Following an investigation by the Competition Authority, Greiðslumiðlun hf. (now Valitor), Kreditkort hf. (now Borgun) and Fjölgreiðslumiðlun hf. have reached a settlement with the Competition Authority. The settlement also includes an admission by Greiðslumiðlun that it abused its dominant market position through actions directed at a new competitor (PBS/Kortaþjónustan). The settlements also involve Greiðslumiðlun and Kreditkort admitting to having engaged in long-standing and extensive illegal collusion. Multipayments was partly involved in this. The settlement with Multipayments also acknowledges that the company breached the competition law prohibition on anti-competitive agreements. The companies agree to pay administrative fines for this and to change their market activities and conduct. The fine for Greiðslumiðlun is 385 million krónur, for Kreditkort 185 million krónur, and for Fjölgreiðslumiðlun 165 million krónur.
The background to the case is that on 13 June 2006, the Competition Authority carried out a search of the premises of Greiðslumiðlun. Based on evidence found at Greiðslumiðlun, a search of Kreditkort was carried out on the same day. During the Competition Authority's examination of the seized documents, indications of possible wrongdoing by Fjölgreiðslumiðlun emerged, and a search was carried out at that company's premises on 14 March 2007.
Last year, the payment processing company approached the Competition Authority and requested that a settlement be reached in the matter. The discussions led to a settlement being made with the company on 29 November 2007. Kreditkort also approached the Competition Authority and requested that a settlement be reached in the matter, and a settlement with that company was signed on 19 December 2007. Finally, Fjölgreiðslumiðlun requested conciliation, which concluded with the signing of a settlement with the company on 7 January 2008. These settlements are based on Article 17a of the Competition Act, which states that if an undertaking has contravened the provisions of the Act, the Competition Authority is authorised to conclude the case by way of a settlement.
This case concerns the payment card market and its sub-markets. Payment processing and credit cards are competitors in the market for transaction handling. Transaction acquiring consists of the service provided to merchants (e.g. shops) that enables them to accept payment card payments, process their transactions and settle the funds with them once cardholders settle their accounts. Greiðslumiðlun held a dominant market position in this market. Fjölgreiðslumiðlun is a company jointly owned by the commercial banks, savings banks, Greiðslumiðlun, Kreditkort and the Central Bank of Iceland. Among its tasks, Fjölgreiðslumiðlun operates electronic systems (the RÁS system) for authorisation, batching and clearing of payment card transactions. Access to this system is essential for those operating in the payment card market.
Payment services has admitted to having infringed Articles 10 and 11 of the Competition Act and Articles 53 and 54 of the EEA Agreement. Credit card has admitted to having infringed Article 10 of the Competition Act and Article 53 of the EEA Agreement. Multipayment has admitted to breaching Articles 10 and 12 of the Competition Act and Article 53 of the EEA Agreement. The infringements consisted mainly of the following conduct:
1- Payment Clearing's actions against PBS/the Card Service (misuse of dominant market position)
Until 2002, Payment Processing and Credit Cards handled almost all transaction processing for the use of payment cards by Icelandic merchants of goods and services. In November of that year, a Danish company, PBS International, began acquiring transactions in competition with these two companies. PBS International has a partner in Iceland, Kortaþjónustan ehf., which handles the contracting with merchants and the processing of transactions. Hereinafter, these companies will be referred to collectively as PBS/Kortaþjónustan.
Until the PBS/Card Service began operations, the practice was for Payment Processing and Credit Cards to settle with merchants on a monthly basis. PBS/Card Services, however, offered an innovation to compete with these companies. This involved offering merchants faster settlement for credit card transactions, which was shortened to two working days after the transaction. It can be advantageous for merchants to receive the said funds as quickly as possible. It should be borne in mind that credit card usage is seldom higher than it is in this country. Payment Processing, Credit Card and Multi-payment Processing engaged in illegal collusion on specific actions in order to counter the entry of PBS/Card Services into the market, see chapter 2.
The evidence shows that the management of Greiðslumiðlun was negative towards this competition from the PBS/Card Service. Within Greiðslumiðlun, memos and emails were compiled which state an intention to push PBS/Kortaþjónustan out of the Icelandic transaction processing market, and actions were decided upon for this purpose. The purpose, according to Greiðslumiðlun's own documents, was to prevent this competition from reducing Greiðslumiðlun's profitability on these transactions, and for expelling PBS/Kortaþjónustan from the market to serve as a warning to others intending to compete in the Icelandic market. The measures taken by Greiðslumiðlun with the aim of driving PBS/Kortaþjónustan out of the market were varied, and this abuse of a dominant market position took place between 2002 and 2006. This will be explained in more detail.
