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MEMO/07/413

Brussels, 17th October 2007

Antitrust: decision adressed to "Groupement des Cartes Bancaires" - Frequently asked questions
(see also IP/07/1522)

Doesn’t this decision attack a national system at the wrong moment, now that the Single Euro Payments Area ("SEPA") is in the making?

Quite the contrary. The case highlights that large banks are not allowed to use a domestic card system to keep foreign competitors at bay and maintain card prices at artificially high levels for consumers.

Domestic systems will not be able to survive if their SEPA strategy is only "defensive" in that they focus on excluding competition at home without ever venturing outside their borders. To succeed in SEPA, card payment systems must not establish national fiefdoms, but compete head to head with others and allow for competition between banks within the system, to the benefit of consumers.

Do consumers benefit from the decision?

Yes, definitely. The tariff measures resulted in preventing certain banks, perceived as a threat by the large French banks who are the main members of the Groupement, from undercutting the prices applied by the large French banks and from issuing as many cards as they otherwise would have.

This in turn, prevented consumers from enjoying lower card fees and a wider choice of payment cards.

Which large French banks participated in the adoption of the measures?

The measures at stake were adopted by a decision of the Groupement’s Board of directors of which -according to the Groupement’s Formation Agreement- eleven banks are members: Fédération Nationale du Crédit Agricole, the Crédit Lyonnais, Crédit Mutuel, Crédit Industriel et Commercial, Société Générale, Crédit du Nord, BNP-Paribas, Banque Fédérale des Banques Populaires, Caisses d’Epargne, La Poste and Crédit Commercial de France.

As several of these banks belong to the same banking group (Crédit Agricole and Crédit Lyonnais; Crédit Mutuel and Crédit Industriel et Commercial ; Société Générale and Crédit du Nord), the Groupement’s Board of directors actually consists of the eight largest banking groups in France ( LCL (Crédit Agricole-Crédit Lyonnais), Crédit Mutuel-CIC, Société Générale, BNP-Paribas, Banques Populaires, Caisses d’Epargne, La Poste and HSBC (which controls Crédit Commercial de France).

Crédit Commercial de France did not participate in setting the measures.

Which banks are detrimentally affected by the measures?

The tariff measures’ formula are such that the only banks which have to pay significant amounts are recent or new Groupement members which solely issue cards (or which are essentially card issuers) without having card acceptance contracts with merchants or installing ATMs. These members are typically the banking arms of large retailers (for example Carrefour, Auchan) or on-line banks which do not and cannot have an important network of agencies enabling them to conclude enough card acceptance contracts with merchants to avoid paying the fees.

Why are the tariff measures restrictive by object?

Only specifically targeted members must actually pay the fees, sometimes for significant amounts.

The additional costs imposed by the tariff measures on Groupement members that limit themselves to issuing “CB” cards (without providing card acceptance services to merchants or installing ATMs) are € 11 per card (for the main measure, the so-called “MERFA”) and € 12 per card (for the other fee measures), which represents a significant additional cost compared to the annual fee that cardholders pay to their bank.

By putting certain members at a competitive disadvantage, the measures in themselves restrict competition.

In addition, it results from the documents obtained by the Commission during the inspections of the Groupement premises that the intention, expressed during the preparation of the measures by the representatives of the Groupement and of the largest French banks, was to hinder the competitive advantage of these Groupement members.

Several of the documents obtained during the inspections show that the representatives of the Groupement and of the largest French banks anticipated a significant increase in card issuing by on-line banks and by the banking arms of large retailers, at prices of €15 to €20, which they considered as a "threat".

Why are the tariff measures restrictive by effect?

The Commission has monitored the prices charged and the number of cards issued by certain new members targeted by the measures and by the main Groupement members (the largest French banks), who benefit from this agreement.

The results confirm that the new entrants have not been able to issue cards at the lower prices they intended to charge (€ 15 to € 20, which the largest French banks and the Groupement decided to prevent), and that the new entrants have not issued as many cards as they had planned before the measures were adopted. The results also confirm that the main members have not had to lower their prices in response to any competitive pressure from the new entrants.

Are the tariff measures still in force?

To date, the payment of amounts due under the tariff measures have not yet been requested and, on 8 June 2004, the Groupement’s Board of Directors decided to suspend the collection of the amounts due pending the Commission decision on their compatibility with competition law.

