Notice pursuant to Article 19(3) of Council Regulation No 17(1)

Case COMP/29.373 - Visa International

(2001/C 226/10)

(Text with EEA relevance)

1. INTRODUCTION

1. On 31 January 1977, Ibanco Ltd, since 1979 known as Visa International Service Association, notified various rules and regulations governing the Visa Association (Certificate of Incorporation, By-Laws and Operating Regulations) to the Commission, applying for negative clearance under Article 81(1) or, in the alternative, an exemption under Article 81(3) of the EC Treaty.

2. After having initially sent a comfort letter, the Commission reopened the investigation in the Visa case in 1992, following a complaint, and the comfort letter was withdrawn. The reopened investigation also took into account a complaint filed on 23 May 1997 by EuroCommerce, a retail, wholesale and international trade representation in the Community, concerning various aspects of, inter alia, the Visa International payment card scheme, in particular multilateral interchange fees.

2. THE PARTIES

3. Visa International Service Association ("Visa") is a for-profit corporation owned by about 20000 member financial institutions from around the world. In 1999, Visa's revenue amounted to USD 1455 million worldwide, of which about USD [...](2) million in the Visa EU Region. Visa, which is incorporated in the USA, operates the Visa card system and provides authorisation and clearing services via a worldwide computer and telecommunication network, called VisaNet. Visa itself does not issue Visa cards to cardholders nor does it contract merchants for Visa card acceptance, but its member financial institutions, which have received a licence to that end from Visa, do.

4. Visa has divided the territory in which it is active into six regions worldwide. In the Visa EU Region, which also covers Iceland, Liechtenstein, Norway, Turkey, Israel, Cyprus, Malta and Switzerland, in addition to the Community, there are over 5000 Visa members. Decision-making is delegated to the Visa EU Regional Board of Directors ("the EU Regional Board"), which is elected every two years from Visa member financial institutions in the EU Region. The EU Regional Board is responsible for EU intra-regional affairs, such as for example the adoption of the Visa EU Regional Operating Regulations and setting EU intra-regional default interchange fees.

5. There are various classes of membership in the Visa corporation but broadly speaking, all classes of membership are open to any institution organised under the commercial banking laws of its own country and authorised to accept demand deposits. However, Visa does not accept for membership any applicant that is deemed by the Board of Directors to be a competitor of the corporation.

3. THE AGREEMENTS

3.1. General

6. The notification by Visa concerns rules and regulations governing the Visa association and its Members, that is, the Certificate of Incorporation, International By-Laws and Regional Board Delegations, as well as the international provisions relating to Visa's payment cards, that is, general international operating regulations, European Union regional perating regulations, dispute resolution rules and card and marks specifications. All notified Visa rules and regulations will hereinafter be referred to as "the Visa rules"(3).

3.2. The interchange fee

7. Pursuant to the Visa rules, the acquiring bank has to pay to the issuing bank an interchange reimbursement fee for each transaction with a Visa card where issuer and acquirer are different. In the EU region, this interchange fee is set by default by the Visa EU Regional Board, which according to Visa has currently broadly even representation of net issuers and net acquirers. The multilateral interchange fee (MIF) is currently always an ad valorem fee; it is set as a percentage of net sales. For example, its exact level varies according to the type of Visa card used. Visa currently considers the exact level of its MIFs as a business secret and does not allow its member banks to disclose information on it to their clients, such as, for example, merchants, to whom the cost of the MIF is normally passed on by acquiring banks.

8. The MIFs set by the Visa EU Regional Board apply by default to all EU intra-regional Visa card transactions, that is transactions where a Visa card, issued in Member State A is used at a merchant's outlet in Member State B. According to Visa, in the Community, these transactions represented in 1999 about 10 % of all Visa card transactions at merchant outlets. Where Visa members have not concluded multilateral or bilateral agreements for domestic interchange, the default fee set by the Visa EU Regional Board also applies to such domestic transactions. According to Visa, this is currently the case in Creece, Ireland, Italy, the Netherlands and Sweden. Any domestic interchange fees set by international Visa members are not part of the notification by Visa International.

3.3. Reasoning of Visa for its interchange fee

9. Visa does not consider its MIFs as prices for specified services provided by issuers to acquirers or merchants. Rather it considers the MIF as a transfer between undertakings which are cooperating in order to provide a joint service in a network characterised by externalities and joint demand. The MIF is, according to Visa, necessary as a financial adjustment to the imbalance between the costs associated with issuing and acquiring and the revenues from cardholders are materially lower than the costs incurred by the issuing bank. Conversely, revenues of acquiring banks from merchants are materially in excess of the costs on behalf of the payment system as a whole incurred by the acquiring bank. On this view, the interchange fee serves to adjust these imbalances, with a view to increasing demand for and use of the payment service. Visa claims that without an appropriate interchange fee, the system would not operate at its optimal level and the key strength of the Visa system, namely a large number of cardholders and merchants, would be undermined.

