Ensuring a competitive payment cards market

The payment cards market has once again been targeted for the enforcement of competition rules by the EU institutions. In a recent judgment, the General Court confirmed a 2007 decision of the European Commission finding an association of undertakings managing the largest and most important payment card scheme in France in breach of EU competition rules.

Practices restricting competition will find no mercy in the eyes of the EU and national authorities- Mariosa Vella Cardona

Groupement des Cartes Bancaires manages the system of payments by CB cards which accounts for over 70 per cent of card payments in France, including Visa and Mastercard payments.

The association has around 150 members and is managed by the biggest French banks. CB adopted a tariff system which, though formally applicable indistinctly to all members, in practice meant that only specifically targeted members were obliged to pay higher tariffs.

The system imposed a membership fee of €12 per card, an additional membership fee and a ‘sleeping member’ fee on members that had not developed significant bank card business since becoming association members. It stipulated that an additional amount of €11 per card was to be paid by those members which limited themselves to issuing CB cards, without providing card acceptance services to merchants or installing ATMs. This latter tariff was essentially being paid by the smaller banks and by new entrants on the market.

Though the tariff measures were adopted by the association and could be deemed to reflect the collective will of all of its members, in reality only the major French banks participated as members of the association’s board of directors in the decision-making process. The system adopted and operated was in practice penalising the smaller members specifically identified as a threat to the large banks. Furthermore, from the documents obtained by the Commission during its investigation, it resulted that the intention expressed during the drawing up of the tariff system was to hinder the competitive advantage of these other members.

The largest French banks anticipated a significant increase in card issuing by online banks and by the banking arms of large retailers, at a reduced price of €15 to €20, which they considered as a threat. They designed a tariff system which would hinder these other banks from issuing cards at reduced rates.

In its defence, the association claimed that the tariff measures imposed were necessary to combat free-riding by new entrants on the investments made by the major incumbent banks. The measures were also designed to encourage new competitors of the major banks to enter into contracts with traders for card acceptance services and install ATMs since such initiatives generate more benefits to the system than card issuing. The Commission had rejected these arguments and condemned the association’s pricing practices. It concluded that the issuing of cards in France at competitive rates by certain member banks was being hindered, keeping the price of payment cards artificially high for the benefit of the major French banks.

The General Court has upheld the Commission’s decision. It rejected once again the allegedly legitimate objectives put forward by the association and confirmed that the tariff system it operated had the object and effect of restricting competition in the payment cards market.

Both the Commission’s and the General Court’s decisions confirm that large banks are not permitted to use a domestic card system to keep foreign competitors or new entrants on the market at bay and maintain card prices at artificially high levels. Practices which restrict competition to the detriment of consumers who have to bear the brunt of higher fees and less choice, will find no mercy in the eyes of both the EU and national competition authorities.

mariosa@vellacardona.com

Mariosa Vella Cardona is deputy chairperson of the Malta Competition and Consumer Affairs Authority and a member of the National Commission for the Promotion of Equality.