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Cite as: [2001] IECA 595
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COMPETITION AUTHORITY
Competition Authority Decision of 3 April 2002 relating to a proceeding under Section 4 of the
Competition Act, 1991.
Notification No. CA/5/01 - IPSO/An Post (OTC Bill Payments)
Decision No: 595
Price €3.30
€4.27 including postage
1
Competition Authority Decision of 3 April 2002 relating to a proceeding under Section 4 of the
Competition Act, 1991.
Notification No. CA/5/01 - IPSO/An Post (OTC Bill Payments)
Decision No: 595
INTRODUCTION
1.1 Notification was made on 10 May 2001 of an agreement between Irish Payment Services
Organisation Limited (-IPSO-), acting on behalf of Allied Irish Banks plc, The Governor and
Company of the Bank of Ireland, National Irish Bank Limited and TSB Bank Limited, on the one
hand, and An Post on the other, with a request for a certificate under Section 4(4) of the
Competition Act, 1991 or, in the event of a refusal by the Competition Authority to grant a
certificate, a licence under Section 4(2). A Statement of Objections was issued on 29 June 2001
to the notifying parties indicating the Authority-s intention to refuse to issue a certificate or grant
a licence in respect of the notified arrangement and an oral hearing was held on 20 September
2001, following which Revised Heads of Agreement were submitted by the parties on 5 October
2001.
THE FACTS
(a) The Subject of the Notification
2.1 The notification concerned arrangements whereby each of the banks involved would -migrate-
over-the-counter (OTC) bill payment services from their respective branches to An Post. This
would involve each such bank, as and from a specified date, ceasing or commencing to cease to
provide OTC bill payment services to their customers, subject to as and from such date An Post
being in a position, through its national post office branch network, to continue to provide
corresponding OTC bill payment services to such customers.
(b) The Parties
3.1 In making the notification, IPSO is acting in a representative capacity, for and on behalf of Allied
Irish Banks plc, The Governor and Company of the Bank of Ireland, National Irish Bank Limited
and TSB Bank Limited, which are all licensed banks in the State.
3.2 An Post is a statutory corporation established pursuant to the Postal and Telecommunications
Services Act, 1983, whose shareholders are the Minister for Finance and the Minister for Public
Enterprise. The principal objectives of An Post, as provided for in the Act, include, inter alia, the
following -
- to provide services by which money may be remitted (whether by means of money
orders, postal orders or otherwise) as An Post thinks fit;
- to provide OTC services for An Post-s own and Government business and, provided
that they are compatible with those services and with An Post-s other principal
objects, for others as An Post thinks fit.
(c) The Product and the Market
4.1 The parties submitted that the market affected by the proposed arrangement is that for all forms
or methods of bill payment services in the State. They also submitted the following breakdown
2
of estimated market share per type of participant in the bill payment sector, by reference to all
payment methods and to cash/cheques respectively. The data in Figure 1 refers, in the case of
banks, to all of the -High Street- banks, not just to those whom IPSO is representing in this case
(i.e. AIB, Bank of Ireland, National Irish Bank and TSB Bank).
Figure 1
(a) Bills - Cash and Cheque: 24m (b) Bills - All Payment types: 49m
An Post
An Post 21%
Banks
42% 39%
(
Utilities
Banks 10%
Utilities 69%
19%
Source: IPSO and An Post
4.2 OTC bill payments involve -in person- physical presentation of a bill (e.g. utility bills issued by
Eircom, Bord Gais etc.) at a bank branch counter. The bill is paid -over the counter- by the bill
payer, usually by means of cash or a cheque. The presenting bank then arranges for the
corresponding debit and credit to be processed through existing inter-bank payment/clearing
systems. The bill payer may also present certain utility bills for OTC payment at any post office
or, if available, at the offices of the bill-issuing utility (e.g. ESB high street shops). The Authority
has not been advised of the exact proportion of bills paid by cash/cheque that are paid OTC, only
that the parties believe that the majority of bills paid in cash and by cheque are paid OTC.
4.3 The parties claimed that, notwithstanding the historical predominance of cash and cheque
payments, over other forms of payment, in the Irish economy in general, and in regular bill
payment in particular, the number and quality of non-paper based methods of bill payment had
increased significantly in recent times, and now included Direct Debits, Standing Orders, Internet
Bank Payments, Telephone Bank Payments, Credit Cards, Debit Cards (Laser) and Automated
Teller Machines.
OTC Payments
4.4 The parties submitted that OTC payments tend to be paper-based transactions, and are more
costly and less efficient to process than electronic bill payment methods. They also submitted the
following data illustrating the difference in cost between such paper-based transactions and
electronic bill payment methods.
Figure 2
Cost Comparison of Payment Methods
[ ]
(e) Structure of the Market
5.1 The processing of payments in the State is conducted by participating banks and financial
institutions through the auspices of a number of payment systems, each of which is regulated by
3
the Central Bank, and is constituted as a company. Examples of the latter are Irish Paper Debit
Clearing Company (DebitCo), Irish Paper Credit Clearing Company (CreditCo), Irish Retail
Electronic Payments Clearing Company (IRECC) and Laser. DebitCo is responsible for clearing
payments in the form of debits (e.g. cheques), CreditCo is responsible for clearing credit
payments, while IRECC is responsible for clearing payments in the form of electronic debits and
credits. IPSO is an administrative/representative organisation for the payments industry in
Ireland and, as such, is not itself a payment system. However, all ordinary and associate
members of the clearing companies are also, by virtue of such membership, entitled to be
members of IPSO.
(e) Government Strategies for the Information Society
6.1 The parties submitted a copy of a Government Paper1 entitled -Implementing the Information
Society in Ireland: An Action Plan-. They cited the following extracts from that paper -
-2. Rapid response is needed to ensure that the benefits of the Information Society
can be availed of by Irish citizens and Irish businesses, thus contributing to the
ongoing improvement of Ireland's society and economy.-
--------------
-30. The financial institutions will be requested to prepare proposals for appropriate
systems to facilitate further deployment of electronic payments in the economy.
Consultations will be held with the various interest groups with a view to agreeing
mechanisms to take work forward rapidly in this area. Mechanisms to progress this
area of work, involving representatives of the various interest groups, will be in place
by end March 1999.-
--------------
-49. Electronic payment systems will be developed further within the public service,
and clients will be encouraged to take up electronic payment options. This will reflect
initiatives to promote electronic payment systems in general.-
6.2 The parties stated that, in response to the Government request, and technological developments
generally in the area of payment systems, the banking industry commissioned outside consultants
to conduct a study in this area. The results of the study were presented to the Government by
IPSO in December 1999. The parties submitted that the study-s findings highlighted the
predominance in Ireland of cash and cheques as payment methods, and the insufficient use (by
comparison with other products) of electronic payment methods; that Ireland was lagging behind
Europe and the USA in the deployment of electronic payment solutions and methods for
consumers, business and Government, and that there would be significant economic benefits
accruing from the increased use of electronic payment. Four key areas were identified, one of
which was bill payment.
6.3 The parties also referred to a strategic review of the future of Irish banking, initiated by the
Minister for Finance. The Minister-s Review Group issued a Report in October 2000 entitled
-Banking Sector: Some Strategic Issues - Report of the Department of Finance/Central Bank
Working Group on Strategic Issues facing the Irish Banking Sector-. They cited the following
extracts from that Report -
- paper-based banking transactions (e.g. OTC bill payments) were costly for banks and
their customers (page 39 of The Report);
- the key to change in the retail payments system was the development of an electronic
payment option for the bulk of commercial transactions - business to business,
business to customer, large and small value - and all State payments (page 39);
1
http://www.irlgov.ie/taoiseach/publication/infosocactionplan/infosoc.htm (PN 6727) January 1999.
4
- Department of Finance/Central Bank were supportive of initiatives to make the entire
payments system more efficient, and viewed it as important that such initiatives were
progressed with all possible speed (page 39);
- Bank customers, banks and the banking system could achieve significant benefits
from such development (page 39);
- The proposed -National Payments Strategy- included electronic regular bill payments
(page 50);
- One of the goals of the proposed utility bill payment initiative was the truncation of
the bill payment process, to be achieved by eliminating the requirement on those not
using direct debit instructions to use cash or cheques to make bill payments (page 50);
- Issues identified included, inter alia, the role of An Post in any new arrangements and
also the need for the banks to cooperate more closely in the area of electronic paper
and clearing systems (page 50).
