Association of Banks

2012 CLD 1762 COMPETITION COMMISSION OF PAKISTAN Judicial Precedent

S. 2(1)(K)Relevant market, determination ofAssociation of Banks

First step in order to determine the relevant product market was to identify the relevant products/services that were interchangeable or substitutable with the products/services at issue

Product/services which were at issue, in the present case, were services available electronic banking mode, which were; cash withdrawal service (ATM); Utility Bills Payment Services (UBPS); Inter-Bank Fund Transfer (IBFT) and online inter-bank payment between the customers of two different banks

Automated Teller Machine (ATM), was a computerized telecommunication device that would allow the customer/client of a bank in Pakistan to conduct financial transaction, such as cash withdrawal, non-financial transactions and other services (UBPS or IBFT) at any time in a public space, without the need of a cashier, human clerk or bank teller

All that a customer/client had to do was to insert a Plastic ATM

Cash withdrawal transaction done through an ATM, could not be said to be substitutive with cash withdrawal transaction at bank teller

Second sub-set of relevant product market was that of "UBPS", which was an electronic bills presentment and payment system that enables banks to deploy bill presentment and payment service through their electronic delivery channels including 'ATM'

UBPS eliminates the inconvenience encountered during the bill payment procedure by submitting bills in traditional banking hours, or standing in long queues

Third sub-set of relevant product market was the 'IBFT' service, which service enables card holders of a bank to transfer funds instantaneously from their account to pay any of the millions of accounts of other banks network across the country through delivery channels made available by the switch and eliminates the hassle of writing cheques, making demands drafts etc.; and also reduces the cost of transaction significally

'IBFT' service is available round the clock

Services of ATM cash withdrawal, UBPS and IBFT, had distinct features, and conventional/ traditional banking services, were not comparable to them in terms of interchangeability and substitutability

Even otherwise services provided by banks through a network/switch, had been consistently recognized and dealt with in other jurisdictions as a distinct relevant market

Enough evidence was available which had established that State Bank of Pakistan had played a significant role in fixing the 'UBPS' charges and also the modality of its collection.

2012 CLD 1762 COMPETITION COMMISSION OF PAKISTAN Judicial Precedent

S. 5Individual exemptionAssociation of Banks

Utility Bill Payment Services (UBPS), facility introduced under the direction of the Supreme Court and regulation of State Bank of Pakistan had proved beneficial for utility companies by increasing their bill collection at a reasonable fee charged to them; and also providing relief to customers by providing them different delivery channels without bearing any cost

Such was a fit case for exemption

Parties could avail the benefit of exemption to avoid unnecessary work load for business as well as to lawfully reduce the cost

In view of peculiar facts and circumstances involved in the case, Competition Commission would grant individual exemption subject to conditions.

2012 CLD 1762 COMPETITION COMMISSION OF PAKISTAN Judicial Precedent

Ss. 4, 5 & 9Individual exemption, claim forAssociation of Banks

Exemption provision for a horizontal price fixing agreement, could not be invoked except in the case of a joint venture; that too where fee was not fixed vis-à-vis customers and exemption was granted on distinct grounds of efficiency

Price fixing in horizontal agreements, was viewed as having the object of preventing, restricting and reducing the competition and treated as per se anti-competition

Undertaking (Banks) in the present case, had been behind the imposition of uniform charge on the customers/account holders by banks

Undertaking (Banks) in the guise of seeking clarification in fact had requested the State Bank of Pakistan to allow banks to continue to have a fixed and uniform fee in the garb of request for standardized fee

Undertaking had gone beyond its mandate

Board of the undertaking had deliberated, discussed and resolved on commercial aspect such as customer/cardholder's charges

Undertaking, in terms of its activities and decision, had acted more as an association of its Member Banks and provided a forum, particularly to those who were represented on the Board to discuss, review/revise on matters of common interest; and then the member banks acceding to agreement; who implemented the deliberation undertaken by the Board

Such conduct of the undertaking and collective behaviour of banks of charging uniform fee 'off US" ATM cash withdrawal transaction fell in prohibited category in terms of S.4(1) & (2)(a) of Competition Act, 2010

Violation had been committed on part of parties concerned, in circumstances

Horizontal fixing of uniform charges amongst the competitors had the object of preventing, restricting and reducing the competition

In banking regulations, competition issues seemed to have been neglected or overlooked; and such behavioral trends, prevented more efficient systems to emerge in the banking industry

If such bad behavioral trends were not condemned or deterred, same would have far reaching impact on over vulnerable economy

Member Banks were directed to cease and desist from conduct of collective decision making or behaviour with respect to charging a uniform fee from customers for "off US" ATM cash withdrawal transactions; and to hold their Board meetings for deliberations and independent decision making with respect to such imposition of fee/charge from their customers.

2012 CLD 1762 COMPETITION COMMISSION OF PAKISTAN Judicial Precedent

Ss. 4, 5 & 9Prohibited agreementAssociation of BanksATM ServiceIndividual exemptionCriteria for individual and block exemption

Term 'prohibited agreement', was applied to a wide range of practices, whereby competitions co-ordinate among themselves to prevent, restrict or reduce competition in the market

Most glaring example of prohibited agreement was co-ordination among the competitors to fix the price

Such anti-competitive agreement aimed to reduce price competition, raise price or effect price in a favourable way for the undertaking (Association of Banks in the present case) involved and certainly had the object and effect of reducing competition in the market under S.4 of Competition Act, 2010, prohibited agreement could also be exempted under S.5 of the Act

To seek such exemption, an agreement had to fulfil the criteria/ conditions laid down in S.9 of the Act

Section 9 of the Competition Act, 2010, essentially raised the question that whether there were efficiency gains of a competition restrictive agreement; and benefits were passed on to the consumers; or whether its pro-competitive benefits outweigh its anti-competitive harms

In absence of a collective agreement to standardize interchange fee, some of the members (Banks) could find incentives to increase their fee, while also expecting others to keep their fee low; in such situation of free riding, while their customers continued to enjoy ATM cash withdrawal service at cheap rates, the customers of other banks would generate greater revenue for them in lieu of a higher fee

If that trend would continue, every bank which owed large ATM networks, would find it in its interest to raise its fee at par with others in order to avoid the situation, wherefrom riding was taking place at its expenses

Free riding would threaten the very existence of the network by reducing, demand for such services and could result in fees much higher than that which was collectively set by the members (Banks)

Individually negotiated inter-change fee could have the effect of hampering production and distribution while also apparently threating the failure of a system that would contribute to economy.