Background of the Case:

The Competition Commission of Pakistan (the “Commission”) took notice on its own of ATM cash withdrawal charges implemented by banks in Pakistan. It was observed that banks are charging uniform amount of Rs.15 for ATM cash withdrawal transaction despite having non- uniform business dynamics regarding the aforesaid service.

During preliminary fact finding it was found that in Pakistan ATM cash withdrawal service is provided by two ATM networks/switch namely: 1-Link and Mnet. The State Bank of Pakistan has mandated that all commercial banks in Pakistan, both foreign and domestic, have to become members of one or the other switch to provide ATM services to their own customers as well as customers of other banks. Additionally, these two switches have been interconnected in 2006, which means that a consumer holding an ATM or debit card issued by any bank in Pakistan may use any ATM located throughout the country.

Pursuant to the powers contained in Section 28(2) of the Act, the Commission appointed Enquiry Committee to conduct an enquiry as to whether 1-Link and member banks are involved in collusive activities to fix the rates of services provided by them, thereby violating Section 4 of the Act, and to prepare a detailed Enquiry Report under Section 37 of the Act.

The Enquiry Committee completed the Enquiry by submitting the Enquiry Report on 09 December, 2011. The Enquiry Report concluded that ‘1-Link Agreement’ among founding members appears to fix the charges of inter-bank ATM cash withdrawal which the other network parties/members have acceded to by signing an Accession Memorandum. The Enquiry Report also concluded that member banks have signed Accession Memorandum to ‘1-Link Agreement’ among founding members and to ‘UBPS Agreement’ and ‘IBFT Agreement’ entered into by 1-Link on behalf of its members and have also implemented the uniform charges as per the schedule of charges issued by 1-Link. Such decisions on price fixing by 1-Link, and price fixing agreements entered into by member banks, prima facie, have the object or effect of restricting, reducing or preventing competition within the relevant market in contravention of Section 4(1), in particular, Section 4(2)(a) of the Act. Therefore, the Enquiry Report recommended it necessary, in the public interest to initiate proceedings against 1-Link and its member banks under Section 30 of the Act. Based on the findings of Enquiry Report, CCP issued show cause notice to 1-Link and Member Banks.

In its analysis, the Commission considered various issues. On the issue of the relevant market, the Commission dispelled the objection by the undertakings and restricted the relevant market to cash withdrawal at ATM and excluded withdrawals through conventional banking./P>

On the issue of the role of SBP with respect to fee charged to the customers, the Commission found that SBP had set a price ceiling. Moreover, on the issue of whether fixing the fee violates Section 4 and qualifies for exemption under Section 5, the Commission noted that “a price fixing agreement, albeit has been declared unreasonable restraint, may be considered under rule of reason when parties collaborate like a joint venture for creating significant and beneficial efficiencies that could not other be accomplished” thereby relying on the rule of reason as opposed to a per se analysis. The Commission noted that there were various benefits of the arrangement and “requiring the network parties to have bilateral agreement for the sake of competition would come about at the cost of technical efficiency, higher costs, impediment to growth in the banking industry and benefit to consumers both in terms of affordability and wide access to ATMs.” As such, the arrangement was capable of meeting the exemption criteria.

On the issue of price fixation in utility payments, the Commission again noted that this was introduced under the direction of the SC and the regulation by SBP has also proven beneficial for the market at a reasonable cost making it a case fit for exemption. In furtherance thereof, the Commission granted individual exemption to the bank to bank fee for ATM withdrawal agreement and the IBFT agreement. As regards the UBPS agreement, it directed 1 Link to seek exemption regarding the same. Lastly, on the issue of whether the uniform withdrawal fee by banks is a prohibited agreement of parallel behavior, the Commission ruled that 1 Link had gone beyond its mandate and ensured that the ceiling was in fact the uniform price charged by all member banks which violates Section 4.

The Order:

The Bench held that 1-Link has gone beyond its mandate. Its Board has deliberated, discussed and resolved on commercial aspects such as customer/cardholder’s charges. In terms of its activities and decisions taken 1-Link has acted more as an association of its member banks and provided a forum, particularly to those who are represented on the Board to discuss, review/revise on matters of common interest and then the member banks acceding to 1-Link Agreement who implement the deliberations undertaken by the Board. Such conduct of 1-Link and collective behavior of banks of charging uniform fee for ‘Off Us’ ATM cash withdrawal transactions fall in prohibited category in terms of Section 4(1) read with Section 4(2)(a) of the Act and thus the violation has been committed on part of parties concerned.

The Bench also observed that despite the financial liberalization and de regulation measures of banking sector of Pakistan the efficiency of banking sector is far below the banking sector of some of the developed countries and even the banking sector of countries like India and Bangladesh. For example, banking spread in Pakistan is currently 8.12% as compared to India and Bangladesh who have it at the rate of 0.92% and 5.90% respectively.

A total penalty in the sum of PKR 770 M, including PKR 50 M on 1-Link (Guarantee) Limited and PKR 50 M each on its 11 founding member banks and PKR 10 M on each of its 17 non-founding member banks for imposing uniform customer charges for Off-Us ATM cash withdrawal transactions in violation of Section 4 of the Competition Act, 2010.

A CCP Bench comprising of Chairperson, Ms. Rahat Kaunain Hassan, Member, Mr. Abdul Ghaffar and Member, Dr. Joseph Wilson, passed an Order on June 28, 2012 in respect of the proceedings initiated against 1-Link and its member banks for imposing uniform customer charges for Off-Us cash withdrawal transactions, which amounts to violate Section 4 of the Competition Act.

The detail of fines imposed by the Commission is as follows:

a. PKR 50 million on 1-Link;

b. PKR 50 million on each founding members namely; National Bank of Pakistan, Allied Bank Limited, Habib Bank Limited, Bank Al-Falah Limited, Askari Bank Limited, Soneri Bank Limited, NIB Bank Limited, United Bank Limited, Standard Chartered Bank Pakistan Limited, Faysal Bank Limited and Bank AL Habib Limited; and

c. PKR 10 million on each non-founding members namely; Albaraka Bank Pakistan Limited, Burj Bank Limited, Meezan Bank Limited, Bank Islami, Khadim Ali Shah Bukhari Bank Limited, Habib Metropolitan Bank Limited, The Bank of Khyber, Dubai Islamic Bank Pakistan Limited, JS Bank Limited, Silk Bank Limited, The Bank of Punjab, Samba Bank Limited, Sindh Bank Limited, Barclays Bank PLC Pakistan Limited, Tameer Microfinance Bank Limited, Kashf Micro Finance Limited and Summit Bank Limited excluding Citi Bank which has not followed the collective behavior of charging uniform fee for Off Us ATM transaction.

Current Status:

1-Link and member banks filed appeals before the Competition Appellate Tribunal and High Court of Sindh and Lahore High Court. The Competition Appellate Tribunal accepted the appeals of 1-Link and member banks and set aside the order of the CCP. The CCP has filed appeal before the Honorable Supreme Court of Pakistan against the order of the CAT which is pending for adjudication before the apex Court.