(f) The Notified Agreement
7.1 The arrangement notified to the Authority on 10 May 2001 comprised Heads of Agreement
between IPSO and An Post dated 14th November 2000.
7.2 Under Clause 1 of the proposed arrangement, the parties agreed to co-operate in the
establishment of an agreed framework to migrate bank branch-based OTC bill payments to
the post office branch network. Clause 1 also stated that (the arrangement) seeks to provide a
more cost effective and efficient approach to the provision of payment services for the parties,
for bill issuers and for consumers.
7.3 Under Clause 2, the parties agreed to co-operate in a programme of migration of OTC bill
payments from bank branches to Post Office outlets. The principal objective was stated to be
to assist the movement of OTC payments to efficient methodologies as part of a co-ordinated
response to the National Payments Strategy. The parties also agreed that the migration of
OTC payments could be implemented on a standalone basis. An Post committed to provide
free customer access to its BillPay service for utility companies.
7.4 Under Clause 3, the parties would establish a steering group (comprised of members from IPSO
and An Post) to coordinate all cooperative payment initiatives within the context of the National
Payments Strategy. They would also establish a working group to plan and implement the -OTC
Migration Programme-; part of the latter group-s role would be to specify those transactions for
migration. Clause 3 also provided for confidentiality in respect of information shared between
the parties.
7.5 Finally, the arrangement expressly stated that the Heads of Agreement (except the provision
about confidentiality) did not constitute a contractual obligation on either party, but were -a
fair expression of the serious intentions of the parties to cooperate in the area covered by the
Heads of Agreement-.
7.6 The proposal would involve each of the named banks, as from a certain date, ceasing or
commencing to cease to provide OTC bill payment services to their customers, subject to An
Post being in a position, through its national post office branch network, to continue to
provide corresponding OTC related bill payment services to such customers. Where any
existing bill issuer does not have an arrangement with An Post to allow for payment of bills
through the An Post network, its existing bank would continue to provide OTC related bill
5
payment services pending arrangements being put in place for the -migration- of such bill
issuer to An Post in due course. The parties concluded that a bill payment counter service
would thus continue to be available to consumers, and the withdrawal of OTC services by
banks would be effected in an orderly and customer/consumer friendly manner.
7.7 The parties stated that the principal objective of what they termed -the OTC Initiative- was to
assist the movement of over the counter bill payments to more efficient methodologies as part
of a coordinated response by the banks and An Post to the National Payments Strategy; An
Post had already made significant investment in counter based electronic capturing bill
payment technology and services, which were thus immediately available for the processing
of bills migrated under the OTC Initiative.
7.8 The parties also stated that, under the Initiative, the banks and An Post would be making a
concerted effort to promote the benefits of their respective electronic bill payment services to
their own respective customer base, and to improve as necessary and develop those services.
An Post intended to expand significantly the number of outlets at which its bill payment
counter based services would be available, and open during consumer friendly hours. Thus,
the Initiative would result in improved availability for, and awareness by, consumers and
businesses of both counter based and electronic bill payment services on offer and available in
the market generally.
(h) Arguments in Support of Request for the Granting of a Certificate
8.1 The parties claimed that neither the Heads of Agreement between them, nor the arrangements
entered into pursuant thereto, constituted an agreement or arrangement between undertakings
having as their object or effect the prevention, restriction or distortion of competition in the bill
payment services market.
8.2 In addition, they advanced the following particular points -
- in response to Government policy, the OTC Initiative was intended to provide for the
increased deployment and utilisation of efficient and cost-effective electronic or non-
paper based bill payment methods, while at the same time ensuring that more
traditional paper based bill payment methods remained widely available for those
who wished to avail of same. Consumer demand for electronic or non-paper based
bill payment methods was increasing, and the OTC Initiative would help towards
meeting that demand;
- the numerous bill payment products or services in the market would not only
continue to be made widely available but would also, under the OTC Initiative, be
improved; in the case of non-paper based payment methods, through increased
deployment and utilisation of these methods, and in the case of paper based payment
methods, through the provision by An Post of OTC bill payment services, free of
charge to consumer bill payers at a greater number of outlets or points of access than
is currently provided by the banking branch network;
- the OTC Initiative would not adversely affect the competitiveness of the participants
in the market; and it might well enhance the competitiveness respectively of An Post
and the banks (vis-à-vis An Post and inter se) in the market and generally; in the case
of An Post, by enabling its branch network to provide a wider range of OTC services,
and in the case of the banks, by focusing on more cost-effective and efficient non-
paper based bill payment methods to the public at large;
- the current percentage share of the market, as held by any or all of the participants in
the market, would not be materially affected;
6
- the coordination between the banks and An Post, and also with bill issuers, was a
necessary requirement in order to adequately and efficiently respond to the demands
of Government and consumers towards more efficient and cost-effective payment
methodologies, and to ensure greater consumer choice and service convenience for
consumers on bill payments while assuring to consumers continued availability of
OTC bill payment services;
- it was also necessary to ensure that a clear, consistent and timely message was given
to the public at large, and thereby avoid any confusion among consumers and
businesses generally;
- the OTC Initiative should result in improved availability of electronic payment
methods and locations, and further would result in significant benefits for consumers;
and
- the OTC Initiative would not result in or impose any restriction as to the provision of
any bill payment services by or on any party to the Notification; further, bill issuers
were assured of a continuing OTC bill payment service, whether from An Post or,
pending migration to An Post, from their existing service bank.
(i) Arguments in Support of Granting of a Licence
9.1 If, however, the Authority considered that the OTC Initiative contravened section 4 of the
Competition Act, 1991, the parties claimed that it would be appropriate to grant a licence under
section 4(2) of the Act, as the OTC Initiative evidently contributed to improving the provision of
bill payment services, and/or promoting technical or economic progress in the State and with
reference to payment systems and methods generally, while allowing consumers a fair share of
the resulting benefit; and that this was sought to be achieved in the least possible restrictive
manner, without allowing for the elimination of competition in respect of a substantial part of the
services in question.
9.2 In addition, they advanced the following particular points -
- consumers would obtain significant benefits arising from the Initiative, particularly
improved availability of both electronic and non-electronic payment methods and
locations;
- consumers who did not have a bank account, or wished to pay a bill -in person-,
could continue to pay bills -over-the-counter- at An Post via its national branch
network (which had more branches and was open for more hours of business than the
combined banking branch network); An Post also intended to increase its branch
network, for bill payment purposes, by entering into arrangements with retail
sites/outlets throughout the State, whether using counters or automated terminals;
- the OTC bill payment service at An Post would be free-of-charge to the bill-
payer/customer;
- the Initiative would help to maintain the post office network in rural and poorer urban
areas to the benefit of consumers; that network was not just a commercial network,
but also provided valuable services to the public at large;
- the Initiative had been approved by Government, and was part of the wider
Government-endorsed -National Payments Strategy, designed to facilitate increased
employment and utilisation of technically advanced, efficient and cost-effective
7
electronic (and generally non-paper based) bill payment methods; co-operation
between banks and An Post was consistent with Government policy of improving,
and moving towards wider use of bill payment systems in Ireland, while also
ensuring that more traditional bill payment methods remained widely available to
consumers; and
- the Initiative would not result in or impose any restriction as to the provision of any
bill payment services by or on any party to the Notification.
(j) Submissions by Third Parties
10.1 The Authority received one submission in regard to this notification, from the Office of the
Director of Consumer Affairs (-ODCA-). A number of the issues raised, though of concern to
consumers, were not matters that the Authority, in accordance with its statutory remit, can or
should take into account in reaching its decision as to whether the notified arrangement merits a
Certificate or Licence. The Authority informed the ODCA that, in accordance with section 4(2)
of the Competition Act 1991, as amended, the Authority-s analysis of notified arrangements
included, inter alia, an assessment of the possible adverse effects and the possible benefits that
consumers might reap as a result of the notified arrangements.
STATEMENT OF OBJECTIONS
(a) The Statement
11.1 The Authority issued a Statement of Objections to the notifying parties on 29 June 2001,
indicating its intention to refuse to issue a certificate or grant a licence in respect of the notified
agreement.
