Competition Authority Notification No: CA/1/98: MBNA International Bank Ltd

Judgment Date19 November 1998
Date19 November 1998
Docket NumberDecision No. 522
CourtCompetition Authority (Ireland)


Decision No. 522

Competition Authority Decision of 19 November 1998 relating to a proceeding under Section 4 of the Competition Act, 1991.
Notification No CA/1/98 - MBNA International Bank Ltd. (Credit Card Affinity Agreement).

Notification under section 4 of Competition Act 1991 — Agreement concerned standard credit card affinity agreement — Affinity groups to provide MBNA with mailing lists — MBNA to market their credit cards to people on mailing lists — Relevant market the issuance of credit cards and provision of credit card services — Market for issuance of credit cards opening up in State — Affinity group agreed not to develop rival programme without consent of MBNA — Nothing to prevent other credit card issuers from providing similar services — Market highly competitive.

The agreement in this case is operative in a highly competitive market and the entry of MBNA augurs well for increased competition in that market. The restrictive clauses in the agreement contain provisions which are integral to a new marketing endeavour and merely serve to ensure compliance with the agreement. The Competition Authority so decided in saying that the agreement did not contravene section 4(1) of the Competition Act 1991.


Notification was made by MBNA International Bank Ltd. on 6 January 1998 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) in respect of a Standard Credit Card Affinity Agreement.

  1. (a) Subject of the Notification

    2. The notification concerns a Standard Credit Card Affinity Agreement between MBNA International Bank Ltd. and the Affinity Groups. The agreement is a marketing arrangement whereby the Affinity Groups provide to MBNA access to their mailing lists and MBNA (in conjunction with the Affinity’ Group) market their credit cards to people on the Affinity Group’s mailing lists.

  2. (b) The Parties Involved

    MBNA is a wholly owned subsidiary of MBNA America Bank, N.A. a company incorporated in the United States of America and having its address at Wilmington, Delaware, 19-884-0785, USA. This notification concerns rights and obligations arising from a standard Credit Card Affinity Agreement (the “Agreement”) which MBNA International Bank Limited, a company registered in England and Wales acting through its Irish Branch Registered Number E3873 at 46 St. Stephen’s Green, Dublin 2 (“MBNA”) proposed to conclude or make with various organisations (“Affinity Groups”).

    4. At the date of notification MBNA had no sales or turnover in relation to credit cards in the State and, as it is a new entrant to the market, it does not have market share data readily available, either by sales or turnover. MBNA stated that they do not have any substantial interest in any other company competing in the market affected.

  3. (c) The Products and the Markets

    5. The notifying party claimed that the nature of the services affected by the Agreement is the provision of credit card services to consumers. The Agreement relates to the marketing of MBNA’s credit card programme, specifically designed for the purpose (the “Programme”), to Irish resident customers and employees of the Affinity Groups.

    6. The notifying party claimed that the market for credit card products is global. However, the Agreement applies only to the State. The relevant credit cards were designed for compliance with Irish law and cannot be marketed in any other jurisdiction.

    7. The notifying party stated that the Irish credit market is a subset of the total Irish market for payment cards. That total market can be divided into two sections:

  4. (a) payment cards offering domestic and international acceptance; and(b) payment cards accepted only in one or more domestic stores.

    8. Within each of those sections there can be a number of competing product types:

  5. (a) credit cards where credit is advanced and may be left outstanding;(b) charge cards where credit is advanced but must be repaid in full at the end of each billing period (usually one month); and(c) debit cards where no credit is advanced, the card merely being used to access a current account.

    9. The notifying party claimed that the Agreement only related to credit cards (product type (a), above) offering domestic and international acceptance (market section (a), above). Although the notification only concerns that part of the market so described, the notifying party stated, that it should be considered in the wider context with the other product types (in both market sections) being seen as substitute and competing products.

  6. (d) Structure of the Market

    10. The notifying party claimed that the provision of credit card services is divided into two levels, credit card issuers (“Issuers”) and credit card acquirers (“Acquirers”). In addition, to enable a credit card to be accepted for payment it is necessary for the relevant Issuer and Acquirer to be a member of the same payment system. The two main international payment systems are VISA and MasterCard both of which are wholly owned by their respective members. There are 21,000 bank owners of Visa world-wide. The payment systems provide a global framework and rules for use of affiliated credit cards. Issuers provide the actual cards, related account and credit facilities. A consumer’s credit card contract is with an Issuer as opposed to a payment system and in accordance with the Issuer’s terms and conditions (although the Issuer’s terms and conditions must not contravene the rules of the payment system). In Ireland the main Issuers are Allied Irish Banks plc and Bank of Ireland.

    11. Acquirers operate by providing credit card acceptance facilities to merchants for the

    payment system or systems of which they are members. An Acquirer will arrange payment to

    a merchant for credit card transactions and will in turn be reimbursed by each relevant Issuer,

    through the clearing operations of the relevant payment system. In Ireland the main acquirers

    are Allied Irish Banks plc and Bank of Ireland.

    12. MBNA does not operate as an Acquirer and has no current intention to do so. MBNA has recently commenced operations in Ireland as an Issuer. The Agreement relates solely to its activities as an Issuer. At the time of notification MBNA were new entrants to the market and thus had not yet accrued a market share.

    13. The notifying party claimed that the current market share (by number of cards issued) is distributed amongst Issuers as follows;

    Table 1:


    Market Share

    Allied Irish Banks plc


    Bank of Ireland


    Ulster Bank


    National Irish Bank




    Irish Permanent (issued by Bank of Ireland)




    The notifying party claimed that other than regulatory requirements, primarily pursuant to Irish banking legislation, the main bar to entry to the market is establishment cost including payment system membership. In order to become a member of either VISA or MasterCard for any particular jurisdiction, one needs to be authorised to carry on banking activities in that jurisdiction. Such a requirement leads to substantial capital and regulatory costs. In addition. each payment system requires a major computer system to be in place to enable the daily clearing of transactions to take place through that payment system. That computer system also needs to assist with the consideration and underwriting of applications, the on-going processing of customer transactions, the issue of statements, the receipt of customer payments and general account maintenance. Initial marketing costs are also high. In addition, there are initial and on-going payment system fees.

    14. It is estimated by the Authority, that 21% of Irish adults hold credit cards which is low as compared to the US where over 80% of adults have credit cards. In looking at credit card holders by social grouping, some 66% of AB and Cl ‘s do not have a credit card. MBNA is targeting this market. Of all credit card holders in the State75%of holders spend less than IR£250 per month and the same percentage of card holders pay on time and thus incur no interest penalty. There is estimated to be 25,000 to 30,000 credit card friendly outlets in the State. The basic measurement of price in relation to credit cards is the Annual Percentage Rate of Interest ("APR”). In Ireland the APR of credit cards range from 23% to 25.5%l. In the UK the APR of credit cards ranges from 14.5%to 22.3%. As 75%of people never incur interest penalties, and many that do may not have envisaged not paying on time, it seems that APR differences do not induce customers to gravitate to low APR card issuers. In terms of developments in payment methods in the...

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