Í decision The Competition Authority's report, published today, concludes that Valitor abused its dominant market position through actions directed against its competitors in the payment processing market. Valitor also breached the conditions to which the company had committed itself.
This case concerns the market for data protection. Transaction processing consists of the service provided to merchants (e.g. shops) that enables them to accept payment cards, process their transactions and pay them out when cardholders settle their bills. Valitor is the market leader in this market, and the market also includes Borgun hf. and Kortaþjónustan (Teller).
At the end of 2007, Valitor, among others, admitted to extensive breaches of competition law and agreed to pay a fine of 385 million krónur. Valitor also agreed to comply with conditions intended, among other things, to prevent the company from again abusing its dominant market position through actions intended to cause competitive harm to a rival. The case was finally concluded at the beginning of 2008, pursuant to a decision by the Competition Authority. No. 4/2008.
The Competition Authority has been investigating a complaint from Borgun and several tips concerning Valitor's conduct in the transaction processing market. In a decision published today, the Competition Authority states that Valitor breached two conditions to which the company had agreed to be bound in the 2007 settlement. This included, amongst other things, Valitor misusing confidential information about its competitors in transaction processing, to which the company had access due to its position as an issuer of VISA payment cards in Iceland. These conditions were a response to Valitor's serious breaches and were put in place to prevent further breaches by the company. It is inherently very serious for a company to breach conditions of this nature to which it has committed to adhere.
Valitator's breaches also consisted of so-called underpricing. This practice essentially consists of a dominant company selling products below cost. In transactions between the acquirer and the merchant, a distinction is made between debit cards and credit cards. There is a significant difference in the handling of these cards in transactions and in their settlement. This leads to the pricing for transaction handling to merchants for these two types of cards being different. Valitor's conduct consisted of pricing its transaction handling service for debit cards below its variable costs in 2007 and 2008. Through this undercosting, the company was more likely to secure merchant contracts for credit card transaction handling, which is considered a more profitable service. The extent of this undercutting was significant and was applied, amongst others, to powerful retailers. It is crucial that all price-setting is fair in such an important area of business, and that smaller competitors are not unfairly prevented from providing competitive pressure. Even if customers enjoy a very low price for a short time, the disruption of competition caused by such an unnatural price reduction by a dominant firm, in the long run, to a reduction in competitors, higher prices, lower service or quality, and a reduction in consumer choice. Competition law is, among other things, intended to ensure that effective competition benefits consumers and the economy in the long term.
These are repeated breaches by Valitor, which the Competition Authority believes were committed intentionally. They are therefore very serious breaches, and the Competition Authority considers it appropriate for Valitor to pay a fine of 500 million krónur.
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