Over the last ten years, the payments industry has become a priority for competition enforcement agencies in the European Union ( ), not only at the level of the European Commission (the Commission), but also of the National Competition Authorities (NCAs), who have conducted numerous investigations. The focus of those investigations has been on traditional collusion, foreclosure of competitors and the highly mediatised setting of Multilateral Interchange Fees (MIFs).
Traditional ‘cartel’ cases
Besides the well-known MIF investigations (see Section ‘Multilateral Interchange Fees’ below), NCAs have traditionally investigated the classic collusion or cartel situations that would have allegedly occurred within a number of banking associations.
The French Competition Authority (Autorité) for example, recently investigated fees set by the main banks in France. The Autorité identified a dozen interbank fees that were jointly set by the banks, professional bodies and the Banque de France within the Commission Inter-Research (CIR)1. The CIR served as a forum within which banks discussed and introduced new payment instruments but also agreed on those fees. The banks met in working groups under the authority of the Comité Français d’Organisation et de Normalisation Bancaires (CFONB). The fees applied to payments and local withdrawals made using consumer cards, direct debits, interbank payment orders (TIP), télérèglements, credit transfers and bills of exchange2. The evidence (i.e. minutes of CIR meetings) collected by the Autorité showed that the banks expressed a joint intention - and thus an agreement - to set the fees3. This agreement had the objective of controlling every aspect of the interbank pricing conditions (agreements on fees and fee changes, the frequency of fee reviews, interbank exchange value dates, etc.) in order to limit competition between banks4. The Autorité eventually obtained a commitment from the banks that they would withdraw the main interbank fees.
In 2013, the German Bundeskartellamt reviewed fees that had been jointly set by the leading bank associations in Germany5. These fees related to electronic cash card payment transactions, a payment system used for non-cash payments and the leading card payment system on the German market6. The banks were also planning technical modifications which would have made it impossible to use the only serious competing product, the electronic direct debit system called ELV. The Bundeskartellamt initiated proceedings and found that such an agreement on fees between banks restricts competition regarding the execution of transactions through the electronic cash system they administer. In April 2014, the banking associations abandoned the standard charges for retailers and, instead, introduced a system of negotiated fees. The Bundeskartellamt closed the case in March 2015.
In both cases, the fees were set by banking associations. The existence of such associations is essential in the payments industry where representatives of various banks meet on a regular basis to develop new standards, practices and possibly new schemes that are interactive, pro-competitive and widely available, guarantee payment security, and ultimately benefit consumers. At the same time, it creates an environment that is prone to the exchange of commercially sensitive information and to tacit collusion between its members, be it on fees or on other aspects of the payment mechanism. This is, for example, the case for discussion - and agreement - on the underlying fee mechanisms, which are clearly prohibited. However, whereas some infringements found by the authorities may seem obvious, there is often a fine line between discussions that are allowed, on the one hand, and an exchange of information that amounts to illicit collusion and, consequently, an infringement of competition law rules. The risks of such collusive behaviour can be minimised through internal compliance programs that allow the meeting participants to readily identify what they can, and cannot, discuss.
In addition, competition authorities tend to rely heavily on internal documentation (meeting minutes, emails, etc) of participants. Accurate and careful internal record-keeping, showing that the discussions at the meetings are not anti-competitive, is therefore essential.
Exclusionary behaviour in the payments industry
Another key concern, which has mainly been addressed by the Commission, relates to the foreclosure of actual or potential competitors which are seeking access - or want to input into the development - of schemes or standards.
Visa/Morgan Stanley is an example of such a concern being addressed by the Commission. In 1999, Visa refused to let Morgan Stanley Bank (MS) become a member of the Visa payment card network7. An internal rule in the Visa membership provisions prohibited the acceptance of any applicant deemed to be a competitor of Visa as a member. MS at the time owned the Discover card network in the US but was not present in Europe. After the Commission had issued formal charges in August 2004, Visa voluntarily agreed to grant MS access to its network in 2006. Although MS subsequently withdrew its complaint, the Commission continued its investigation and found that (i) MS was not a competitor of Visa given that it had no payment card network in the ; (ii) that there was no realistic possibility that MS’s US card network, Discover, would enter the European market; and (iii) that the rule was not necessary for the proper functioning of Visa’s payment card network. The exclusionary behaviour constituted a serious competition law infringement because Visa had prevented MS from competing in the market and because its behaviour had potential anticompetitive effects in the UK credit and deferred debit/ charge card acquiring market8.