4. MODIFICATIONS PROPOSED BY VISA

10. In order to meet the concerns of the Commission, Visa has made a formal proposal to the Commission for amendments to its EU intra-regional MIF. This proposal was approved by the Executive Committee of the Visa EU Regional Board on 27 June 2001.

11. The proposal of Visa comprises the following elements:

(a) a reduction of the level of the intra-regional MIF;

(b) the introduction of objective benchmarks against which to assess the Visa intra-regional MIFs currently paid by acquirers to issuers; and

(c) transparency.

12. The proposal relates to point of sale (POS) transactions with consumer cards. Commercial cards are excluded from the proposal because, according to Visa, they concern a relatively new product with specific characteristics. Moreover, commercial cards are said to represent a small part of all Visa card transactions.

4.1. Reduction of the level

13. Visa proposers to reduce the overall level of the intra-regional MIF applicable to consumer card products in the Visa EU Region through the introduction of a fixed rate per transaction MIF for direct debit cards and also a gradual reduction of the level of the ad valorem per transaction MIFs applicable to certain types of credit and deferred debit cards.

14. Visa proposes to introduce an average intra-regional MIF of EUR 0,28 for direct debit card transactions as soon as technically possible, probably by April 2002. This fee would be maintained for five years, subject to adjustment in the event of a significant change in the rate of inflation. According to Visa, this represents a reduction of more than 50 % for an average direct debit card transaction.

15. The rates of MIF applicable to intra-regional transactions on certain types of credit and deferred debit cards would, according to the proposal, be reduced over a five-year period. Together with certain MIF reductions already decided, this would leave the weighted average MIF at 0,7 % by 2007, according to Visa's estimate of transaction volumes with the different types of card at that date. Visa estimates that the effect of the modifications (debit and credit cards combined) on MIF revenues for issuing banks would be a reduction of more than 20 % over the five-year period, compared with what the revenue would have been if the offer were not implemented.

4.2. Objectivity

16. Visa proposes that three categories of costs involved in supplying Visa payment services be used as an objective benchmark against which to assess the Visa intra-regional MIFs currently paid by acquirers to issuers on POS transactions. These three cost categories are: the cost of processing transactions, the cost of free funding for cardholders (the "float") and the cost of providing the payment guarantee. A study would determine the cost elements comprised within each of the three cost categories and with regard to some cost components only a percentage would be taken into account for the purpose of calculating the cost benchmarks.

17. According to the Visa proposal, the effective level of the MIFs would not exceed the sum of these three categories of costs except in exceptional circumstances, such as, for example, to discourage behaviour which could impede technical progress. The Commission would be consulted beforehand. Below this level, Visa would have discretion to determine the level of the MIFs which it considers to be commerlcially appropriate.

4.3. Transparency

4.3.1. Cost studies

18. Visa would submit to the Commission, shortly after their completion, the cost studies showing the calculations based on the three cost categories mentioned in point 16, data being split into figures relating to credit and deferred debit cards, and data relating to direct debit cards.

19. The cost studies would be carried out by Visa and audited by an independent firm of accountants. The data used in the preparation of the cost study would be provided by a representative sample of Visa member banks from the Visa EU Region, located within the EEA.

4.3.2. Transparency of the MIF to merchants

20. Visa's proposal also involves amending the Visa rules so as to allow member banks to disclose to merchants both the level of the Visa EU intra-regional MIFs in force and the relative percentages of the three cost categories, should merchants request such information. Merchants are to be made aware of the possibility of requesting this information from their banks.

5. INTENTION OF THE COMMISSION

21. In view of the foregoing, the Commission intends to adopt a favourable position concerning the MIF provisions in the notified Visa rules. Before doing so, it invites interested third parties to submit their observations within one month of the publication of this notice in the Official Journal of the European Communities. These observations should be submitted quoting reference Case COMP/29.373 - Visa International, by post to: European Commission Directorate-General Competition

Direction D, Unit D1 (Financial Services)

Rue de la Loi/Wetstraat 200 B - 1049 Brussels,or by fax (32-2) 296 98 07.

(1) OJ 13, 21.2.1962, p. 204/62, as last amended by Regulation (EC) No 1216/99 (OJ L 148, 15.6.1999, p. 5).

(2) Parts of this text have been edited to ensure that confidential information is not disclosed.

(3) With regard to some specific provisions in the Visa rules, the Commission published on 14 October 2000 a notice pursuant to Article 19(3) of Regulation No 17 (OJ C 293, 14.10.2000, p. 18), inviting interested third parties to provide their observations to the intention of the Commission to take a favourable position towards these provisions. These provisions concerned in particular the so-called no-discrimination rule and modified rules on cross-border services.