(b) The Relevant Market
12.1 The Authority considered whether the relevant market in this case was that for all forms or
methods of bill payment services in the State, as claimed by the parties, or the narrower
definition of all OTC bill payment services in the State. In any case, it was clear that An Post
and the banks involved in IPSO were competitors regardless of the specific market definition.
12.2 However, the Authority questioned whether the market definition adopted by the parties was
appropriate. A significant number of consumers wishing to pay bills would not have easy
access to electronic methods of payment, and some might not have cheque books which
permitted them to make payment to the utilities directly via the postal service. As such,
substitutability between these different methods was not perfect, which provided problems
for a market definition encompassing all methods of bill payments.
(c) Applicability of section 4(1)
13.1 The Authority stated that the Heads of Agreement were clear as to the object of the parties in
making the proposed arrangement between them - according to Clause 1 of the Heads, -the
parties agree to co-operate in establishment of an agreed framework to migrate bank branch-
based OTC bill payments to the post office branch network-, and the parties had confirmed
that that was the underlying purpose. In other words, the participating banks would withdraw
from servicing OTC bill transactions for their customers, and An Post would endeavour to
provide the same service to such customers.
8
13.2 The parties had submitted (Figure 1) that there were 49 million bill payments of all types (i.e.
OTC, mail, and electronic) in the State, with the banks2 accounting for 34 million (69%) of
these, and An Post 10 million (21%). They had also stated that 24 million of the overall total
was accounted for by cash/cheque payments - of which the banks had 10 million (42%) and
An Post 9 million (39%).
13.3 The Authority was of the opinion that, no matter which definition of the market was chosen,
the agreement was a horizontal agreement among competitors. It saw the overall arrangement
as consisting of two parts; (i) an agreement between the banks involved in the arrangement
simultaneously and collectively to withdraw the facility of OTC bill payments, and, (ii) an
agreement between these banks as a group and An Post. The banks, through the proposed
arrangement, were proposing simply to exit the OTC segment of the market for bill payments
and to allow - in fact to encourage and facilitate - An Post to take up their existing market
share, thus giving it substantial market power in the market for OTC payments. In the
Authority-s view, that would amount to market-sharing, and would contravene section 4(1) of
the 1991 Act - in particular, subsection (c) thereof.
(d) Applicability of section 4(2)
14.1 Under Section 4(2) of the 1991 Act, the Authority may grant a licence in the case of any
agreement, decision or concerted practice which -
-having regard to all relevant market conditions, contributes to improving the production or
distribution of goods or provision of services or to promoting technical or economic progress,
while allowing consumers a fair share of the resulting benefit and which does not -
(i) impose on the undertakings concerned terms which are not indispensable to the
attainment of those objectives;
(ii) afford undertakings the possibility of eliminating competition in respect of a substantial
part of the products or services in question.-
The Authority-s Statement of Objections examined the proposal under these parameters, in
turn.
Contributes to improving the provision of services
14.2 The parties had claimed that the provision of bill payment services to consumers overall
would be improved by implementing the proposal. The underlying rationale for this claim
appeared to be that banks would thus be able to concentrate on electronic payment methods,
while consumers who wished to use OTC methods would have the facility to do so at post
office outlets. Arguably, however, there had been little to prevent the banks from focusing on
electronic bill payment methods to date, or trying to incentivise consumers to switch to such
methods. Indeed, banks generally had been trying to encourage consumers to use electronic
means of bill payment, e.g. direct debit, telephone banking etc., in recent years, and
presumably many consumers had done so. Presumably also, it would be in the interests of
bill issuers that as many of their customers as possible would use such means. However, the
fact that consumers nevertheless still apparently preferred to make 10 million bill payments
OTC through bank branches (see above), seemed to imply that banks - and indeed bill issuers
- had not been overly successful in this regard.
14.3 This implied a revealed preference of consumers to pay paper based utility payments via
banks, and not post offices - for every 1 payment in post office outlets, there were nearly 1.1
payments in bank branches, despite there being fewer bank branches than post office outlets
2
But see the general caveat by the Authority at paragraph 5 above.
9
available for OTC payments. This suggested substantive benefits that consumers felt accrued
to them from being able to make bill payments in banks. Thus, far from improving the
provision of services, therefore, the withdrawal of this facility by the bank network would
actually lower consumer welfare, as the substantial number of consumers who favoured
making payment OTC in banks would face a drastically reduced number of outlets3 that
allowed them to use their preferred payment option.
14.4 The parties had also claimed that service provision would be enhanced by the agreement,
citing the possibility of longer opening hours of An Post outlets as well as a greater number
of outlets being available. The Authority was of the opinion that there was nothing to stop An
Post from seeking further business in this area at present by taking the measures referred to
above regardless of whether the banks offered OTC services or not. The Authority was also
doubtful about the probability of further expansion in the number of outlets - it noted that the
Flynn report on the future of the sub-post office network suggested that An Post-s preferred
option was to close up to 1500 sub-post offices, due to the financial position the company
was in.
14.5 The Authority was also concerned about the degree of market power that An Post would
possess in the OTC market. Although it appeared that Ulster Bank still planned to provide
OTC bill-payment services, if the other banks withdrew, An Post appeared to have
considerable market power in this market, and, given the number of people who either had a
strong preference for paying OTC or did not have other payment options easily available to
them, could exploit this market power to the detriment of consumers. The Authority was
doubtful about An Post-s statement that it would, or indeed could, maintain a price of zero for
consumers, both in terms of the direct incentive to raise prices that An Post would face, and
the financial difficulties, alluded to both in the Flynn report and in various Dail Debates, that
it currently faced.
14.6 The Authority was also of the opinion that allowing An Post to possess such power in the
market for OTC payments would discourage innovation in the processing of such payments.
There had been no substantive evidence presented to suggest that An Post was any more
efficient than its competitors at present, and, in any case, allowing it to operate OTC
payments in the face of reduced competition would, in the Authority-s view, reduce its
incentives to make cost-saving innovations in this area. The market power that An Post would
possess, and the reduction in the number of competitors, would also lessen considerably its
incentives to consistently ensure a high quality of service to its customers.
14.7 Further, the claim of the notifying parties that the proposed arrangement was vital, in order to
persuade customers to pay bills via more efficient electronic methods, appeared somewhat
inconsistent with the view, simultaneously put forward by the parties, that the arrangements
would result in undiminished access for customers who did wish to carry out paper-based
transactions. It seemed to the Authority that the intended effect of the proposed arrangement
was to restrict access to OTC bill payment services to An Post outlets, thereby effectively
inducing customers to -go electronic.- The Authority again noted that, if individual banks
wished to encourage the use of electronic payments, they could offer incentives to customers
to pay in such a manner.
14.8 Summarising, the Authority considered that (a) banks appeared to be currently preferred by
most consumers for OTC bill payments; (b) the removal of this facility would lower the
benefits that consumers would derive from such services; and, (c) by removing a large
number of banking outlets that accept OTC bill payments, this would diminish the total
number of locations available for payment, thus further reducing consumer welfare. The
3
The Authority notes from the Websites of the bank parties that they have, between them, a total retail network
of approximately 750 branches.
10
Authority emphasised again that all the plans suggested by An Post to improve its service
appeared to be capable of being implemented whether or not other competitors were present.
Promoting technical or economic progress
14.9 The parties had argued generally that the proposed arrangement was in line with Government
policy, specifically in relation to the notion of Implementing an Information Society,
including the development of new electronic payments systems, a National Payments
Strategy etc. (see paragraphs 6.1 to 6.3 above). Naturally, the Authority had no comments in
relation to Government policy in this respect, and had confined itself to reaching a
preliminary view in relation to the compatibility of the proposed arrangement with the
Competition Acts. Under the heading of technical progress, while the Authority
acknowledged the existence of national policies aimed at encouraging the development of
new technology, the issue for the Authority was whether specific developments in this area
might nonetheless harm competition.
14.10 As mentioned above, the banks had been endeavouring to encourage consumers in recent
years to switch to electronic bill payment mechanisms - and indeed were continuing to do so.