The decision allows an analysis not just on existing competition between companies present in the market but also on potential competition, which in double-sided markets, like the payments industry, is still relatively new. Moreover, this case provides insights on how the Commission (or NCAs) analyses exclusionary behaviour in the sector. In case of a payment scheme, such behaviour may have serious consequences and foreclose especially those companies or players who do not have a formal role in the development of the scheme, e.g.,companies that are not represented as a (paying) member in a certain association or organisation.
A similar concern was raised in Cartes Bancaires (CB), the main card scheme created in 1984 in France with around 150 members, where the Commission found that the pricing system organised by CB restricted the entry of new card issuers into the market9. In 2002, the Groupement des cartes bancaires adopted a different pricing measure, including a fee under the Mécanisme de régulation de la fonction acquéreur (MERFA), payable by the members of the Groupement whose CB card issuing activity exceeded their activity in affiliating new traders to the system. The Groupement also issued a fee payable by those members that had been inactive or not very active before the date of entry into force of the new pricing measures.
The Commission found that the new measures increased the cost of cards issued by new entrants and maintained the price of cards in France above competitive levels. This consequently limited the number of cards supplied at a competitive price.
On appeal, the Court held that the Commission would have to analyse “all relevant aspects of the economic and legal context in which that coordination takes place (…)”10. Indeed, the payment sector is a textbook two-sided market, where behaviour which may seem at first glance like a competition restriction, when seeing the overall context, may have no anticompetitive effects.
Finally, the Commission’s investigation into the European Payments Council ( ) e-payments case also centered around foreclosure of potential entrants11. In September 2011, the Commission opened proceedings against the as it had concerns that the ’s standardisation process for payments over the internet (‘e-payments’) could hinder the entry of new players and new technology in the market. However, following the ’s decision to stop all its work on the relevant e-Payments Framework and not to engage into any standardisation initiatives that would have the same object or effect, and after an investigation by the Commission into the implementation of this decision, the complainant withdrew its complaint. The Commission consequently decided to close its proceedings in June 2013.
Multilateral Interchange Fees
Enforcement by the European Commission
The Commission and multiple NCAs (e.g., in France, Germany, the UK, Spain, Italy and Hungary) have conducted antitrust investigations in the payment card market, targeting MIFs, i.e. fees charged by a cardholder's bank (the 'issuing bank') to a merchant's bank (the 'acquiring bank') for each sales transaction made at a merchant outlet with a payment card. Although the approaches taken by the various authorities have diverged over time, there has been quite a lot of controversy as to whether or not such interbank fees are necessary for the functioning of a card system or not, MIFs have repeatedly been considered anticompetitive. The cases outlined below provide an insight into how the Commission has analysed MIFs over the past years. This said, some fundamental questions still remain. For example, although the Commission and the Court of Justice did explain in MasterCard that MIFs may be eligible for an exemption under Article 101(3) of the Treaty on the Functioning of the European Union (TFEU) it is unclear what the permitted MIFs levels are. Although the Commission has tried to provide guidance, its merchant indifference test (also referred to as the ‘tourist test’) has proven to be too complex and has not led to conclusive results.
In 2007, the Commission found that the MIF levels set by the banks affiliated to the MasterCard network applicable to cross-border payment card transactions with MasterCard and Maestro consumer debit and credit cards in the European Economic Area ( ) infringed Article 101 TFEU. The Commission’s decision was upheld by the General Court and the Court of Justice12.
Whereas the Court did rule that MIFs may be permitted if they produce sufficient and proven benefits for merchants, in this case, it held that the MIFs were not objectively necessary for the MasterCard system.
