32000Y1014(07)

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

Case COMP/D1/29.373 - Visa International

(2000/C 293/16)

(Text with EEA relevance)

1. INTRODUCTION

1. On 31 January 1977 Ibanco Ltd, known as Visa International since 1979, notified its international payment card scheme (By-Laws and Operating Regulations) to the Commission, applying for negative clearance or, in the alternative, an exemption under Article 81(3).

2. After having initially sent a comfort letter on 29 April 1985, the Commission, following a complaint by the British Retail Consortium against the so-called interchange fee in the Visa International payment scheme, reopened the investigation in the Visa case and the comfort letter was withdrawn on 4 December 1992. 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 European Union, concerning various aspects of inter alia the Visa International payment card scheme.

2. THE PARTIES

2.1. Visa International

3. Visa International Service Association ("Visa") is a privately held, for-profit corporation owned by 21000 member financial institutions from around the world. Visa, which is incorporated in the USA, operates the card system network. To that end it manages trade marks, sets down the rules of the 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 contracts merchants for Visa card acceptance, but its member financial institutions, who 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 covers apart from the EU also the EFTA countries Iceland, Liechtenstein and Norway, Turkey, Israel, Cyprus and Malta, there are over 5000 Visa members. Decision making is delegated to the Visa EU regional Board of Directors, which is elected every two years from Visa member financial institutions in the EU region. The EU regional board is responsible for intra-regional affairs, such as the adoption of regional regulations (e.g. the Visa EU Regional Operating Regulations), admission and expulsion of members established in its region and setting, by default, the level of the interchange fee applicable in its territory. In countries with so-called Visa national group members, the EU board has delegated the power to develop and administer Visa card programmes to these members.

2.2. The Visa members

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 shall not accept for membership any applicant that is deemed by the Board of Directors to be a competitor of the corporation.

6. The main classes of membership relelvant to Visa card activities in the EU are principal and associate membership. A principal member issues cards and may acquire merchants and carry out all the activities associated therewith, either directly or by contract with other members. An associate Visa member must be sponsored by a principal member. It can then carry out all the functions of a principal pursuant to its agreement with the principal. Only principal members pay service fees to Visa and are entitled to vote.

7. In some Member States there is a Visa group member. This is a princiapl member authorised to exercise its membership rights and operate Visa card programmes through its owners or members. Members of Visa group members are associated members. The Visa group member is responsible for acts and omissions of its owners or members. The following Member States have a Visa group member: Austria (Visa Austria), Belgium (Visa Belgium), Denmark (PBS), Finland (Luottokunta Kreditlag), France (Groupement Carte Bleue), Luxembourg (VisaLux), Spain (Sistema 4B and Visa Espana) and Sweden (Visa Sweden Association). None of these group members, apart from Luottokunta, issue Visa cards themselves. Most group members, apart from Luottokunta, PBS and Visalux, do not acquire either. Instead (some of) their members do.

8. As said above, Visa has delegated to certain Visa group Members the power to develop and administer Visa card programmes. These are all Visa group members, except Visalux in Luxembourg and Sistema 4B in Spain, referred to by Visa as national group members. These national group members act as a national Visa, authorised to adopt rules applicable to the operation of Visa programmes in their country, provided these local arrangements do not infringe the Visa By-Laws and Operating Regulations.

9. The national group member decides on applications for licences to issue and acquire Visa cards in its territory. Visa retains the right to accept an eligible institution as a direct member of Visa if a national group member for some reason is unwilling to license that institution to carry out Visa card activities. National group members also have to give their consent to the establishment of foreign branches in their territory (see also hereinafter). The Visa EU board can accept new members in all countries directly if membership has been "unreasonably withheld" by a national group member or if the national group member consents to Visa granting direct membership.

3. THE MARKET

3.1. The functioning of the Visa payment scheme

10. The visa notification concerns the operation of payment card systems. Broadly speaking, Visa cards can be used either to pay a merchant for goods or services or to obtain cash, either from a bank counter or from an ATM. In the first case four parties are involved: the Visa cardholder, the issuing bank (which issues the card to the cardholder), the merchant and the acquiring bank (which acquires merchants for Visa card acceptance)(2). In the second case, only three parties, the Visa cardholder, the issuing bank and the ATM operator are involved.

11. Before being able to use a card for payment or cash withdrawal transactions, a consumer needs to contract with an issuing bank to receive a card. This is done usually in exchange for an annual fee paid by the cardholder to the issuing bank. Moreover, with regard to a payment transaction a merchant has to conclude a contract with an acquiring bank for card acceptance. This contract sets the merchant fee and other conditions.