The Authority acknowledged that this form of payment was of lower cost, and understood the
importance of developing it. In the Authority-s view, however, there was nothing to prevent
banks from continuing both to develop electronic innovation and to incentivise their
customers to switch to using new electronic mechanisms. Thus, the Authority was not
persuaded that the proposed withdrawal by banks from the provision of OTC bill payment
services would, of itself, promote technical progress. Indeed, it could be argued that, if all
paper-based transactions migrated to An Post from the banks, then there would be less
pressure on the banks to increase access to electronic forms of payment. Thus the Authority
did not feel that there was any reason to believe that this agreement would, in itself, promote
technical progress within this market, as any incentives to engage in such technical
advancement would be at least as strong without the existence of the agreement.
Allowing the consumer a fair share of the benefits.
14.11 The parties had claimed that significant benefits for consumers would result from the
arrangement, and these were outlined at paragraph 9.2 above. The parties had summarised
these specifically in their notification to the Authority, and they were presented in the
Authority-s Statement of Objections, as below, followed, in each case, by the Authority-s
view -
(1) Consumers are assured continued availability of easily and more widely available
counter services in order to pay bills;
A promise that consumers would continue to have existing services available to them would
not be regarded by the Authority as a significant extra benefit - or even net benefit - of the
arrangement. In any case, as mentioned above, it seemed clear that the removal of the option
to pay at banks would result in significantly fewer total outlets for consumers to pay bills
OTC.
(2) The An Post counter based bill payment service will be provided to the consumer free of
charge, in contrast to the potential existing charge at banks;
The parties had stated that An Post did not charge customers for OTC bill payment services
in its own outlets, so the Authority found it difficult to see what benefit could be assumed to
arise on this point in the future for such customers. If the point being made was that people
who were currently OTC customers of banks could now make their payments OTC at Post
Offices free of charge, it was unclear to the Authority that people who wished to pay their
utility bill OTC in a bank were currently charged for such a service. In this context, the
parties had merely stated that -a bill payer who uses a bank branch counter to pay a bill is
11
liable (at the instance of the bank concerned) to a fee or charge for processing and enabling
payment of the bill-, but had not provided any information about the extent of charges made
by banks for this currently. On the other hand, if bank OTC customers were in fact being
routinely charged a fee for this service, then, on the face of it, the fact that more customers
were prepared to continue to avail of that facility at a fee (rather than free at a post office)
implied a strong consumer preference for channelling their OTC utility payments through
banks despite such a charge.
(3) The An Post network would be able to receive over the counter and process a much
wider range of bill payment types, across a significantly increased range of outlets (as
compared to the existing number of retail bank branches) which will be open beyond
and outside traditional bank opening hours;
No evidence had been presented to the Authority that post offices could process a wider range
of bills OTC than banks could. If An Post wished to expand its range of bill payment types,
there appeared to be no reason why this plan should depend upon the banks referred to
leaving the OTC payment system. As mentioned above, there appeared also to be
considerable doubt concerning An Post-s plans for expansion in the number of outlets at
which bills can be paid, and, in any case, such expansion could occur regardless of whether or
not An Post secured substantial market power in the market for OTC bills. The Authority also
noted that the longer opening hours referred to were already available in An Post outlets - if
An Post wished to open for even longer hours, it was presumably free to do so regardless of
whether or not the banks concerned also offered OTC services.
(4) The An Post BillPay service allows for quicker electronic capture of bill payments,
resulting in better reconciliations for bill payers and bill issuers, and less scope for
error in processing the payments;
The parties had described in detail An Post-s OTC bill payment service - BillPay - and
claimed that this service allowed for quicker electronic capture of bill payments, resulting in
better reconciliations for bill payers and bill issuers, and less scope for error in processing the
payments. However, while they had also described the bank clearing systems regulated by
the Central Bank etc, they had not described the banks- own systems in detail, nor had they
brought forward any evidence which would allow the speed of the relative OTC systems to be
assessed or compared. Thus, the Authority had to regard the claim for -quicker electronic
capture of bill payments- by An Post-s system as remaining to be substantiated.
(5) Coordinated, planned and consumer friendly communication to bill payers as to the
effect of the OTC Initiative and the methods of bill payment available, will avoid
confusion and frustration amongst consumers.
(6) More consumers will be aware of the available electronic or non-paper bill payment
options as a result of the co-ordinated IPSO/An Post communication programme.
The Authority considered that these were simply necessary prerequisites of customer
relations in any sector, rather than benefits which could be claimed for the notified
arrangements. For example, avoidance of confusion on the part of consumers could, in the
Authority-s view, hardly be claimed as a benefit. Secondly, it would, in the Authority-s view,
be reasonable to expect competitors in a market to market their systems effectively in any
event, without the need to -coordinate- this.
(7) Finally, both An Post and the banks will continue to focus, and with greater emphasis, on
providing consumers and the public at large with the most efficient means of bill
payment, thus meeting the increasing demands of consumers and the public at large in
this regard.
12
Again, the Authority found it difficult to pin down what extra benefit was being claimed for
consumers here. One would have expected both An Post and the banks - as with any other
service provider - to be focusing on the provision to consumers of efficient services in any
event. Simply continuing to do what the parties claimed to have been doing already could not,
in the Authority-s view, be claimed as a legitimate benefit for consumers.
Does not impose on the undertakings concerned terms which are not indispensable
14.12 In the Authority-s view, Clause 3.4, which provided for confidentiality in respect of
information shared between the parties, was reasonable and unobjectionable
Afford undertakings the possibility of eliminating competition in respect of a substantial part
of the products or services in question
14.13 In the Authority-s view, this issue went to the heart of the matter. As mentioned in
paragraph 7.6 above, the proposal was for the banks concerned simply to withdraw as
competitors in the OTC market/segment for bill payments and to allow - in fact to encourage
and facilitate - An Post to take up their existing market share. Thus, competition for business
in this segment would, with the apparent exception of Ulster Bank, be eliminated and - what
was of particular concern to the Authority - the parties would be co-operating in such
elimination.
14.14 As to whether the elimination of competition would be in respect of a substantial part of the
services in question, that naturally depended on the market definition chosen. While the
Authority had not considered it necessary to identify which specific market was the relevant
market in this case, it was of the view that, in either case, the extent of the elimination of
competition would be -substantial-. If the market was the narrower one of all OTC bill
payment services in the State, the banks had the largest market share (over 42%, or 10 million
transactions) of the three types of market participants ie, An Post, the banks, and the utilities;
by any yardstick, that was -a substantial part of the services in question-. Admittedly, the
proposed arrangement did not include all the banks currently supplying OTC services, but it
constituted an extremely large proportion, and its share was clearly substantial. If the market
definition was the wider one (as claimed by the parties) of all forms or methods of bill
payment in the State, the banks- OTC transactions would still account for nearly 20% (10m
out of 49m) of that market, with the banks concerned again accounting for the dominant share
of that 20%. In the Authority-s view, that would still represent a substantial part of the
services in question.
14.15 The Authority also noted with concern provisions in the Heads of Agreement proposing the
formation of a -Steering Committee-. Other than the general statement that the Steering
Committee was to - - co-ordinate all co-operative payment initiatives within the context of
the national payment initiative,- there was an absence in the Heads of Agreement of any
meaningful limitations on the issues which might be coordinated by the Steering Committee.
This raised the concern that the proposed structures could facilitate and encourage anti-
competitive coordination between the parties involved, both in areas directly and indirectly
related to the subject matter of the proposed scheme (extending potentially into coordination
on all areas of bill payments).
14.16 The Authority stressed that it was the co-ordination between the banks and An Post that was
key to its objections to the arrangements notified. Each bank could withdraw unilaterally, but
so far, the banks concerned had not chosen to do so. The Authority was not persuaded of the
substantive merits of the reasons advanced for any withdrawal needing to be collective. It was
possible, given the benefits consumers seemed to associate with being able to pay bills in
banks, and the strong reputational effects associated with the banking industry, that each bank
13
involved in the arrangement feared losing customers to its competitors should it withdraw
unilaterally. In the Authority-s view, this was the essence of healthy competition, and a
collective withdrawal would imply reduced benefits to consumers.
(e) Parties- Response
15.1 The parties responded to the Authority-s Statement of Objections on 27 July 2001 and an oral
hearing was held on 20 September 2001.
