The ACCC has commenced proceedings against Mastercard’s Australian subsidiary and its regional affiliate (Mastercard Asia/Pacific (Australia) Pty Ltd (Mastercard Australia) and Mastercard Asia/Pacific Pte Ltd (Mastercard Singapore), respectively), alleging they engaged in conduct that had the purpose of harming or interfering with the competitive process in the supply of debit card acceptances services, thereby preventing or hindering competition.
Background to the ACCC’s case
Mastercard operates one of the two major international payments networks in Australia offering both credit and debit card services. In Australia, Mastercard debit cards are typically dual branded with eftpos and operate on a dual-network basis. This means that payments from these cards can be processed using either the Mastercard or eftpos debit networks.
In 2017, the Reserve Bank of Australia introduced ‘Least Cost Routing’ (LCR). The initiative allows merchants to send contactless dual-network debit transactions through their preferred payment network instead of the card’s default network (which is typically the Mastercard or Visa networks). The initiative applies where the consumer does not make an active choice of network.
The RBA anticipated that LCR would lower payment costs by:
- allowing merchants to route dual-network debit card transactions through the lowest-cost network (which is the eftpos network for many merchants, according to the RBA); and
- increase the competitive pressure between debit card schemes, leading to a broader reduction in payment network fees (such as interchange fees and scheme fees).
The ACCC alleges that, in anticipation of increased competition from eftpos as a direct result of the LCR initiative, MasterCard implemented a strategy to neutralise the incentives for merchants to route Mastercard- debit cards through the eftpos network in the period from 6 November 2017 to at least 5 November 2020.
The ACCC claims that this strategy involved:
- Mastercard Australia targeting more than 20 major retail businesses that were more likely to route debit transactions away from Mastercard; and
- Mastercard Singapore then entering into agreements that offered substantially lower prices for credit card acceptance services and reduced interchange rates and scheme fees, on the condition that those merchants routed all (or almost all) of their dual-network debit card transactions through the Mastercard network for up to five years.
Accordingly, the ACCC’s case is that Mastercard Singapore’s conduct breached the following provisions of the Competition and Consumer Act 2010 (CCA):
- s 46(1) Misuse of market power: by using its substantial power in the credit card acceptance market (described by the ACCC as a “must have” form of payment for merchants) to limit competition in the debit card acceptance market.
- s 47(1) Exclusive dealing (or alternatively, s 45(1)(a) and (b) anti-competitive agreements): by entering into contracts that required merchants to route all (or most of) their Mastercard-eftpos debit card transactions through the Mastercard network in exchange for more favourable credit card transaction rates. This was allegedly achieved through provisions in contracts with merchants that:
- expressly prohibited a merchant from routing transactions through the eftpos network;
- required merchants to achieve a specific volume of transactions through the Mastercard network that was set at, or close to, the total number of transactions that the merchant processed with Mastercard branded cards; or
- allowed Mastercard to withdraw special rates or end the agreement if the merchant processed Mastercard-eftpos debit cards through the eftpos network.
The ACCC alleges that MasterCard Australia was an accessory to MasterCard Singapore’s conduct, including by identifying merchants to target, formulating offers and procuring MasterCard Singapore’s entry into relevant agreements with each merchant.
The ACCC asserts that the substantial purpose for MasterCard engaging in this conduct was to hinder the competitive process by deterring merchants from using the eftpos network to process debit transactions. Importantly, it has not made any claims about whether the conduct had the effect (as opposed to purpose) of substantially lessening competition in the supply of debit card acceptance services.
Visa enforceable undertaking
In March 2021, the ACCC accepted an enforceable undertaking from Visa in relation to concerns that Visa may have limited competition in the debit card acceptance market by offering large merchants lower credit card interchange rates in return for the merchant agreeing to process Visa-branded dual-network debit cards through the Visa network.
In the undertaking, Visa acknowledged the ACCC’s concerns and agreed not to offer strategic merchant rates for credit card transactions to merchants on the condition that they process Visa-eftpos debit transactions through the Visa network. Visa also agreed not to withdraw strategic rates offered to merchants who choose to route debit transactions through the eftpos network. Importantly, however, in offering the enforceable undertaking, Visa did not admit to any breaches of the competition laws.
The conduct addressed by the undertaking appears to be very similar to Mastercard’s conduct in the current proceedings. However, a key difference between the two appears to be that the ACCC was focused on potential anti-competitive effects in respect of Visa’s conduct, whereas its allegations against Mastercard centre on an alleged anti-competitive purpose.
So why did the ACCC resolve its concerns relating to Visa’s conduct by way of an enforceable undertaking, while it has prosecuted MasterCard? We don’t have any inside knowledge, but note that the divergent fortunes of Visa and Mastercard may reflect the type and strength of evidence gathered by the ACCC during its respective investigations and the degree of cooperation provided, including the agreement by Visa to change its behaviour.
Where to from here?
One of the ACCC’s current enforcement priorities is to promote competition and investigate allegations of anti-competitive conduct in the financial services sector, with a particular focus on payment services.
While the Mastercard litigation represents a significant step forward for the ACCC in its enforcement of this priority, it may signal that there is more to come in this area.
In this regard, the ACCC Chair, Gina Cass-Gottlieb, recently issued a blunt warning to the financial services sector: “Those in the [financial services] sector should therefore be on notice that we will not hesitate to take action in response to concerns raised about anti-competitive conduct in this important sector of Australia’s economy.”
Clearly, the ACCC is not holding its cards (or intentions) close to its chest.
By Phillip South & Jacqueline Ibrahim