The Competition Authority approves the takeover of Fjölgreiðslumiðlun hf. (now Greiðsluveitunni hf.) by the Central Bank of Iceland, subject to conditions.

The Competition Authority has, in its decision today No. 2/2011 authorised the takeover of Fjölgreiðslumiðlun hf. (now Greiðsluveitan hf.) by the Central Bank of Iceland. However, the takeover is subject to various conditions. Fjölgreiðslumiðlun was previously owned by most of the country's commercial banks and savings banks, as well as Valitor hf., Borgunar hf. and the Central Bank of Iceland. The acquisition by the Central Bank of Iceland of all the shares of the former co-owners constitutes a merger within the meaning of Article 17 of the Competition Act. After the change of name, the company is called Greiðsluveitan hf.

The Competition Authority has concluded that the takeover will, on balance, have a positive competitive effect on the market for payment services and payment clearing in Iceland, but Greiðsluveitan will m.a. operate a system for the settlement of payment instructions and an electronic payment channel for the use of payment cards in Iceland (the RÁS system). Furthermore, the Payment Service Provider will operate various important activities in this field.

It is recognised that this activity is very important and necessary for general financial operations, and it must therefore be ensured that all operators, both existing and new, can connect to these systems and use their services. This access must be transparent and based entirely on the principles of equality and objective criteria and conditions.

In light of the position of the Payment Institution in the defined markets of this case and all circumstances related to them in this country, the Competition Authority considers it necessary to impose various conditions on the merger concerning the company's operations and management, and to intervene on the basis of the comcompetition law. Negotiations with the merging parties have led to an agreement on the conditions in the case. The Competition Authority considers that the conditions resolve the competition concerns arising from the merger. The merging parties have agreed to comply with them.

The conditions are, among others, as follows:

• The Payment Service shall be operated on independent commercial grounds with regard to those aspects of its activities that are in the competitive market, and the Central Bank of Iceland shall ensure that its competitive operation is separate from the bank's other statutory tasks. The competitive operation of the Payment Service Provider is the activity involved in the operation of the company's RÁS system. The Central Bank of Iceland shall publicly publish its policy as the owner of the Payment Service Provider. The board members of the Payment Service Provider shall be independent of the company's customers.
• The Payment Service Provider is obliged to ensure equality and objectivity towards those parties who request a connection to the Payment Service Provider's systems and services, and may not discriminate between parties in those dealings unless there are objective reasons for doing so.
• The payment institution shall publish its general terms and conditions publicly by 1 April next. The payment institution shall notify the Competition Authority of any changes to the general terms and conditions no later than two weeks before they are due to take effect.
• The payment provider is prohibited from obligating Borgun or Valitor to transactions with the company's RÁS system in 2012 and 2013 that exceed a specified percentage of each company's transaction volume in 2010.
• The payment scheme shall prioritise that the necessary standardisation related to the RÁS system and the use of payment cards takes place on an open platform, where it is guaranteed that all stakeholders connected with the use of payment cards in this country have unrestricted access to that work on an objective basis.
• By 1 June 2011, the payment provider shall report to the Competition Authority on how the preservation and management of multilateral agreements, rules and instructions concerning individual payment instruments of banks and savings banks will be carried out.

Breach of these conditions is subject to administrative fines in accordance with Chapter 9 of the Competition Act.

The above-mentioned conditions and their underlying assumptions are discussed in more detail in the decision of the Competition Authority. No. 2/2011.

Background information:

Until now, Fjölgreiðslumiðlun hf. (now the Payment Service Provider) has been owned by almost all of the country's commercial banks and savings banks, which are competitors for financial services for individuals and businesses. Two payment card companies are also owners of the company, but they are in direct competition with each other in the issuance of payment cards and in acquiring transaction fees from their use at points of sale. Furthermore, the owners are almost the company's only customers.

It is indisputable that this arrangement of ownership of Fjölgreiðslumiðlun has not worked well. In this regard, reference may be made to the decision of the Competition Authority. No. 4/2008, Breach by Greiðslumiðlun hf., Kreditkort hf. and Fjölgreiðslumiðlun hf. of the prohibition provisions of the Competition Act. In that case, it was recognised that Fjölgreiðslumiðlun, together with the two payment card companies that are its owners, had for years seriously worked against the entry of a new player into the domestic transaction processing market. Furthermore, Fjölgreiðslumiðlun was a party to extensive consultation with these same owners over a long period concerning various activities related to the use of payment cards in Iceland. It was also revealed that the company served as a forum for discussions, decision-making, and the exchange of information regarding its owners' internal affairs. Within the company's board, which for the most part was composed of representatives of all the owners, discussions were held and decisions were made concerning the internal affairs of the banking and payment card operations in Iceland.

In addition to paying a fine for its involvement in the aforementioned offences, Greiðsluveitan hf. agreed to be subject to certain conditions in its operations. One of those conditions was that the company had to apply for an exemption from the prohibition in Article 10 of the Competition Act against the collusion between competitors that its member companies considered necessary to take place through the company. The aforementioned exemption request has been under consideration by the Competition Authority. The handling of that case was, among other things, discussed in a discussion paper No. 3/2009, Payment processing in Iceland and the project of the Multichannel Payment System, see also press release on the Competition Authority's website from 22 June 2009.

Subsequently, the Competition Authority decided to request an assessment from independent experts of the arguments and viewpoints of Fjölgreiðslumiðlun and the comments of the parties, taking into account the technical and systemic aspects related to certain aspects of the company's operations.

The Competition Authority subsequently received a merger notification, dated 18 November 2010, which consisted of the takeover by the Central Bank of Iceland of Greiðsluveitan hf. The aforementioned investigation into the exemption request and the evidence gathered therein form the basis for the Competition Authority's decision today. However, the takeover by the Central Bank means that Greiðsluveitan hf. is no longer owned by competitors. For this reason, there is no longer any need to rule on the aforementioned exemption request.