The Court stated that MasterCard’s MIFs could have been exempted and declared lawful if MasterCard had demonstrated that there were appreciable objective advantages for merchants due to the MIF being sufficient enough to compensate for the restrictive effects. Despite the Court’s rejection of the efficiency plea on its facts, for companies operating on multi-sided markets, the MasterCard ruling marks an important broadening of possible efficiency defence arguments. However, neither the General Court, nor the Court of Justice, gave guidance on what methodology payment schemes, like MasterCard or Visa (or even domestic schemes), could use to set their MIFs at a level that would fulfil all the conditions of article 101(3).
It remains to be seen whether the Commission’s most recent investigation, opened in April 2013 and currently at the Statement of Objections stage, this time into MasterCard’s interchange fees in relation to payments made by cardholders from non countries, will provide further guidance. The second investigation also covers all rules on ‘cross-border acquiring’ in the MasterCard system that limit the possibility for a merchant to benefit from better conditions offered by banks established elsewhere in the internal market and related business rules13.
Besides MasterCard, Visa’s payment schemes have also received their fair share of attention. In 2010, the Commission found that Visa’s MIFs harmed competition between merchants' banks, inflated merchants' costs for accepting payment cards and increased consumer prices. Further, the Commission raised concerns against Visa Inc. and Visa International Services Association regarding the potential by default application of the Inter-Regional MIF.
Visa Europe eventually committed to reducing the maximum weighted average MIF for consumer debit cards for cross-border transactions and domestic transactions in a number of countries to 0.20 percent. Visa's commitments also provided for a number of measures to increase transparency and competition in the payment cards markets. The commitments were made binding by a Commission decision issued in December 201014.
In February 2014, the Commission adopted another decision, making Visa’s commitments to reduce to 0.3 percent, the maximum weighted average MIFs for consumer credit cards for Intra- and domestic transactions, binding15.
In addition, Visa Europe committed to applying the debit 0.2 percent cap to all MIFs set by Visa Europe for transactions with merchants located in the with Visa debit cards issued outside the but within the Visa Europe territory16. Visa also committed to additional transparency measures.
Lastly, NCAs in several European countries have also reviewed interchange fees applicable in the national territory, e.g. in France, Hungary, Italy, Spain and the UK, with diverse outcomes.
The extensive case law outlined above provides useful insights into how competition authorities analyse payment schemes and practices in the payments industry. It is clear that, in view of the nature of the industry - and the level of contact required between players - antitrust risks exist. Antitrust compliance programmes - and an increased awareness and vigilance of all participants - remain critical to avoid any potential infringements.
Johan Ysewyn is the Head of the Competition Practice at Covington in Brussels and London. Anne Robert is an associate in the same firm.
1 According to the Autorité, “Interbank payment fees are paid by the merchant's bank to the cardholder's bank each time a payment is made. Interbank fees on withdrawals, however, are paid each time there is a withdrawal, by the cardholder's bank to the bank managing the ATM machine.
2 Decision no. 12-D-17 of 5 July 2012 relating to practices observed in the sector of non-cash means of payment (direct debits, interbank payment orders, télérèglements, credit transfers and bills of exchange)
3 Paras. 169-170 of decision no. 12-D-17.
4 Para. 174 of decision no. 12-D-17.
6 Bundeskartellamt, “Standard charges for retailers in electronic cash card payment system abandoned”.
Bundeskartellamt, “Electronic cash card payment system of German banking sector raises competition concerns”.
8 E. MARTÍNEZ RIVERO and G. SCHWALL, “Commission fines Visa International and Visa Europe for not admitting Morgan Stanley Bank as a member”, Competition Policy Newsletter, 2008.
Case C-67/13 P, C-67/13 P Groupement des Cartes Bancaires (CB) v. Commission .
10 Paras. 53 and 78.
12 Case COMP/34.579, MasterCard, Commission Decision of 19 December 2007; European Commission memo “Antitrust: Commission welcomes Court judgment confirming that MasterCard's payment card interchange fees are anti-competitive” of 11 September 2014; Case C-382/12P. MasterCard and Others v Commission .
14 Case AT/39.398, Commission decision of 26 Feburary 2014 relating to a proceeding under Article 101 of the Treaty on the Functioning of the European Union and Article 53 of the Agreement.
15 Case AT/39.398, Commission decision of 26 Feburary 2014 relating to a proceeding under Article 101 of the Treaty on the Functioning of the European Union and Article 53 of the Agreement.
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