On 10 March 2021, Visa AP (Australia) Pty Ltd and Visa Worldwide Pte Limited (together, "Visa") entered into a court enforceable undertaking with the Australian Competition Consumer Commission ("ACCC"), seeking to address the ACCC's concerns that Visa was leveraging its substantial market power in credit cards to limit competition in debit card acceptance.
What you need to know – key takeaways
- The ACCC has recently announced that its 2021 priorities include promoting competition and investigating allegations of anti-competitive conduct in the financial services sector.
- Visa's undertaking is designed to ensure that merchants can make informed decisions about which network to process payments on Visa branded debit cards, without suffering adverse consequences (including increased costs) from Visa.
- The ACCC is very likely to continue to carefully scrutinise circumstances where large players may be leveraging their market power into adjacent markets to gain significant advantages over their competition.
How do debit and credit card payments work in Australia?
There are three debit card scheme networks through which debit card payments may be processed in Australia: Visa Debit, Debit Mastercard or eftpos. In contrast, most (if not all) credit cards will be routed through the card issuer's network (Visa or Mastercard only). eftpos is a privately-run Australian debit card payment system owned and administered by eftpos Payments Australia Limited.
The cost a merchant incurs when it processes a payment from a customer via a debit or credit card varies depending on the 'interchange rate' that is set by the network that processes the payment.
Most debit cards in Australia are 'dual network' which enables payment to be processed either via eftpos or one of Visa or Mastercard (depending on the card issuer).
In 2017, the Reserve Bank of Australia supported an initiative known as 'merchant choice routing' or 'least cost routing' which introduced technology to allow Australian merchants to choose to send contactless ('tap and go') payments for dual network debit cards via the debit network that charges the least to the merchant. The purpose of this initiative was to (1) provide merchants the ability to make routing choices based on the lowest cost, and (2) increase the competitive pressure between debit card payment schemes to incentivise providers to lower fees.
What were the ACCC's concerns regarding Visa?
Visa has agreements with certain merchants to provide them with strategic debit rates and/or strategic credit rates, on the condition that payments are routed through the Visa network. The ACCC investigated whether the tying of Visa's strategic credit rates to a merchant's commitment to route Visa branded debit transactions via the Visa network was anti-competitive.
The ACCC considers that there are separate markets for the supply of credit card acceptance services and the supply of debit card acceptance services in Australia, and that Visa has a substantial degree of market power in the supply of credit card acceptance services because merchants do not have an alternative choice of network to Visa when processing Visa credit card transactions.
The ACCC was concerned that, through its tying conduct, Visa was leveraging its substantial market power in the credit market to lessen competition in the debit card acceptance market. The ACCC alleged that this conduct may substantially lessen competition in the market for debit card acceptance services in Australia, in contravention of the misuse or market power and/or exclusive dealing provisions of the Competition and Consumer Act 2010 (Cth).
How did the undertaking address the ACCC's concerns?
In the undertaking accepted by the ACCC, Visa acknowledged, but made no admissions, in respect of the ACCC's concerns. However, to address the ACCC's concerns, Visa has undertaken that for three years it will:
- not terminate, withdraw or change a merchant’s strategic credit rate, or otherwise raise a merchant's costs, following a merchant’s decision to process Visa debit payments through a network other than the Visa network;
- not offer a strategic credit rate to a merchant on condition that the merchant processes Visa debit payments through the Visa network;
- not consider a merchant’s Visa debit payments volume or processing decisions in assessing that merchant’s eligibility for a strategic credit rate;
- provide written reasons to a merchant for any withdrawal or change to that merchant’s strategic credit rate, if that merchant has indicated an intent to process (or has already commenced processing) Visa debit payments through a network other than Visa;
- publicise the ability of merchants to process Visa debit payments through a network other than the Visa network without affecting their strategic credit rate;
- prior to commencing negotiations, provide merchants with eligibility criteria for debit and strategic credit rates and allow merchants to choose how negotiations proceed;
- include an appropriate dispute resolution framework in Visa’s agreements with merchants;
- provide annual training to Visa staff that engage with merchants in respect of obligations contained in the undertaking and compliance obligations under the Competition and Consumer Act 2010 (Cth); and
- appoint and fund an independent auditor to conduct an annual audit of Visa’s compliance with the undertaking.
Visa's undertaking applies only in respect of Visa's arrangements with Australian merchants and does not affect Visa's arrangements with global merchants.
By entering into the undertaking, Visa avoided any litigation the ACCC may have pursued over misuse of market power or exclusive dealing concerns.
The ACCC is very likely to continue to carefully scrutinise any circumstances where large players may be leveraging their market power into adjacent markets to gain significant advantages over their competition. The ACCC may seek alternative remedies to litigation if it is satisfied that those remedies can sufficiently address its competition concerns and its need to achieve public enforcement outcomes.
With thanks to Andrew McClenahan of Ashurst for his contribution.