1.1 By virtue of its position in the market, Payment Services held information on the transactions of the PBS/Card Service. Based on this information, among other things, Greiðslumiðlun approached customers of the PBS/Card Service and offered them special terms and deals in order to win them over from the PBS/Card Service. These comprised illegal targeted price reductions and faster payouts, which were generally not available to merchants doing business with Payment Processing. In some cases, a reduction in terminal rental or even free terminals was also offered, which constitutes illegal tying.
1.2 Payment processing applied technical barriers, such as risk management.[I], to make it more difficult for merchants doing business with PBS/Card Services to process credit card transactions. Payment Processing applied this risk control differently within its system when authorising transactions from Icelandic merchants at PBS/Card Services than it did for merchants with transaction-level risk management. These actions by Greiðslumiðlun were not in line with the general role of risk management where the merchant's nationality is a relevant factor. Instead, different risk management was applied depending on whether Icelandic merchants were in business with the rival acquirer or not. This resulted in PBS/the Card Service acquiring transactions being more difficult for merchants to process than those with Greiðslumiðlun, causing delays and inconvenience for merchants and cardholders. Another example of a technical barrier is that in the first few months that PBS/Payment Processing handled transaction clearing in Iceland converted transaction amounts from Icelandic krónur to US dollars and then back to krónur when posting to the cardholder's transaction history, creating associated currency risk. When cardholders complained about this to Greiðslumiðlun, the company tried to direct their dissatisfaction towards the merchants that were doing business with PBS/Kortaþjónustan.
1.3 Greiðslumiðlun and PBS are members of VISA International. The companies belong to VISA Europe, i.e. the European region of Visa, which is headquartered in London. The evidence shows that Greiðslumiðlun exerted pressure on VISA Europe and introduced specific rules on transaction retention that were designed to hinder the operations of PBS/Kortaþjónustan in this country.
2. Illegal collusion
Payment processing and credit cards engaged in various forms of illegal collusion. Mass payment processing was partially involved in this illegal collusion:
2.1 Payment Processing and Credit Cards consulted on a response and actions, which began in November 2002, to counter the entry of PBS/Card Services into the transaction acquiring market in Iceland. These companies initiated this consultation, but Fjölgreiðslumiðlun participated in it, amongst other things, by providing information about this new competitor.
2.2 Payment Solutions and Credit Card consulted to maintain a mutual understanding that the companies would not seek authorisation licences under each other's brands. This included a mutual understanding that Greiðslumiðlun would not compete with Kreditkort in the processing of MasterCard/Maestro card transactions, and Kreditkort would not compete with Greiðslumiðlun in the processing of VISA/Electron card transactions.
2.3 Greiðslumiðlun had a consultation with Kreditkort that the company would not enter the POS rental market in competition with Greiðslumiðlun, in exchange for an agreement that Kreditkort would instead be allowed to purchase VISA instalment agreements. This involved the companies consulting with each other on market division, which was intended to limit competition in the terminal leasing market.
2.4 Credit Card and Payment Schemes consulted on the issuer's share of the fee from merchants for the use of debit cards.
2.5. Credit card and payment companies colluded to reduce competition in customer offers, as well as to coordinate their marketing and promotional activities. This included, for example, ceasing to offer certain deals to customers.
2.6 Payment Processing and Credit Cards consulted on the establishment of various terms relating to payment card operations, concerning, amongst other things, the operational aspects for merchants and the interests of cardholders.
2.7 Credit Cards, Payment Processing and Multi-payment Processing exchanged information on commercial matters, such as market share, prices and pricing plans. Was this disclosure of information, for example on market share, liable to create anti-competitive transparency in this oligopolistic market?.
2.8 Payment processing and credit card companies consulted with each other on various development and investment projects related to payment processing and transaction handling. The aim was to protect the companies' positions in transaction and payment processing and to limit the risk of potential future competition.
2.9 Regarding various of the above-mentioned infringements, Kreditkort og Greiðslumiðlun has emphasised that the associations failed to apply for an exemption from the prohibition on restrictive practices under competition law.
