An Post - Competition Authority decision involving OTC Bill Payments

• Jurisdiction: Ireland
• Court: Competition Authority (Ireland)
• Judgment Date: 03 April 2002
• Docket Number: Decision No: 595
• Date: 03 April 2002

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

COMPETITION AUTHORITY

Abstract:

Notification No. CA/5/01 – IPSO/An Post (OTC Bill Payments) Decision No: 595

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.

INTRODUCTION

1 1 Notification was made on 10 May 2001 of an agreement between Irish Payment Services

2 Organisation Limited (“IPSO”), acting on behalf of Allied Irish Banks plc, The Governor and

3 Company of the Bank of Ireland, National Irish Bank Limited and TSB Bank Limited, on the one

4 hand, and An Post on the other, with a request for a certificate under Section 4(4) of the

5 Competition Act, 1991 or, in the event of a refusal by the Competition Authority to grant a

6 certificate, a licence under Section 4(2). A Statement of Objections was issued on 29 June 2001

7 to the notifying parties indicating the Authority’s intention to refuse to issue a certificate or grant

8 a licence in respect of the notified arrangement and an oral hearing was held on 20 September

9 2001, following which Revised Heads of Agreement were submitted by the parties on 5 October

10 2001.

THE FACTS

11 (a) The Subject of the Notification

12 2.1 The notification concerned arrangements whereby each of the banks involved would ‘migrate’

13 over-the-counter (OTC) bill payment services from their respective branches to An Post. This

14 would involve each such bank, as and from a specified date, ceasing or commencing to cease to

15 provide OTC bill payment services to their customers, subject to as and from such date An Post

16 being in a position, through its national post office branch network, to continue to provide

17 corresponding OTC bill payment services to such customers.

18 (b) The Parties

19 3.1 In making the notification, IPSO is acting in a representative capacity, for and on behalf of Allied

20 Irish Banks plc, The Governor and Company of the Bank of Ireland, National Irish Bank Limited

21 and TSB Bank Limited, which are all licensed banks in the State.

22 3.2 An Post is a statutory corporation established pursuant to the Postal and Telecommunications

23 Services Act, 1983, whose shareholders are the Minister for Finance and the Minister for Public

24 Enterprise. The principal objectives of An Post, as provided for in the Act, include,inter alia, the

following –

25 - to provide services by which money may be remitted (whether by means of money

orders, postal orders or otherwise) as An Post thinks fit;

26 - to provide OTC services for An Post’s own and Government business and, provided

27 that they are compatible with those services and with An Post’s other principal

28 objects, for others as An Post thinks fit.

29 (c) The Product and the Market

30 4.1 The parties submitted that the market affected by the proposed arrangement is that for all forms

31 or methods of bill payment services in the State. They also submitted the following breakdown

32 of estimated market share per type of participant in the bill payment sector, by reference to all

33 payment methods and to cash/cheques respectively. The data in Figure 1 refers, in the case of

34 banks, to all of the ‘High Street’ banks, not just to those whom IPSO is representing in this case

35 (i.e. AIB, Bank of Ireland, National Irish Bank and TSB Bank).

1. (a) Bills - Cash and Cheque: 24m

   An Post	39%
   Banks	42%
   Utilities	19%

2. (b) Bills - All Payment types: 49m

   An Post	21%
   Banks	69%
   Utilities	10%

Figure 1

Source: IPSO and An Post

36 4.2 OTC bill payments involve “in person” physical presentation of a bill (e.g. utility bills issued by

37 Eircom, Bord Gais etc.) at a bank branch counter. The bill is paid “over the counter” by the bill

38 payer, usually by means of cash or a cheque. The presenting bank then arranges for the

39 corresponding debit and credit to be processed through existing inter-bank payment/clearing

40 systems. The bill payer may also present certain utility bills for OTC payment at any post office

41 or, if available, at the offices of the bill-issuing utility (e.g. ESB high street shops). The Authority

42 has not been advised of the exact proportion of bills paid by cash/cheque that are paid OTC, only

43 that the parties believe that the majority of bills paid in cash and by cheque are paid OTC.