15.2 In their responses, the parties reiterated their view that the OTC Initiative did not contravene
section 4(1) of the Act. They summarised their arguments as follows:
(a) The participating banks were simply ceasing to provide one form of bill payment
service, i.e over the counter bill payment (noting that ceasing to provide a service would
not usually be regarded under competition law as giving rise to market sharing), and
would continue to actively compete in the bill payment market.
(b) All other forms of bill payment remained in place and unaffected from a competition
perspective. None of the parties were subject to any terms which would affect or limit
their freedom to provide bill payment services in the future.
(c) The participating banks were not encouraging their customers to use An Post-s bill
payment OTC services. For example, the proposed public information brochure relating
to the OTC Initiative simply (and briefly) advised of the existence of such services.
(d) The participating banks would in fact be strongly encouraging their customers, as per
the information brochure and otherwise, to switch to more efficient means of bill
payment, i.e. electronic methods. These methods were readily and easily available, at
least for bank customers.
(e) There were an increasing number of competitors entering the bill payment market,
notably those who currently participated in prepaid utility services, for example,
Alphyra and UK Paypoint. Alphyra was a substantial service provider in the prepaid
market. These new market players would be competing for access to those bank
customers wishing to continue to pay bills -at counter- (whether that be a traditional
-branch counter- or a desk or point of payment terminal in a retail outlet or other public
access area), in addition to the continuing presence of both An Post and Ulster Bank.
(f) The participating banks had no control over any decision as to whether or not bill issuers
or customers would continue to use OTC services, and whether at An Post or at any
other service provider.
(g) Consequently, in circumstances of a cessation of a particular service, (i) where it was
now and in the future entirely a matter for bill issuers and consumers to decide what
service they would engage or use, (ii) from which service provider, and (iii) in the
absence of encouragement to so engage or use a particular service provider (such as An
Post), it could not reasonably be said that there was any form of -market sharing- under
the OTC Initiative.
15.3 Notwithstanding these arguments, if the Authority still considered that the OTC Initiative did
not qualify for the grant of a certificate under Section 4(1) of the Competition Act, 1991, then
the parties submitted that the OTC Initiative:
(i) contributed to improving the provision of bill payment services in the State; or if not
so viewed,
14
(ii) contributed to promoting technical progress in the State: or if not so viewed,
(iii) contributed to promoting economic progress in the State,
whilst allowing consumers a fair share of the resulting benefits; that no terms were imposed
on the parties which were not indispensable to the attainment of those objectives; and that the
parties were not afforded the possibility of eliminating competition in respect of a substantial
part of the bill payment services in question.
15.4 Summarising, the parties stated that -
(a) With regard to (i) and (ii) above, under the OTC Initiative all the parties committed to
improving bill payment services in the State (as provided by them) particularly
electronic methods of payment; and also in the case of An Post to developing more
efficient and cost effective means of processing OTC bill payments. Further, there
was no co-ordination between the parties of the means or indeed the plans by which
such improvements would or were to be made - the only element of co-operation
involved was the orderly withdrawal of the participating banks from providing OTC
bill payment services in the interests of the consumer.
(b) With regard to (iii) above, the OTC Initiative had been approved by the Government
as part of the wider National Payments Strategy, which was designed to promote
economic progress in the State. In particular, it was intended to facilitate the better
use by bill payers of more efficient and cost effective bill payment services and
thereby achieve greater savings and other benefits for all concerned (including
consumers).
(c) Consumers would obtain a fair share of the resulting benefits as follows:-
- through cost reductions in usage of OTC services (a zero charge at An Post,
and likely to be the case for all other service providers, versus the current
charge of up to €0.53 per transaction at bank). This provided some
clarification concerning the issue raised earlier in 14.11(2), about whether or
not the banks charged a fee for processing an OTC payment;
- an orderly cessation of OTC services by the participating banks, publicised on
a national basis (at banks- own cost), thus facilitating consumer
understanding, and therefore less confusion, as to what bill payment services
were available at or through the participating banks;
- the fact that consumers could pay bills on a partial basis at An Post but not at
banks, and that bills paid by consumers at An Post were processed and
accordingly recorded as paid much more quickly than bills paid by consumers
over the counter at banks;
- as a result of the planned information campaign, consumers ought to become
better aware of the more efficient, cost effective and widely accessible bill
payment services as were available from service providers in the bill payment
market (whether electronic means at or through the bank, or electronic and
OTC means at or through other service providers); this in turn ought to result
in greater usage of such services by consumers;
- as many OTC bill payment customers had no choice except to pay certain bills
(such as ESB bills) in banks or utility outlets, then the banks- withdrawal
15
would contribute to opening up the market to other participants, thus giving
consumers a wider choice of OTC bill payment outlets.
(d) The OTC Initiative would not result in an elimination of competition in respect of a
substantial part of the bill payment market as a whole, primarily because of the
changing trends in the bill payment market and the number of new entrants to that
market (especially existing service providers of prepaid utility bills); and further
because the OTC Initiative did not constitute the giving by the banks of their OTC
market share to An Post (being a matter entirely for consumers and bill issuers to
decide).
15.5 The parties wished to stress that the participating banks- rationale behind the need for co-
operation was that there would be potentially widespread confusion for bill payers (and also bill
issuers) should each bank withdraw from the OTC market at different stages. The parties further
submitted that -if any of the major high street banks were simply to unilaterally withdraw from
the OTC market as they are fully entitled so to do, without regard to the impact that this would
have on consumers and the public at large, such bank would likely face significant criticism from
consumer groups and others-. The parties considered that a consistent and orderly withdrawal
was in the interest of consumers, and yielded a cost advantage, over a unilateral withdrawal, to all
concerned.
15.6 According to the parties, approximately 75% of bills paid at banks were only payable at banks or
through utility channels and were not payable at post offices, i.e. some bill issuers did not
currently allow their customers to pay through An Post. [ ] Accordingly, the parties
submitted, -for a very significant number of consumer bills, consumers who wish to make OTC
bill payments have no choice except to pay [these particular bills] at bank[s]-. The parties
suggested that, should the banks withdraw from providing OTC bill payments, An Post would be
in a position to bid for, and possibly win, the contract for providing bill payment services from a
number of bill issuers.
15.7 In contrast, An Post estimated that 80% of OTC payments made at post offices were transacted
in cash. The parties believed that this showed that those customers without bank accounts
preferred to pay bills at post offices, rather than at banks - this would, for example, be consistent
with the receipt by social welfare recipients of their benefits through post offices.
15.8 Accordingly, the parties submitted that each of the criteria (or relevant criteria as applicable)
set out in Section 4(2) of the Competition Act, 1991, were satisfied, and that therefore the
OTC Initiative qualified for the issue of a licence by the Authority pursuant to Section 4(2) of
the Competition Act, 1991.
(f) Oral Hearing
16.1 At the Oral Hearing, the parties further reiterated that, rather than engaging in collusive
market-sharing, what they were doing was responding to Government requests in an open,
public and transparent manner, by endeavouring through practical cooperation to commence
the process of creating more efficient and cheaper bill payment systems and usage in the
State. It was about economic, technical and indeed social progress, and promoting the
interests of the common good, all in response to Government requests and initiatives.
16.2 The parties accepted that banks could unilaterally choose to cease providing OTC payment
services. They pointed out that it was a matter for each IPSO member bank to decide whether
to participate in the Initiative, and claimed that the non-participation of one such bank in the
arrangement - Ulster Bank - was clear evidence of its voluntary and non-compulsory nature.
However, the parties stood by their view that an orderly withdrawal from the service
16
concerned was the most responsible approach and in the better interests of customers and
consumers at large.
16.3 The parties further argued that the joint withdrawal was of a responsive nature, as they
claimed that, in the long run, banks would individually withdraw from the provision of OTC
payment services. This was because such payment services were inherently less efficient and
more costly - particularly for banks, which did not have the counter technology that other
competitors had - than electronic methods. Accordingly, given the high probability that a
series of individual withdrawals would take place anyway, a co-ordinated withdrawal would
better serve the interests of consumers.
