After dealing with transactions by cheque,(1) and before it looks into automatic debits, the Competition Authority has turned its attention to payment card transactions – more specifically, the inter-bank fees set by GIE Cartes Bancaires. GIE has no vested rights in this area,(2) especially due to the evolution of the economic and legal context through:
- the opening up of the network to non-members;
- the predominant use of bank cards;
- the alignment of conditions for exemption; and
- the implementation of a unified European market for banking activities and payment services.
The inter-bank fees charged on the use of bank cards raise competition concerns with regard to the rules on restrictive agreements, due to the single, joint charge for all cards and the multilateral character of such charge. However, this does result in cost savings as it replaces the possibility of thousands of bilateral agreements with an agreement on a single tariff. According to the authority, use of the commitments procedure is particularly appropriate because it is an open practice devoid of secrecy and can be justified. Accordingly, the fee is subjected to proportionality control in order to determine the optimum level before accepting the commitments offered.
The authority makes a distinction depending on whether cards are used as a means of payment or for the withdrawal of cash. For the first, the market is two-sided; there is an interdependency between emission, where the cardholder and his or her bank operates, and acquisition, where the merchant and its bank intervenes. On such a market, payment by card benefits both the cardholder and the acceptor: it is in the cardholder's interest that a large number of merchants accept payment by card, and in the merchant's interest to accept that method of payment.(3)
Due to the two-sided nature of the bank card payment market, the authority makes no reference to the costs borne by the emitting bank when assessing the appropriate level of fees. Such fees contribute to the financing of the bank card payment system. In addition, in order to assess the extent to which they meet the financing objective in a proportionate manner without creating a distortion of competition compared to other instruments of payment, the authority applies the 'merchant indifference' methodology used by the European Commission in Visa Europe.(4) This method involves assessing the highest level at which the fee may be set where merchants have no preference as to whether a payment is made by card or in cash, in light of the benefits (eg, the speed of transaction and the easy administrative management of processing) and disadvantages (eg, the cost of equipment and data transmission costs) of cards. The setting of fees by this method results in a 36% decrease in the amount of inter-bank payment fees.
On the other hand, for cards used to withdraw cash, the market is not two-sided because an identifiable contractual obligation exists between the managing bank, which permits the cardholder to make cash withdrawals in its network, and the cardholder's bank, which pays a fee in return. The authority advocates an indexing of the amount of the inter-bank withdrawal fee on the costs of the most effective bank – that is, the lowest level observed between the banks. In this way, inter-bank withdrawal fee levels are reduced by around 20%.
After expiry of GIE's commitments, which will commence from October 1 2011 and last for four years, the authority will review the implementation of a methodology for the evaluation of inter-bank fees based on robust economic tests and reliable data.
For further information on this topic please contact Joseph Vogel at Vogel & Vogel by telephone (+33 1 53 67 76 20), fax (+33 1 53 67 76 25) or email ([email protected]).
(1) See Competition Authority, September 20 2010, LawLex201000001037JBJ, CDC 9/2010.
(2) See Competition Council, October 30 1990, LawLex201100001231JBJ.
(3) For a recent example of a two-sided market relative to concentrations, see also Competition Authority, January 26 2010, LawLex20100000194JBJ.