What you need to know
- The Australian Competition and Consumer Commission has commenced proceedings against Mastercard, alleging it misused its market power and engaged in exclusive dealing, in contravention of the Competition and Consumer Act 2010 (Cth) (CCA).
- Mastercard allegedly engaged in the conduct in question in response to the RBA's least cost routing initiative. The ACCC alleges that from 2017 – 2020 Mastercard entered into agreements with more than 20 major merchants in which it provided discounted rates on the processing of Mastercard credit card transactions, provided the merchants agreed to process all or most of their dual network debit card transactions through Mastercard rather than through the eftpos network. The ACCC alleges that this conduct had the purpose of substantially lessening competition in the debit card acceptance market and contravened sections 46 and 47.
- The ACCC is seeking declarations, injunctions, pecuniary penalties, publication and compliance orders, and costs against Mastercard.
- This is the second time the ACCC has taken action under the misuse of market power provision since the revised provision came into force in 2017 and the first time the Commission has alleged a party had the purpose of substantially lessoning competition under the new section 46.
What you need to do
- One of the ACCC's key priorities for 2022-23 is promoting competition and investigating allegations of anti-competitive conduct in the financial services sector, with a focus on payment services. Businesses in the sector are on notice that the ACCC will continue to bring enforcement action in relation to any concerns it has regarding anti-competitive conduct.
- The ACCC has also noted that this enforcement action is part of broader work it will be undertaking in the financial services sector.
- More generally, businesses in all sectors that have entered into arrangements which leverage market power in one market into another market through volume, exclusivity or tying arrangements with customers, should carefully review those arrangements to ensure they do not have an anti-competitive purpose or effect. The new Chair of the ACCC has noted its "heightened interest" in addressing the competitive harm caused by these types of arrangements, which may be a signal of further enforcement proceedings in different markets.
On 30 May 2022 the ACCC instituted proceedings in the Federal Court against Mastercard Asia/Pacific Pte Ltd (Mastercard Singapore) and Mastercard Asia/Pacific (Australia) Pty Ltd (Mastercard Australia) (together, Mastercard), for allegedly engaging in conduct between November 2017 and November 2020 which had the purpose of substantially lessening competition in the market for the supply of debit card acceptance services to merchants.
- The ACCC alleges that between November 2017 to at least November 2020, Mastercard engaged in anti-competitive conduct in the context of the Reserve Bank of Australia's least cost routing initiative.
- The RBA’s least cost routing initiative aimed to increase competition in the supply of debit card acceptance services and reduce payment costs for businesses by enabling businesses to choose the lowest cost network (Visa, Mastercard or eftpos) to process their transactions.
- The ACCC alleges that, in response to the least cost routing initiative, Mastercard entered into 23 agreements with major retail businesses, including supermarkets, fast food chains and clothing retailers.
- These agreements, known as strategic merchant agreements (SMAs), offered merchants lower prices on Mastercard credit card acceptance services, provided that they committed to processing all or almost all of their Mastercard-eftpos debit card transactions through the Mastercard network, rather than the eftpos network, for 2-5 years.
- The Mastercard SMAs allegedly did this through (i) clauses which expressly precluded the routing of Mastercard-eftpos debit card transactions through the eftpos network, (ii) volume clauses which required specific volumes of transactions to be processed through the Mastercard network (which precluded any significant volume bring routed to the eftpos network), and (iii) termination clauses that allowed Mastercard Singapore to withdraw the strategic merchant rates or terminate the agreement if the debit card transactions of Mastercard-eftpos debit cards were routed through the eftpos network.
The ACCC argues that a substantial purpose of Mastercard's conduct was to harm or interfere with the competitive process for the supply of debit card acceptance services and thereby prevent or hinder competition by:
- deterring merchants from acquiring from eftpos, and hindering eftpos from supplying to merchants, debit card acceptance services for dual Mastercard-eftpos debit cards, in circumstances where eftpos was or was likely to be the lowest cost standalone provider of those services; and/or
- enabling Mastercard to secure or retain a substantial proportion of the contestable debit volume even where Mastercard was offering those services at a higher price than eftpos.
Interestingly, the ACCC does not allege that Mastercard's conduct had an anti-competitive effect on the debit card acceptance market. The case is exclusively based on Mastercard's purpose in entering into the SMA's containing the relevant clauses.
The ACCC is seeking declarations that:
- Mastercard Singapore and Mastercard Australia contravened section 46(1) of the CCA (misuse of market power);
- Mastercard Singapore contravened section 47(1) of the CCA (exclusive dealing) or in the alternative, that Mastercard Singapore contravened sections 45(1)(a) and (b) of the CCA (entering into and giving effect to agreements which have the purpose of substantially lessening competition); and
- Mastercard Australia was involved in, and a party to, Mastercard Singapore's contraventions.
The ACCC is also seeking associated injunctions, pecuniary penalties, publication and compliance orders, and costs.
Financial services sector, payments and least cost routing: a focus for the ACCC
One of the ACCC's key priorities for 2022-23 is promoting competition and investigating allegations of anti-competitive conduct in the financial services sector, with a focus on the payment services.
In his speech launching the ACCC's priorities for 2022-23, outgoing Chair of the ACCC, Mr Rod Sims, noted that one of the core issues affecting competition in payments markets was least cost routing.
Although Mr Sims highlighted the issue in his launch of this year's priorities, the ACCC has been investigating the issue of least cost routing issue for some time. In March 2021, the ACCC accepted a court-enforceable undertaking from Visa in relation to similar conduct to that of Mastercard. Whilst the ACCC considered that Visa may have been in a position to breach sections 46 and 47 of the CCA by conduct leveraging its market power in the credit card acceptance market into the debit card acceptance market, the Commission did not go further to allege, (as it has against Mastercard), that Visa's conduct had the purpose of substantially lessening competition.
In a recent speech to the AFR Banking Summit in May 2022, new ACCC Chair, Ms Gina Cass-Gottlieb, re-affirmed the ACCC's focus and put all on notice that the ACCC will not hesitate to take action in response to any concerns about anti-competitive conduct in the financial services sector.
Ms Cass-Gottlieb emphasised that these proceedings demonstrate the ACCC's "heightened interest" in addressing competitive harm caused by exclusive dealing arrangements by firms with market power. This heightened interest goes beyond the payments sector and will extend to any firms seeking to leverage market power in one market into another.
She also indicated that the ACCC will continue to work with the Government to ensure that the regulatory framework for payments adequately addresses rapid changes to the payment ecosystem. Such changes includes greater digitalisation, buy-now pay-later arrangements and digital/cryptocurrencies.
Authors: Melissa Fraser, Partner; Narelle Smythe, Partner; and Amanda Tesvic, Senior Expertise Lawyer.
With thanks to Isabella Hunt, Laurel Donnelly and Lachlan Ward of Ashurst for their contribution