BAILII [Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

Irish Competition Authority Decisions (Notice Division)


You are here: BAILII >> Databases >> Irish Competition Authority Decisions >> Irish Competition Authority Decisions (Notice Division) >> IPSO/An Post (OTC Bill Payments) [2002] IECA 595 (3 April 2002)
URL: http://www.bailii.org/ie/cases/IECA/Notice/2002/595.html
Cite as: [2002] IECA 595

[New search] [Printable RTF version] [Help]


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

 

Page 2

 

 

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

 

Page 3

 

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 [Note: Pie Chart in original not reproduced here]

 

(a) Bills - Cash and Cheque: 24m

An Post 39%

Utilities 19%

Banks 42%

 

(b) Bills - All Payment types: 49m

An Post 21%

Utilities 10%

Banks 69%

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

 

Page 4

 

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.

 

Page 5

 

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

 

Page 6

 

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 nonpaper

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 nonpaper

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;

 

Page 7

 

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 billpayer/

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

 

Page 8

 

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 branchbased

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.

 

Page 9

 

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.

 

Page 10

 

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.

 

Page 11

 

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

 

Page 12

 

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.

 

Page 13

 

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 anticompetitive

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

 

Page 14

 

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,

 

Page 15

 

(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

 

Page 16