16.4 As regards the Authority-s suggestion that each bank involved feared losing customers to its
competitors should it withdraw unilaterally, the parties viewed this suggestion as both
surprising and unfounded. If bank customers really did prefer to pay bills at bank, then they
could choose to go to or become customers of Ulster Bank, or use other OTC outlets such as
post offices, retail shops, paypoints etc. The participating banks had no material concerns that
they would lose customers by withdrawing OTC services, whether unilaterally or jointly. If
there was such a perceived risk, then it would be a matter for each of them to continue to
promote actively to their own customer base the merits of using other (e.g. electronic)
methods of bill payment.
16.5 As regards the Authority-s contention that joint withdrawal of a service amounted to market-
sharing, the parties claimed that simple cessation of a service would not usually be regarded
as a form of market sharing.
16.6 Aside from that, the parties stated, first, that approximately 70% of bills paid at bank counters
are paid by cheque and the balance in cash. The parties submitted that persons presenting
cheques for bill payment are by definition bank customers and therefore have access to all
other means of bill payment offered by their bank, including electronic methods. Thus,
contrary to the Authority-s view, the great majority of consumers who paid bills at bank
counters do already have access to electronic payment methods.
16.7 Second, the parties claimed that, using the European Commission-s rationale in the Dutch
Bank Giro case, once consumers discovered that another payment method was cheaper, it
could be presumed that they would switch to using it. The Initiative was designed to help
consumers become more aware, and accordingly use, cheaper - indeed no cost - and more
efficient means of bill payment.
16.8 A third point was that OTC transactions at bank represented 21% of the total bill payment
market; for non-bank customers they represented only just over 6% of the total bill payment
market. Even if the narrow market definition of the -OTC segment-, the figures were 29%
and 13% respectively. Thus, the parties submitted that in reality what was -up for grabs-, if
at all, was only 6% of the market - hardly -a substantial part of the services in question-.
This, in turn, meant that the effect on the market of the banks- cessation was not remotely
likely to be substantial. These numbers are displayed in Figure 3, supplied by the parties,
below:
17
Figure 3
1%
9%
21% 2%
19%
48%
UTILITIES OTC UTILITIES NON OTC
AN POST NON OTC AN POST OTC
BANKS NON OTC BANKS OT
Bank OTC segment of overall
market is 21%
15% 6%
A/c holders account for 70%
of Bank OTC-s
(ie 70%x 21% = 15%)
79%
Non A/c holders account for
Non Bank OTC
remaining 30%of Bank
OTC-s
OTC at bank by
(ie 30%x 21% = 6%) a/c holders
OTC at Bank by
non a/c holders
16.9 Fourth, the parties considered that there was no real evidence to conclude, as the Authority
had done, that there was a consumer preference to pay bills at bank counters rather than
elsewhere, or that consumers felt that substantive benefits accrued to them from being able to
make bill payments in this way. On the contrary, the parties described the practical list of
18
difficulties faced by consumers who tried to pay their utility bill at a bank, e.g. parking,
queueing etc. An Post also conducted a demonstration of the efficacy of their payment system
in order to exhibit its speed in capturing OTC payments.
16.10 Fifth, while the Initiative involved a phased withdrawal from OTC services, it was entirely a
matter for both bill issuers and consumers as to which services they would engage thereafter -
the parties claimed, in this context, that the Authority was ignoring the existence of other
competitors in the market, e.g. Alphyra, Easons, Ulster Bank, utilities etc. They estimated
that prepaid outlets exceeded total bank outlets by a ratio of 10:1; prepaid outlets exceeded
total An Post outlets by a ratio of 1.75:1. A prepaid outlet is one where customers buy a
certain amount of a service in advance of actually using it.
16.11 Sixth, the banks were not encouraging or facilitating An Post to take up their existing market
share, as concluded by the Authority - although they acknowledged that the Heads of
Agreement notified did envisage a migration of bank branch-based OTC bill payments to the
post office network. The parties submitted that, in reality, the implementation of the
agreement and the OTC Initiative comprised or boiled down to a proposed Information
Leaflet, which contained nothing more than limited statements of fact. If the Authority
considered that references to An Post in the Leaflet constituted -encouragement- or
-facilitation- by the banks, the terms of the Leaflet could be amended. The Authority asked
for further clarification on this point - if it was the case that the arrangement boiled down to
an Information Leaflet (which it had not previously seen), what arrangement was actually
before the Authority for consideration? The parties clarified that the banks had no contractual
arrangements with An Post, and that any commitment to An Post was not binding. They
agreed to revert to the Authority at a later date on the current status of the Heads of
Agreement, and to make clear what was dependent on the Agreement and what was not.
16.12 As regards the impact on consumers of the Initiative, the parties again maintained that,
contrary to the Authority-s preliminary view, there was no consumer preference, as such, to
pay at bank versus at a post office or other payment outlet - in fact, it was the other way
around, particularly for cash payments.
16.13 Second, the Initiative would not result in a drastic reduction in outlets for OTC bill payments,
since nationwide bill payment counters or computer terminal networks would still be
available through An Post, Ulster Bank, at least some utilities etc. In fact, they predicted that
the number of outlets available would actually expand, to fill the gap left by the banks-
cessation.
16.14 Third, they stated that both continuing and new competitors would -in all probability be
providing a far better consumer service, and on a nationwide basis- (e.g. no fee charged,
better technology, quicker settlement, better opening hours).
16.15 Fourth, the parties stood by their view that a joint but phased withdrawal of bank OTC services,
together with a public information campaign, would be better for consumers than intermittent
unilateral withdrawal, and would reduce the scope for mass confusion.
16.16 Finally, they repeated their claim that the Initiative does have a role in promoting technical
and economic progress, both of itself and as part of the National Payments Strategy; they
pointed, in this respect, to -the top-down flow of the estimated savings to the economy arising
from- the Strategy.
(g) Post-Hearing Developments
17.1 The parties reverted to the Authority by letter dated 5 October 2001. They restated that there
were, in essence, two elements to the OTC Initiative -
19
(a) As and from a specified date, the participating banks would cease to provide OTC
services in circumstances where other service providers could provide, or currently
provided, a similar service. This would involve two phases in the terms set out in the
original Notification. This was designed to ensure, as far as practicable, continuity of
service to OTC customers.
(b) The other element of the OTC Initiative involved the notifying parties participating in
a joint information programme, as per the information leaflet already supplied. The
leaflet simply advised of the withdrawal of OTC services and other options available
for bill payment. To the extent that the leaflet contained references to An Post, the
parties were willing to amend it to refer generically to OTC service providers, or to
An Post and other OTC service providers, should the Authority so require.
17.2 The parties reiterated their belief that a co-ordinated cessation by the participating banks of
OTC services was better for consumers and the public at large. The banks would not be
encouraging, facilitating or allowing An Post to take up their market share. Indeed, in
contrast, the banks were, and would be, actively seeking to retain their own customer base and
to encourage all of their customers to use electronic bill payment methods. It would entirely
be a matter for consumers and bill issuers to decide what bill payment methods to choose and
what service providers to engage. As explained at the Hearing, there was already a
considerable degree of competition and potential competition in the OTC segment of the bill
payment market.
17.3 In terms of any suggestion that the participating banks might or should offer financial
incentives to customers to switch to electronic payment methods, this would be a matter for
each bank and not the subject for discussion by the Steering Group.
17.4 The Authority had also queried the activities of the Steering Group referred to in the Heads of
Agreement. In essence, the parties explained, the role of the Steering Group was to provide a
specialised and expert forum for contact by Government and others (including consumer
representatives such as the Office of the Director of Consumer Affairs) with the payments
industry and to analyse what improvements and developments could be made to payment
mechanisms or systems in the context of the National Payments Strategy, such as (1) the OTC
Initiative, (2) Electronic Debit Authority, (3) universal access to electronic payment methods,
(4) Electronic Bill Presentation and Payment, and other initiatives that might arise under the
National Payments Strategy. The activities of the Steering Group would not involve the co-
ordination of market activities by the participants - bearing in mind that banks currently
provided the same or similar payment methods to the public at large. To the extent that any
proposed initiatives arising from the workings of the Steering Group, and any working groups
under it, involved any competition law issues, it would be a matter for the parties to ensure
that such initiatives complied with competition law (as the parties had done in the case of the
OTC Initiative by notifying it to the Authority).