12. A card payment transaction involves the following steps: (i) the cardholder and the merchant agree on a price for the relevant goods or service, including a possible surcharge; (ii) the card is inserted in a device (e.g. terminal) which may check if the card is valied, and if the transaction is pre-authorised by the issuer; (iii) the transaction is then cleared and settled at the inter-bank level, this includes the payment by, typically, the merchant bank to the cardholder bank of an interchange fee; (iv) the merchant bank and the cardholder bank may charge their customers a transaction related fee.

13. It follows from the above that in a payment transaction a distinction can be made between two services, i.e. on the one hand issuing cards to customers and on the other hand acquiring merchants for cards acceptance. In a four-party transaction both services are often provided by different entities.

14. A card cash withdrawal transaction involves steps similar to those described as to payment transactions. The main difference is that there is no merchant involved in such a transaction but the operator of the ATM from which cash is withdrawn.

3.2. Position of Visa on the market

15. Apart from Visa, there are currently the following major international payment organisations active on the European market: Europay International and MasterCard International (through Europay), Japan Credit Bureau (JCB) and the international proprietary systems American Express and Diners Club International. Of these international payment organisations Europay (in close cooperation with MasterCard) is by far the most important competitor of Visa in Europe. Together Viosa and Europay account for around 90 % of international cards issued in the EU. The position of Visa (about 53 %) is in general stronger than that of Europay (about 33 %), but there are important differences between the Member States(3). Visa is in particular strong in UK, Spain, France and Italy. Europay on the other hand is stronger, for example, in Germany, the Netherlands and Austria.

16. Apart from international payment card operators, also various national payment card operators are active in the different Member States.

3.3. Intra-system competition

3.3.1. Issuing Visa cards

17. In most Member States Visa cards are issued by several banks, either directly as a principal or associate Visa member or as a member of a group member. The number of issuers varies per Member State. Only in Finland is there just one Visa issuer, i.e. the national group member Luottokunta. In some countries, such as Ireland, the UK and France, Visa cards are also issued through foreign branches.

3.3.2. Acquiring merchants for Visa card acceptance

18. Visa acquiring activities are generally more concentrated, but the number of actual acquirers varies from country to country. For example, in the UK there are quite a lot of Visa acquirers, while there is de facto only one single principal Visa acquirer in Denmark (PBS, the sole acquirer for both Visa and for Europay) and Finland (Luottokunta, the sole acquirer for Visa and Europay transactions). In the other Member States with a Visa group member (i.e. Austria, Belgium, Spain, France and Sweden), not the group members themselves but several of their members acquire merchants for Visa transactions. Nevertheless, in practice the acquiring business is often dominated by one single acquirer. For example, in the Netherlands VSB International is by far the most important acquirer, in Portugal Unicre is. Moreover, in Belgium around 90 % of all transactions are acquired by Bank Card Company.

4. THE AGREEMENTS

4.1. General

19. The notification by Visa concerns rules and regulations governing the Visa association and its members (i.e. international by-laws and regional board delegations), as well as all international provisions relating to Visa's payment cards (i.e. the General International Operating Regulations, EU Regional Operating Regulations, Dispute Resolution Rules and Card and Marks Specifications). All notified Visa rules and regulations will hereinafter be referred to as "the Visa rules".

20. The Visa rules govern primarily the relationship between Visa and its members, meaning banks issuing Visa cards and banks acquiring merchants for Visa cards acceptance. In addition, the Visa rules contain also clauses relevant for the relation between Visa members (the inter-bank relationship). Moreover, the rules contan clauses with regard to the relationship between acquiring banks and merchants (such as the so-called no-discrimination rule and the honour all cards rule). Visa says it does not seek to prescribe the arrangements between issuers of Visa cards and cardholders, beyond laying down the basic characteristics of the Visa card products.

4.2. Specific provisions

4.2.1. The no-discrimination rule (NDR)

21. The NDR in the Visa international card regulations prohibits merchants from adding charges to cardholders who pay with their Visa card. In addition, the Visa NDR prohibits merchants from giving consumers discounts for paying with other means of payment, such as, for example, cash. The rule does not apply in countries where it has been abolished by national competition authorities, i.e. in the UK, for credit cards, Sweden and the Netherlands.

