may be technologically different from a bank loan but still constrain bank lending for certain customers—or may serve a sufficiently different group that it belongs to a separate market.

35. Competition Remedies

Possible remedies in programmable-finance cases could include:

Structural remedies

divestiture;

separation of business units.

Behavioural remedies

non-discriminatory API access;

interoperability commitments;

prohibition of exclusive dealing;

transparent access criteria;

non-discriminatory transaction processing.

Technical remedies

open APIs;

data portability;

standardized interfaces;

interoperability protocols.

Merger remedies

divestiture of competing technologies;

licensing;

access commitments.

The appropriate remedy depends on the particular theory of harm.

36. Key Competition Issues — Summary Table

37. Indian Competition-Law Perspective

The Competition Act, 2002 provides a useful framework for analysing programmable finance through:

relevant-market definition;

agreements restricting competition;

abuse of dominant position;

combinations.

The CCI could potentially examine programmable-finance conduct through concepts such as:

Section 3

Potentially relevant to:

cartel-like coordination;

restrictive agreements;

information exchange;

exclusionary arrangements.

Section 4

Potentially relevant to:

refusal to deal;

discriminatory access;

tying;

unfair conditions;

leveraging dominance.

Sections 5 and 6

Potentially relevant to acquisitions involving:

fintech infrastructure;

digital-payment networks;

blockchain firms;

DeFi technologies.

The precise application would depend on whether the relevant undertaking and transaction fall within the statutory framework.

38. Central Legal Challenges

Programmable finance creates several challenges for competition authorities.

1. Identifying the undertaking

A protocol may involve:

developers;

token holders;

governance bodies;

foundations;

validators.

Determining who constitutes the economically responsible undertaking can be difficult.

2. Defining the market

Traditional financial and programmable products may overlap.

3. Attribution

Code may produce an outcome without a conventional managerial decision.

4. Jurisdiction

A protocol may operate across multiple jurisdictions.

5. Algorithmic coordination

It can be difficult to distinguish independent algorithmic behavior from coordinated conduct.

6. Rapid technological change

Market boundaries can change quickly.

39. Important Principles from the Case Law

The cases discussed establish several principles relevant to programmable finance:

Visa/Plaid — emerging fintech competitors can have substantial future competitive significance. (Department of Justice)

Mastercard/interchange-fee cases — financial-network rules can be subject to competition law.

Budapest Bank — technological or institutional coordination requires analysis of its competitive context and effects. (Eur-Lex)

Apple Pay — control over a technological access point can affect downstream payment competition; the Commission accepted commitments opening NFC access to rival payment providers. (European Commission)

IMS Health — compulsory access to important infrastructure is exceptional and subject to stringent conditions.

Bronner — indispensability is a demanding requirement for refusal-to-supply claims.

United Brands — market definition must reflect genuine substitutability.

Microsoft — platform dominance can potentially be leveraged into complementary markets.

40. Conclusion

Programmable finance changes the technical architecture of financial competition without removing the fundamental principles of competition law.

The most important competition issues include:

market definition;

network effects;

liquidity concentration;

smart-contract exclusion;

interoperability;

API access;

oracle dependence;

stablecoin network effects;

algorithmic coordination;

governance-token concentration;

self-preferencing;

vertical integration;

exclusive arrangements;

data concentration;

switching costs; and

acquisitions of nascent competitors.

The most important conceptual point is that code can become infrastructure. When a financial protocol controls an important technological layer, its rules can determine who can access liquidity, data, users, settlement functionality or complementary services.

At the same time, programmability itself is not evidence of an antitrust violation. Competition analysis must still establish the relevant market, market power or dominance where required, the specific restrictive conduct, its actual or likely competitive effects, and any legitimate efficiencies or objective justifications.

The combination of traditional financial-network cases such as Mastercard and Visa/Plaid with platform cases such as Microsoft and Apple Pay provides a useful legal framework for understanding how competition law can be applied to the emerging programmable-finance economy.