3. Restrictive practices within Multi-payment Processing
Within the framework of Fjölgreiðslumiðlun, there was an Operating Committee for the RÁS service (hereinafter the Rás Committee), which was composed of three members and three substitutes. The committee was composed of one member from each of the card schemes, Payment Processing and Credit Card, and one member of staff from Multicard Processing. The Rás Committee was intended to be a collaborative forum with the task, among other things, of discussing technical and security matters, overseeing standardisation, and monitoring equipment certification. The committee was also tasked with discussing transactions and contracts with vendors and making recommendations to the board of Fjölgreiðslumiðlun on improvements, for example, to the terms for merchants in transaction handling. An examination of data from Fjölgreiðslumiðlun and the card schemes has revealed serious collusion resulting from this forum. The collusion consisted of decisions being made in the Rás Committee, and in some cases also by the company's board, on matters primarily related to competition between Greiðslumiðlun and Kreditkort. What all these matters have in common is that the collusion concerning them is anti-competitive in the market for the use of payment cards, and in this way they potentially affect the choice and operating environment of merchants and the interests of cardholders. This shall be explained in more detail:
3.1 Within the Rás Committee, there was coordination of rules on common risk management and the intragroup ratio when payment cards are used in transactions.
3.2 Discussions were held regarding variable card periods within the year for merchants in transactions where credit cards are used. This led to a common position towards merchants and also concerned the interests of cardholders. Consultation took place on other matters, such as the consistent application of the Payment Instrument and Credit Card to merchants authorised to accept payment cards for transactions without the cardholder's signature.
3.3 There was consultation, including within the Rás Committee, that it was the association's prerogative to decide whether and which additional solutions were to be hosted on terminals and other equipment related to the electronic payment system. This was likely to distort competition in this area.
3.4 Consultation was held on the implementation of risk assessment and the determination of reference amounts when GSM phones are used for payment transactions. This led to harmonisation between payment transactions and credit cards.
3.5 Discussions were held regarding the standard of the Icelandic card schemes relating to payment card transactions, and about joint policy-making concerning the Icelandic implementation of transaction clearing. Discussions took place regarding a common method for calculating interest for cardholders and merchants respectively when debit cards are used for transactions. Fjölgreiðslumiðlun has emphasised that the nature of payment systems and payment processing calls for a certain degree of cooperation between financial institutions, and that the scope for independent action is, in this respect, extremely limited. Extensive cooperation took place within Multibanking on measures concerning various development and investment projects, and Multicard was also a forum for discussions and a common stance by the banks and the card associations regarding their ownership in other companies related to this market, with the aim of protecting the owners' position. in payment systems in Iceland.
3.6 Regarding various of the above-mentioned breaches, Fjölgreiðslumiðlun has emphasised that the company failed to apply for an exemption from the prohibition on restrictive practices under competition law.
4. Penalties and instructions
Due to the aforementioned breaches, Greiðslumiðlun has agreed to pay a government fine of 385 million krónur, Kreditkort 185 million krónur, and Fjölgreiðslumiðlun 165 million krónur. In assessing the amount of the fines, it is taken into account that these are serious infringements of competition law which were liable to cause a significant distortion of competition and which lasted for a long period. It is also taken into account that Greiðslumiðlun has held a very strong position in the market. With regard to Fjölgreiðslumiðlun, it is noted that complex issues can arise in the operation of payment systems. It is therefore not possible to rule out that some of Fjölgreiðslumiðlun's infringements were committed negligently.
In assessing the amount of the fine, it is also taken into account that the companies in question took the initiative to enter into settlement negotiations with the Competition Authority and have unreservedly admitted their breaches of competition law. The companies have also agreed to comply with orders designed to enhance competition. Through these actions, the three companies have significantly facilitated and shortened the investigation and proceedings of the competition authorities, which has a positive competitive effect on the defined markets. This willingness to co-operate by the companies is given significant weight when assessing fines.
Payment is made, and there is a special reward, for being the first to come forward and admit their participation in illegal collusion. Is it generally important that companies that break the unity or collusion in a cartel, or that take the initiative to confess such an offence or report it, receive a special reduction in fines?.
The measures to which Payment Services, Credit Cards and Multi-payment Services have agreed to comply are intended to promote effective competition and prevent similar infringements from recurring. For example, instructions can be found on the following:
5. Conclusion
The Competition Authority considers this matter to be of great importance. There are strong grounds to believe that its outcome and the aforementioned changes will have a highly positive impact on the financial markets. The responsible stance taken by Greiðslumiðlun, Kreditkort and Fjölgreiðslumiðlun in the Competition Authority's proceedings is conducive to creating a much healthier competitive environment and promoting increased competition in this important market.
The decision of the Competition Authority in this case can be found on its website.
[I] Risk management is generally used for two purposes. Firstly, to monitor that a cardholder's transactions do not exceed the credit limit for each card period that card issuers have defined for individual cardholders. However, risk management is also applied to minimise issuer losses from the misuse of lost, stolen or counterfeit cards. In this case, stricter risk management is applied when a card is used at a foreign merchant than at a domestic one.
Decision No. 4/2008.
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