22. There is a similar rule for cash withdrawals: an acquirer is prohibited from adding any surcharge to a manual or ATM cash disbursement transaction, unless local law expressly requires that a Member be permitted to impose a surcharge.

4.2.2. The principle of territorial licensing

23. Visa cards may only be issued and acquired by members of the Visa payment cards system, having obtained a licence to that end. Visa applies a territorial licensing policy. This means that, in principle, the Visa member's jurisdiction to carry out Visa card issuing and acquiring activities is limited to the country where it has its principal place of business. However, under some conditions members may carry out cross-border issuing and cross-border acquiring activities. The possibilities for such cross-border activities have been gradually increased by Visa (see hereinafter).

4.2.3. The modified rules on cross-border issuing

24. The Visa rules oblige banks wishing to carry out issuing activities outside their country of domicile in principle to do so through either subsidiaries, which could join Visa in their own right, or through the establishment of foreign branches in the territory concerned. There are two specific exceptions to this general rule, i.e. in two situations the establishment of a subsidiary or branch is not required: first Visa cards could be issued passively, without solicitation, to cardholders provided the card account was with the issuing bank in its country of domicile. Secondly, Visa corporate cards could be issued to employees around the world of multinational companies.

25. In its regional EU board meeting of 26 May 2000, Visa approved amendments to its cross-border issuing rules, involving the abolishment of the requirement that a Visa member should have either a branch or subsidiary in a Member State in which it wishes to cross-border issue Visa cards. In order to ensure the continued security and quality of the Visa system, Visa adopted some minimum rules, e.g. cross-border issuing will be open for members who are already proven issuers (in their principal place of business or in any country), submit a business plan and comply with certain registered domestic rules. Visa has stated that, for technical reasons the modified rules on cross-border issuing are likely to enter into force in the first half of 2001.

4.2.4. The modified rules on cross-border acquiring

26. The Visa rules allow cross-border acquiring of international airlines and some other specific categories. Moreover, since 1994 the Visa EU/EFTA cross-border acquiring programme allows, under similar conditions as the ones mentioned above for cross-border issuing, banks to cross-border acquire merchants without the establishment of a subsidiary or branch in the territory. Initially Visa limited the programme to certain categories of international merchants only, namely car rental companies, hotels, ferries and cruise lines. Since 1 January 1999 cross-border acquiring has been made possible by Visa for all categories of "international" merchants, namely merchant operating in at least two countries in the Visa EU region.

27. In its regional EU board meeting of 26 May 2000, Visa agreed to withdraw the requirement that a merchant acquired cross-border, must have an outlet in more than one country. The appropriate amendments to this effect in the Visa EU Regional Operating Regulations were approved to this effect in the Visa EU executive committee meeting of 7 July 2000. The modified rules on cross-border acquiring will enter into force on 1 October 2000.

4.2.5. No acquiring without issuing

28. Although according to the Visa rules principal members are formally obliged to issue cards and to acquire merchants, in practice Visa does not oblige its members to acquire. However, if they want to acquire merchants for card acceptance, before starting acquiring activities in a particular country the Member has to issue a reasonable number of cards. The target is set on a case by case basis, taking into account the number of cards issued at that time in the country in question by existing Visa members and the potential for Visa cards within that market. In addition, the size and potential of the applicant are considered. According to Visa, in order to determine whether a reasonable number of cards have been issued before cross-border acquiring activities are allowed, cards issued in any country of the Visa EU region are taken into account.

4.2.6. The honour all cards rule

29. A merchant must accept all valid cards with either the Visa or the Visa Electron symbol which are properly presented for payment. According to Visa, merchants whose agreement requires them to accept Visa cards are not required to accept Electron cards, and merchants having an agreement to accept Electron cards are not required to accept Visa cards. The honour all cards rule applies irrespective of the nature of the transaction, the identity of the issuer, the type of card being used or the personal characteristics of the cardholder.

5. CONCLUSION

30. In view of the preceding paragraphs, the Commission intends to adopt a favourable position concerning the provisions in the notified agreements referred to above. 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/D1/29.373 - Visa International, by post to the following address: European Commission , Directorate-General for 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.

(2) It may be that for a particular transaction in a four-party system the issuer also happens to be the acquirer. Such a transaction is known as an "on-us" transaction, and can be represented as a three-party diagram.

(3) Moreover, it has to be kept in mind that cards are not available in a large scale in all Member States. For example, the market for payment cards is much more developed in the United Kingdom, Germany, France and Spain than in Denmark, Finland, Austria, Greece and Ireland.