Another week of hearings at the banking inquiry of the Competition Commission; another bonanza for the lawyers.
All the banks seem to have lawyers present at all the hearings, madly taking notes and looking very serious. The debate can degenerate into mind-numbing legalese, which is no doubt important in determining the legal framework of anti-competitive behaviour, but which does tend to obfuscate the real issues.
This week Mastercard finalised its submissions on interchange — the fee charged when using a credit card or debit card that is invisible to the consumer because it is paid by the merchant and effectively priced into the goods.
After suffering through lawyer speak, debating the concepts of “per se” versus “rule of reason”, the issue of interchange really comes down to two simple questions. Is it necessary and if so, is it priced fairly?
There seemed to be an agreement among the panel members that interchange, or some form of joint venture between the banks, is required to create a network that allows operability between banks to ensure that your card will be widely accepted.
The interchange system allows the payment of the costs of the transaction. As it is a price set by the four banks there have to be questions about whether it is priced correctly or if excessive profits are being made by the monopoly that is created by such a joint venture. Which leads to the question whether banks are colluding on setting the price, especially as interchange is managed by Bankserv, which is owned by the major banks.
Mastercard has spotted an opportunity. Recently listed, Mastercard claims an independent identity, which would allow it to assess real costs and allocate revenue more fairly. Its profits would come from a management fee.
The panel did not appear to be entirely convinced by Mastercard’s independence argument and it seemed to favour an independent third party to investigate the pricing of interchange fees.
Standard Bank was in the hot seat this week over pricing structures and, according to the panel, failed to provide enough detail on exactly how its pricing structure is derived. The other three main banks will make their submissions next month.
The technical panel says these banks were far more open and transparent in their written submissions, so perhaps we will receive better insight into exactly how banks’ pricing is determined.
How they allocate costs is likely to be as confusing as their pricing.
Finally, the Payment Association of South Africa (Pasa) sat before the panel, which had some pretty challenging questions. Pasa is a self-regulatory body set up by the banks to govern payment systems.
New entrants have complained that it is difficult to enter the payment system because they have to become a member of Pasa first. Because the association is controlled by the big four banks, they might encounter hurdles entering the system that could harm competition.
Panel member Hixonia Nyasulu argued that the power to decide who comes into the system is in the hands of the existing banks and indicated that she would prefer to see a system whereby that power is given to the regulator through the appointment of an executive director.
The panel raised the point that the National Payment Systems Act had allowed Pasa to look after the narrow interests of a certain group of banks and that, should the banks feel threatened either by a competitor or potential legislation, Pasa’s role would be to protect the interests of the bank group, not the national payment system.
Panel member Oupa Bodibe argued that there was a conflict of interest between overseeing the national payment system and playing an advocacy role for member banks.
So far the banking inquiry has held hearings into ATM fees, payment cards and interchange fees and the National Payment System. The last two hearings will focus on pricing behaviour and market power. Standard Bank has made its presentation already. Nedbank and FNB will make theirs on July 9 and Absa on July 17