17.5 However, following the Oral Hearing, and bearing in mind the comments and queries of the
Authority, the parties had now replaced the (originally notified) Heads of Agreement dated
14th November, 2000, with updated and revised Heads of Agreement dated 5th October, 2001,
and these were now submitted for consideration by the Authority. The Notification (and
Response) by the parties should thus be read with reference to the revised Heads.
(h) Revised Heads of Agreement
18.1 The Authority has compared the Heads of Agreement originally notified with the Revised
Heads of Agreement submitted on 5th October. For convenience, Box 1 below summarises the
original Heads, and the text that follows describes the Revised Heads.
20
Box 1
Clause 1 of the original Heads of Agreement (-the Agreement-) stated the Scope of the Agreement as being that
the parties -agree to cooperate in establishing an agreed framework to migrate bank branch-based OTC bill
payments to the post office network-. Clause 1 also stated that the Agreement formed part of the parties-
response to the National Payments Strategy, and that it sought to provide a more cost effective and efficient
approach to the provision of payment services for the parties, for bill issuers and for consumers.
Clause 2.1 stated that IPSO and An Post -agree to co-operate in a programme of migration of OTC bill payments
from bank branches to Post Office outlets-; under Clause 2.2, the principal objective was stated to be to assist the
movement of OTC payments to efficient methodologies as part of a co-ordinated response to the National
Payments Strategy.
Clause 2.3 provided that, while the parties sought co-operative agendas on many aspects of the National
Payments issue, they agreed that -the migration of OTC payments can be implemented on a standalone basis-.
Clause 3.1 provided that the parties would establish a steering group (comprising members from IPSO and An
Post) -to coordinate all cooperative payment initiatives within the context of the National Payments Strategy-.
This steering group would (Clause 3.2) establish a working group -to plan and implement the OTC Migration
Programme-; part of the Working Group-s mandate was to be -to specify those transactions for migration-).
Under Clause 3.4, the parties would agree at Steering Group level -an interim PR position-; an external PR
specialist would also be retained to develop a -comprehensive PR/Marketing campaign-, the costs to be shared
equally between the parties.
Finally, both parties agreed that the Heads of Agreement did not constitute a contractual obligation on either
party, but were -a fair expression of the serious intention of the parties to cooperate in the area covered by the
Heads.
18.2 Clause 1.1 of the Revised Heads of Agreement (-the Revised Agreement-) omits any
reference to a -migration programme-, and now describes the Agreement as being -
-designed to provide a framework to facilitate an expert and co-ordinated response by the
banking sector in the State (through the auspices of IPSO as its representative organisation)
and, as applicable, An Post, to the request by Government to the payments industry to
develop, on a co-operative basis, more efficient and cost-effective payment methods in the
State for all concerned-.
Through this framework, the parties will (new Clause 1.2) -
-explore possible initiatives with a view to implementing the National Payments Strategy
(NPS), subject to consultation with relevant interested parties and to compliance with all legal
and regulatory requirements-,
the first such initiative being the OTC Initiative (new Clause 1.3).
18.3 Clause 2.1 of the Revised Agreement still provides for a Steering Group; however, this will
now initially comprise members from IPSO and An Post. Moreover, this Group will establish
specialist working subgroups with, -as applicable, representatives from the institutions which
wish to participate in any NPS initiatives
The role of this Steering Group is now stated to be (new Clause 2.2) -
-to provide a specialist forum for contact by Government and others with the payment
industry and to oversee the analysis, implementation and review of specific NPS initiatives,
such as (1) the OTC Initiative, (2) Electronic Bill Presentation and Payment Initiative, (3)
Electronic Debit Authority Initiative, (4) a Universal Account Initiative (i.e. access to
electronic payment methods for all), and any other initiatives as may arise under the NPS.-
Clause 2.3 states that the Steering Group will ensure that its workings, and the workings of
each subgroup established by it, comply with all legal and regulatory requirements (including
without limitation, competition law). Any costs or expenses as may be incurred are to be
21
subject to approval by the Steering Group, and shall be payable by participating institutions
on a fair and equitable basis.
18.4 Clause 3.1 restates the principal objective of the Initiative, i.e. -to assist the movement by the
public at large to using more cost effective and efficient bill payment services-.
New Clause 3.2 states that the Initiative will involve -
-(1) the banking sector (or those banks participating in the Initiative) providing for a phased
withdrawal of bank counter paper based bill payment services, subject to the banks being
satisfied, so far as practicable, that customers (including bill issuers and consumers) can
access OTC bill payment services from other service providers, including, without limitation,
An Post,
(2) an IPSO public information programme to advise of the withdrawal of bank OTC services
and the availability of all other forms of bill payment in particular electronic means and
methods.-
New Clause 3.4 states that the role of An Post will be limited to participating in the IPSO
information programme.
18.5 Clause 4.2 restates that the parties will agree at Steering Group level -an interim PR
position-; and the retention of an external PR specialist to develop a -comprehensive
PR/Marketing campaign-, the costs to be shared equally between the parties, while Clause
4.3 reconfirms both parties- agreement that the (Revised) Heads of Agreement do not
constitute a contractual obligation on either party, but are -a fair expression of the serious
intention of the parties to cooperate in the area covered by the Heads-.
ASSESSMENT
(a) Applicability of Section 4(1)
20.1 The Authority notes the parties- statements prior to, during, and subsequent to, the Oral
Hearing, to the effect that the role of An Post in the proposed arrangements is now intended to
be limited to participation in the proposed -information programme- (see, for example,
paragraphs 48(c), 50(d), 62 above). However, while the Revised Heads of Agreement
submitted to the Authority appear, on the surface, to have reduced the role of An Post in the
arrangement - and certainly the previously specific and exclusive nature of this - the fact
remains that a specific role is still foreseen for An Post in the arrangement before the
Authority. Several Clauses of the Revised Heads - for example Clauses 1.1, 2.1 and 3.2 -
still refer to An Post specifically, and it will still be participating in the proposed information
programme. Further, it will both participate, and partly pay for, the Steering Group to be
created, as well as the proposed PR/Marketing campaign intended to be launched. Thus, the
Authority must still consider An Post as having a significant role to play in the arrangement;
if this were not so, it would have been open to the parties to exclude any reference to An Post
in the Revised Heads of Agreement.
20.2 The IPSO participating banks have also specifically reconfirmed their intention to effect a
collective and phased withdrawal from the OTC bill payments market. This is still
fundamental to the Authority-s objections to the agreement. The Statement of Objections
referred to the possibility that a bank would not withdraw unilaterally for fear of losing
customers to its competitors. The Authority is of the opinion, and indeed the parties directly
referred to this possibility in their presentation at the Oral Hearing, that a withdrawal might
prove unpopular with a bank-s customers. However, a collective withdrawal, which, by
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ensuring that a customer who leaves their bank will not be able to obtain the same service
with a competitor, removes much of the threat of losing customers. As such, there may be no
effective check to the withdrawal of a service, and thus it is the collective nature of the
agreement that saves the participants from the normal competitive consequences of their
actions. The European Commission, in its decision on CECED (Case iv.F.1/36.718 CECED,
OJ L187/47, 26.7.2000), found that an agreement among the members of an international
association of, manufacturers of domestic appliances and national trade associations, inter
alia, to cease producing and/or importing into the Community certain categories of washing
machines, had the object of restricting or distorting competition within the meaning of Article
81(1) of the EC Treaty.
20.3 In these circumstances, the Authority is of the view that the revised arrangement notified to it
(i) comprises an agreement between the banks involved in the arrangement simultaneously
and collectively to withdraw the facility of OTC bill payments, and, (ii) involves a non-
contractual agreement between these banks as a group and An Post. As such, the Authority
considers that the proposed revised arrangement would contravene Section 4(1) of the 1991
Act. It would note, however, that objection (i) is a core objection to the agreement, and that,
by itself, the complete removal of An Post from the agreement would not imply that the
agreement did not violate Section 4(1).
(b) Applicability of Section 4(2)
21.1 The Authority has carefully considered all the arguments raised by the parties to the effect
that, if the Authority should still be minded to refuse to issue a Certificate in respect of the
revised arrangement, it should nevertheless grant a Licence in respect of it.