However, strictly speaking, the measures are still in force: they have not been cancelled and the Groupement announced that it would retroactively collect all amounts due if the Commission took a decision declaring the measures compatible with EU competition law.

In anticipation of such a retroactive collection, several banks have had to set up financial reserves which affect their capacity to invest in products attractive to consumers.

Are the tariff measures still producing effects?

The Commission’s survey of the prices charged and the number of cards issued by the targeted Groupement members showed that, even after the Groupement suspended the tariff measures on 8 June 2004, those members continued not to issue cards at the lower prices anticipated by the Groupement and its main members in the absence of the tariff measures.

There are two explanations as to why the measures continue to produce effects in spite of their suspension:

1) the decisions to review issuing plans downwards and not to charge prices as low as planned were taken before the measures were suspended and continue to affect the market;

2) the banks targeted by the measures, pending a clarification of their legal situation and exposed to the danger that the Groupement might lift the suspension, choose as a matter of precaution to continue to issue fewer cards than they would have wished.

Aren’t the tariff measures justified?

According to the Groupement:

1) the measures help to prevent new entrants from “free riding” on the investments made by the other members; and

2) they respond to the need of stimulating merchant “acquiring” (contracts between banks and merchants for card acceptance services) and the installation of ATMs, which generates more benefits to the system than card issuing.

The Commission explains in its decision that:

1) the Groupement does not show what the supposed free riding consists of. It does not indicate the nature or scale of the problem. The Groupement only advances figures without clarifying the source or the method of calculation;

2) The Groupement has not been able to demonstrate an economic need to balance the acquiring and issuing activities, which are remunerated independently of the measures at stake. Moreover, the main tariff measure (the so-called “MERFA”) does not in fact encourage acquiring.

How can measures taken by an association of undertakings acting on behalf of all its members possibly be considered as discriminatory vis-à-vis certain members?

Although the tariff measures were adopted by an association of undertakings acting on behalf of all its members and could be deemed to reflect the collective will of all of its members, in practice only the main French banks participated (as members of the Groupement’s Board of Directors) in the decision-making process.

The decision of the Groupement to adopt the tariff measures actually manifests the will of the large French banks and benefits them by penalising other members specifically identified as a threat to the large banks.

How can tariff measures applicable to all members nevertheless be considered as discriminatory vis-à-vis certain members only?

The formulae laid down by the measures to determine if a given member must pay the fees - and, if so, which amount - are formally applicable to all members.

However, in practice, upon application of the formulae, only specifically targeted members must actually pay sometimes significant amounts.

Why didn’t the Commission impose fines?

The Commission decided not to impose fines as the Groupement had notified the tariff measures under the former regulation on the application of the competition rules (17/62). This regulation, which was replaced by Regulation 1/2003 on 1 May 2004, allowed companies to submit measures for approval by the Commission. This is no longer possible under the new Regulation.

Why did the Commission decide to carry out surprise investigations in Groupement premises and large French banks if the new CB rules had been notified?

The Commission decided to proceed with on the spot investigations as this was the most effective way to verify the serious doubts it had regarding the real object and effects of the notified measures - aimed at putting new entrants at a competitive disadvantage by increasing their costs and thereby maintaining the price of cards in France above the level which would result from free competition -, i.e. an object and effect quite different from what the Groupement explained in its notification.

Why did the procedure last close to five years?

The measures were initially qualified in a first Statement of Objections of 8 July 2004 as a (non notified) agreement between the main French banking groups and the Groupement.

In a second Statement of Objections of 18 July 2006, replacing the previous one (which was withdrawn) and addressed only to the Groupement, the measures were qualified as a decision of an association of undertakings notified by the Groupement.

Moreover, the second Statement of Objections identified a restriction of competition not only by object (like the first) but also by effect, and contained a strengthened economic assessment.

The Groupement proposed commitments. Why did the Commission not accept them?

From the outset and every time it took a position on possible commitments by the Groupement the Commission always clearly pointed out that any commitment which would allow the Groupement to take measures with an anti-competitive object or effects similar to those of the measures at issue, would be unacceptable.

The Groupement nevertheless required that a possible Commission decision on commitments under Article 9 of Regulation 1/2003 included a reservation which could easily be interpreted as allowing the adoption of measures similar to the “MERFA”, the main anti-competitive measure.


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