44 4.3 The parties claimed that, notwithstanding the historical predominance of cash and cheque

45 payments, over other forms of payment, in the Irish economy in general, and in regular bill

46 payment in particular, the number and quality of non-paper based methods of bill payment had

47 increased significantly in recent times, and now included Direct Debits, Standing Orders, Internet

48 Bank Payments, Telephone Bank Payments, Credit Cards, Debit Cards (Laser) and Automated

49 Teller Machines.

OTC Payments

50 4.4 The parties submitted that OTC payments tend to be paper-based transactions, and are more

51 costly and less efficient to process than electronic bill payment methods. They also submitted the

52 following data illustrating the difference in cost between such paper-based transactions and

53 electronic bill payment methods.

Figure 2

Cost Comparison of Payment Methods

[ ]

54 (e) Structure of the Market

55 5.1 The processing of payments in the State is conducted by participating banks and financial

56 institutions through the auspices of a number of payment systems, each of which is regulated by

57 the Central Bank, and is constituted as a company. Examples of the latter areIrish Paper Debit

Clearing Company(DebitCo), Irish Paper Credit Clearing Company(CreditCo), Irish Retail

58 Electronic Payments Clearing Company(IRECC) and Laser. DebitCo is responsible for clearing

59 payments in the form of debits (e.g. cheques), CreditCo is responsible for clearing credit

60 payments, while IRECC is responsible for clearing payments in the form of electronic debits and

61 credits. IPSO is an administrative/representative organisation for the payments industry in

62 Ireland and, as such, is not itself a payment system. However, all ordinary and associate

63 members of the clearing companies are also, by virtue of such membership, entitled to be

64 members of IPSO.

65 (e) Government Strategies for the Information Society

66 6.1 The parties submitted a copy of a Government Paper (1) entitled“Implementing the Information

67 Society in Ireland: An Action Plan”. They cited the following extracts from that paper –

68 “2. Rapid response is needed to ensure that the benefits of the Information Society

69 can be availed of by Irish citizens and Irish businesses, thus contributing to the

ongoing improvement of Ireland's society and economy.”

……………………………………

70 “30. The financial institutions will be requested to prepare proposals for appropriate

71 systems to facilitate further deployment of electronic payments in the economy.

72 Consultations will be held with the various interest groups with a view to agreeing

73 mechanisms to take work forward rapidly in this area. Mechanisms to progress this

74 area of work, involving representatives of the various interest groups, will be in place

by end March 1999.”

……………………………………

75 “49. Electronic payment systems will be developed further within the public service,

76 and clients will be encouraged to take up electronic payment options. This will reflect

initiatives to promote electronic payment systems in general.”

77 6.2 The parties stated that, in response to the Government request, and technological developments

78 generally in the area of payment systems, the banking industry commissioned outside consultants

79 to conduct a study in this area. The results of the study were presented to the Government by

80 IPSO in December 1999. The parties submitted that the study’s findings highlighted the

81 predominance in Ireland of cash and cheques as payment methods, and the insufficient use (by

82 comparison with other products) of electronic payment methods; that Ireland was lagging behind

83 Europe and the USA in the deployment of electronic payment solutions and methods for

84 consumers, business and Government, and that there would be significant economic benefits

85 accruing from the increased use of electronic payment. Four key areas were identified, one of

86 which was bill payment.

87 6.3 The parties also referred to a strategic review of the future of Irish banking, initiated by the

88 Minister for Finance. The Minister’s Review Group issued a Report in October 2000 entitled

89 “Banking Sector: Some Strategic Issues – Report of the Department of Finance/Central Bank

90 Working Group on Strategic Issues facing the Irish Banking Sector”. They cited the following

extracts from that Report –

91 - paper-based banking transactions (e.g. OTC bill payments) were costly for banks and

their customers (page 39...