Contributes to improving the provision of services
21.2 The Authority notes the parties- comments that consumers do not necessarily have a
preference to pay OTC at banks rather than post offices. Of all the OTC payments, nearly
75% are payments of bills that are not payable OTC in post offices. As such, the Authority
accepts that it is difficult to distinguish a clear preference for consumers to pay at banks rather
than post offices. However, the fact that consumers with bank accounts - who would have
access to electronic methods of payment - still apparently prefer to make approximately 7
million bill payments OTC through bank branches by cheque seems to imply that some
consumers still wish to pay OTC at banks. Given this, it is difficult to see how the collective
withdrawal by a number of operators of a service still demanded by a large number of
consumers could contribute to improving the provision of a service.
Technical and economic progress
21.3 The Authority has not changed its view on whether the arrangements would promote
technical or economic progress. It again accepts that electronic means of payment are more
efficient than OTC methods, but reiterates its view that there is nothing intrinsic to the
notified arrangements that promotes technical progress. The participating banks offer
electronic services irrespective of whether or not they also offer the OTC payment service.
There is nothing to stop the banks from promoting the uses of such services, and from
engaging in nationwide campaigns to promote these services to consumers. Nor, indeed, in
the Authority-s view, is there anything to prevent each individual bank from realising the
gains to be made from moving towards electronic payment methods on an individual basis,
without the necessity for an agreement among competitors.
21.4 The parties have described in detail An Post-s OTC bill payment service - BillPay - and
claim that this service allows for quicker electronic capture of bill payments, resulting in a
better service for bill payers and bill issuers, and less scope for error in processing the
payments. However, there appears to be no reason why An Post-s continuing investment in
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technological advancements should depend upon the participating banks leaving the OTC
payment system.
21.5 The Authority is also of the view that there is nothing specific to the arrangements that would
promote economic progress within the State. The National Payments Strategy, and any
economic progress associated with it, depends on consumers using more efficient methods of
paying bills, which, as noted above, can be achieved by properly incentivising consumers, and
informing them of the benefits of such methods.
Consumers obtaining a fair share of the resulting benefits.
21.6 The cost reductions in the use of OTC services referred to by the parties do not appear to offer
substantial benefits to consumers. At present they are obtaining a zero charge at An Post, so
the promise of a zero charge as a result of these arrangements does not offer any gain. If
consumers are being charged for paying OTC at banks, then presumably they value the
service sufficiently highly as to pay 53 cent rather than avail of zero charge at An Post. If one
argued that consumers did not have the option to pay certain bills at An Post, and thus would
benefit from a situation where An Post had a contract for more bill payment services, the
actualisation of any proposed benefit depends entirely on whether An Post wins the bill issue
contracts currently held by the banks. In any case, there is no surety that An Post will sustain
a zero price for OTC payments in the long-run. Thus the Authority feels there is no guarantee
that consumers will be able to use OTC bill payment services free of charge under the OTC
initiative.
21.7 The parties- claim that the banks- withdrawal would open up the market to other participants
is not accepted by the Authority. First, the prepayment of bills is not an identical service to ex
post payment of bills. Many prepayment systems require a credit card or other forms of credit
arrangement to work at the most efficient level for the consumer. Second, any assumption that
the market will be opened up to other participants only if the banks withdraw is highly
arguable. If other participants, including those who offer a prepaid service, enter the bill
payment market, then their success will depend upon their intrinsic efficiency and their ability
to offer a more attractive service to consumers. In any case, the Authority would note that
there is as yet little substantive evidence to indicate that new participants are entering, or are
about to enter, the bill payment market.
Does not impose on the undertakings concerned terms which are not indispensable
21.8 In the Authority-s view, the collective withdrawal by the participating banks from the provision
of OTC bill payment services is not an indispensable term for the achievement of the principal
objective of the OTC Initiative, as laid out in the Revised Heads of Agreement. A reduction in
the use of cheques and increased consumer awareness of electronic methods of bill payment, and
any of the benefits to consumers thereof, for example, are likely to go toward achieving the
primary objective. The Authority is not of the opinion, however, that the complete withdrawal
from the supply of this service, by a large proportion of suppliers, in a coordinated manner, is a
proportionate response to the achievement of a more efficient payments industry.
21.9 The Authority also notes the parties- comments that much of the impetus for this agreement
came from the Government rather than the parties themselves. However, this is not an issue that
the Authority can substantively concern itself with, insomuch as the salient issues it has to
consider are whether the agreement breaches Section 4(1) of the Act, and, if so whether it then
fulfils all of the conditions required for the grant of a licence. As the above paragraphs make
clear, the Authority considers that the Act is breached and that the conditions required for the
grant of a licence are either not satisfied or could be achieved in a manner less harmful to
competition.
Does not afford undertakings the possibility of eliminating competition in respect of a
substantial part of the products or services in question
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21.10 In the Authority-s view, this issue goes to the heart of the matter. As already mentioned, the
proposal is for the banks concerned simply to withdraw as competitors in the OTC
market/segment for bill payments. Thus, competition for business in this segment would, with
the apparent exception of Ulster Bank, be eliminated and - what is of particular concern to the
Authority - the parties would be co-operating in such elimination.
21.11 As to whether the elimination of competition would be in respect of a substantial part of the
services in question, that depends on the market definition chosen. While the Authority has not
considered it necessary to identify which specific market is the relevant market in this case, it is
of the view that, in either case, the extent of the elimination of competition would be
-substantial-. If the market was the narrower one of all OTC bill payment services in the State,
the banks have the largest market share (over 42%, or 10 million transactions) of the three types
of market participants i.e. An Post, the banks, and the utilities; by any measure, that is -a
substantial part of the services in question-. Admittedly, the proposed arrangement does not
include all the banks currently supplying OTC services, but it constitutes an extremely large
proportion, and its share is clearly substantial. If the market definition was the wider one (as
claimed by the parties) of all forms or methods of bill payment in the State, the banks- OTC
transactions would still account for nearly 20% (10m out of 49m) of that market, with the banks
concerned again accounting for the dominant share of that 20%. In the Authority-s view, that
would still represent a substantial part of the services in question.
21.12 The Authority stresses again that it is the co-ordination between the banks, and between them
and An Post, that is key to its objections to the arrangements notified. Each bank could
withdraw unilaterally from the provision of OTC bill payment services but, so far, the banks
concerned have not chosen to do so. The parties- assertions that the OTC bill payment market
is rapidly changing and that the OTC Initiative is paving the way for new competitors
(notably those already in the prepaid payment market) involves a high degree of speculation
and the Authority cannot place the same weight on such information. Even allowing for the
possibility that An Post would face other competition if the banks withdrew their OTC bill
payment facilities, the Authority is not persuaded of the substantive merits of the reasons
advanced for any withdrawal needing to be collective. It is possible, given the benefits some
consumers seem to associate with being able to pay bills OTC, that each bank involved in the
arrangement fears losing customers to its competitors should it withdraw unilaterally. In the
Authority-s view, this is the essence of healthy competition, and a collective withdrawal could
imply reduced benefits to consumers.
The Decision
22.1 In the opinion of the Competition Authority,
(a) Allied Irish Banks plc, The Governor and Company of the Bank of Ireland, National
Irish Bank Limited and TSB Bank Limited are undertakings, as they are all engaged
for gain in the supply of banking services. The proposed agreement will have effect
in the State.
(b) IPSO represents the above-mentioned banks and is thus an association of
undertakings.
(c) An Post is an undertaking, as it is engaged for gain in the supply of postal and other
services.
(d) The proposed agreement between IPSO, representing the above-mentioned banks, on
the one hand, and An Post on the other (Notification No. CA/5/01) notified on 10
May, 2001, under Section 7 of the Competition Act, 1991, as amended, is a proposed
agreement between undertakings, and would have effect in the State.
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(e) The notified arrangement would have the effect of preventing, restricting or distorting
competition in the market for bill payments within the State and therefore contravenes
Section 4(1) of the Competition Act, 1991.
(f) The notified arrangement does not meet all of the requirements for a licence specified
in section 4(2) of the Act.
22.2 The Authority therefore refuses to issue a certificate or grant a licence in respect of the notified
arrangement.
For the Competition Authority
Declan Purcell
Member
3 April 2002
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