Recent antitrust enforcement activity in the payment card industry – Visa/Morgan Stanley and Cartes Bancaires Peter Willis, Dundas & Wilson LLP ABA Antitrust Section Financial Services Committee Brown Bag 22 February 2008

The “other” cases – not interchange fees! Visa/Morgan Stanley – Commission fined Visa €10.2 for refusing to admit Morgan Stanley as a member Cartes Bancaires – CB price structure that restricted entry by new issuers infringed Article 81 Both decisions now appealed to the Court of First Instance

Visa/Morgan Stanley – background Morgan Stanley applied to join Visa in 2000 Visa refused admission, arguing that ownership of Discover card network in the US made Morgan Stanley a competitor But Morgan Stanley’s card activities in EU were confined to issuing MasterCard cards Morgan Stanley complained to the Commission The Commission sent Visa a statement of objections (SO) in 2004 Visa admitted Morgan Stanley in 2006 under a settlement agreement, Morgan Stanley withdrew complaint but Commission imposed fine

Visa/Morgan Stanley – restriction of competition Refusal was a restriction of competition, in breach of Article 81(1) Commission found that retailers expect banks to provide card acceptance services as a package – both Visa and MasterCard, so Visa refusal excluded Morgan Stanely from providing other acceptance services as well Morgan Stanley was one of the few operators that could realistically have entered the (concentrated) acquiring market in the UK

Visa/Morgan Stanley – no exemption Refusal was not justified (exempt) under Article 81(3) Visa was unable to point to any efficiencies created by the refusal In addition, Visa’s admission of Morgan Stanley in 2006 demonstrated that admission was feasible and that refusal was unnecessarily restrictive Other means (such as confidentiality agreements) would have addressed concerns about eg. free- riding In any event, Visa had admitted other competitors

Visa/Morgan Stanley – the fine Commission imposed fine although Visa had admitted Morgan Stanley Notification of the rule in 1990 offered no protection – it wasn’t the rule that was objectionable, but the application to Morgan Stanley But the Commission imposed the fine only for the period after the issue of the SO

Cartes Bancaires – background CB accounts for over 70% of card payments in France Visa and MasterCard operate as CB cards in this system CB managed by the largest French banks CB imposed “MERFA” (Mécanisme Régulateur de la Fonction Acquéreur) fee of up to €11 on each card issued by banks that were not sufficiently active in card acceptances or installation of ATMs, together with other membership fees CB claimed fees were necessary in order to prevent free-riding

Cartes Bancaires – background CB notified the rules to the Commission in December 2002 Commission conducted a dawn raid in May 2002 Commission issued SOs in 2004 and 2006 Infringement decision, but no fine, in October 2007

Cartes Bancaires – Commission’s analysis Commission found evidence that the purpose of the measures was to create an obstacle to new entrant on-line banks and banking arms of retailers Level of fees prevented new entrants from launching cards at €15 to €20 level Commission found that CB had been unable to establish free-riding, or that the measures would prevent it The measures (particularly the MERFA) would not encourage merchant acquiring or installation of ATMs

Conclusion Interchange fee cases are economically more complex and higher profile Visa/Morgan Stanley and Cartes Bancaires were – according to the Commission – much clearer infringements Agreements intended to exclude new entrants If decisions are upheld, Commission can be expected to continue to target similar arrangements – and to impose fines in future

Contact us Peter Willis, Partner, Head of EU & Competition, Dundas & Wilson LLP +44 (0)