Szöveg

1. Szöveg The Hungarian MIF case Boris Martinovic Hungarian Competition Authority RCC, St.Petersburg, 15 March 2012

2. Premises and market developments Enforcement action (the proceeding) Immediate aftermath Market survey on card acceptance Outline

3. Premises and market developments

4. 1995/1996: card payments start to become an important element of payment systems in Hungary An informal „forum” is created by several Hungarian banks to discuss card market related issues (fraud, developments, standards, etc.) to set intechange fees Important role of Visa and MasterCard Other banks join the system on the go Premises

5. Development of the marketCard schemes Visa and MasterCard became the two main players Combined market shares: debit: > 98% (no competitor) credit: > 95% before 2005, then Amex entered the market to gain a market share > 10% MasterCard is the leader: market shares constantly above 60% dominant position? but: Amex gained market share at the expense of MC Important role in the development of the market

6. Development of the marketCard issuing Fast growth in the years 2000 – rapidly increasing number of cards Predominantly debit cards (> 80%), irrelevant number of charge cards Almost every bank issues debit cards OTP’s share in issuing was above 50%, no other bank above 10%

7. Development of the marketCard acquiring Constant and large growth in number of POS Several banks on the market, but two leaders: OTP and K&H with a combined market share above 90% market share of OTP above 60% Every acquirer is issuer as well Specialty: large number of on-us transactions (OTP)

8. Development of the marketInterchange fees & MSC Set by the banks at the forum Guidance by Visa and MasterCard Uniform interchange fees for Visa and MasterCard Average interchange fee: > 1% (on-others) Average MSC: 1.2% - 1.4% (both on-us and on-others!) Lower interchange fees for petrol stations: ~ 0.3%

10. Enforcement action (the proceeding)

11. Initiation of the proceeding Enforcement action initiated on 31 January 2008 Parties: 23 banks, Visa, MasterCard Legal basis: Article 101 (1) TFEU & Article 11 (1) of the Hungarian Competition Act Presumed infringement: MIF agreement concluded between the banks can restrict competition

12. Findings Forum A forum was established to discuss issues in the card market Participants: Hungarian banks, Visa, MasterCard Uniform treatment of Visa and MC Several topics, including interchange fees Voting system for acceptance of proposals Not a legal entity, but its decisions were binding „Articles of Association”: one of the goals was to „ensure favourable development of prices” Dispute on whether to make it a formal legal entity

13. Findings Setting of interchange fees Bilateral agreements between 1991 and 1994 (few banks) From 1995 the fees are set within the forum Uniform fees for Visa and MasterCard to ensure same acceptance of both brands by the merchants Agreement on minimum MSC as well Threat of sanctions for non-obliging banks Evidence of intent to avoid a „fee war” Evidence of interchange fee representing floor of MSC Setting of interchange fees was seen as a potential abuse of competition rules by some banks, Visa

14. Decision Parties to the agreement Primarily: 7 banks concluding the agreement in 1996 Secondly: all banks entering the card market later on (from date of entry) They accepted the agreement without objections Visa & MasterCard They enabled and facilitated the conclusion of the agreement They provided help in the process and in running the system They new about the uniform setting of fees, which was in their interest as it eliminated one aspect of competition between them

15. Decision Restriction by object Uniform setting of interchange fees is a restriction by object, because: Uniform setting of fees eliminates an important element of price competition between Visa & MC Parties themselves also considered the interchange fees to have a limiting effect on the acquiring market competition (floor of MSC) Setting uniform interchange fees is in itself an agreement of such nature which necessarily restricts competition between acquierers The parties were aware of the fact they were limiting downward pressure on MSC with these actions One of the goals of the forum was to favourably manipulate prices Other proclaimed goal was to provide same acceptance for both card brands

16. Decision Restriction by effect Interchange fee serves as a floor for the MSC  by setting the floor, the parties restricted competition on the acquiring market Uniform setting of interchange also had the effect of restricting competition between Visa & MC Without the agreement different fee structures would have prevailed Evidence of failed proposals to decrease fees because of the agreement (supermarkets, 2004)

17. Decision Exemption Criteria for exemtion were not all met There might be efficiencies in the system, but: No evidence of the restriction (especially in case of uniform setting) being necessary and of appropriate measure No evidence of consumers benefiting from the efficiencies properly The parties failed to show efficiencies from uniform setting of fees

18. Decision Commitments Remedy package offered by the banks: Improve card payment in Hungary through educational campaigns supporting card schemes in promoting card usage Improve card payment standards Improve acceptance By providing card payment in public sector The commitments were rejected by the Council, as they were inappropriate to remedy the infringement

19. Decision Sanctions 22 out of 23 banks and Visa & MC were found „guilty” of restricting competition based on Article 101 (1) TFEU & Article 11 (1) of the Hungarian Competition Act 7 banks (parties to the original agreement in 1996) and Visa & MC were fined Total fine for banks: cca. EUR 3.57 million Fines for card schemes: cca. EUR 1.76 million each When calculating the fines: total amount of domestic interchange fees between 2004-2007, and market shares in 1996 were taken into account

20. Immediate aftermath

21. New Hungarian fees Interchange agreement was abolished MasterCard unilaterally introduced new domestic interchange fees for Hungary Visa decided to apply the cross-border default rates

22. Judicial outcome Parties fined by the GVH lodged an appeal with the Budapest Metropolitan Court Argument: The agrrement was not contrary to competition rules The GVH did not properly look into the actual effects The decision should be amended or annulled The court suspended the proceeding with respect to the MasterCard case before the General Court (T-111/08)

23. Market Survey on card acceptance

24. Market survey on acceptance The GVH appointed a market research company to make a survey Experiences and opinion of merchants regarding payment card transactions Scope: large size retail units, fuel distributors, hotels, restaurants, airlines, travel agencies, online companies and webshops Methodology: personal interviews with financial managers

25. Results Card acceptance depends significantly on the size and activity of the merchants Some sectors (large retailers, petrol stations) more affected by cards than others (car dealers) Price of card acceptance is a factor 14% of merchants would accept cards if the costs decreased Low awareness of interchange fees (level, role, concept) Cards vs. cash: Cash faster and cheaper, but preferred by only 6% of the merchants Pass-trough of cost reductions: unlikely, but varies greatly across sectors

26. Thank you for your attention! martinovic.boris@gvh.hu