The Competition Commission of Pakistan (CCP) has imposed 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. However, the Bench has granted exemption to the 1- Link Agreement entered into by and between founding members and Inter Bank Fund Transfer (IBFT) Agreement entered into by and between 1-Link and TPS Pakistan (Private) Limited and ABN AMRO Bank N.V. (now known as Faisal Bank Limited), to the extent of interchange (bank to bank) fee for ATM cash withdrawal and IBFT services and also Utility Bill Payment Services (UBPS) Agreements entered into by 1-Link with utilities companies. CCP on its own took notice of the uniform rates implemented by the banks in Pakistan for ATM cash withdrawal transactions. In preliminary fact finding it was observed that 1-Link holds 80% of market share in shared ATM network services in Pakistan and is a consortium of 11 major banks that are also represented on its Board of Directors while the other 20 banks are its members. To further assess the matter CCP approached the State Bank of Pakistan (SBP) to enquire whether it has fixed the ATM charges. SBP in response stated the banks are free to determine these charges. Moreover, in response to letters sent to various banks seeking rationale for uniform rates, two member banks of 1-Link confirmed that they have to comply with the schedule of charges devised by the 1-Link. Given facts and circumstances raised a suspicion that 1-Link and its member banks may be engaged in any suspected collaborative activity to fix the rates of ATM transactions. Therefore an Enquiry Committee was appointed to conduct an enquiry as to whether 1-Link and member banks are engaged in any prohibited activity in terms of Section 4 of the Act and submit a detailed Enquiry Report. The Enquiry Report concluded that 1-Link Agreement appears to fix Off-Us cash withdrawal charges which the other network parties/members have acceded to by signing an Accession Memorandum. Whereas UBPS Agreement and IBFT Agreement entered into by 1-Link on behalf of its members also apparently fix the charges in respect of both services. Further, 1-Link has issued schedule of charges periodically to its member banks and has, prima facie, taken decisions acting as an association of undertakings to fix interchange (bank to bank) fee in respect of ATM cash-withdrawal and IBFT services and bill payee bank fee in respect of UBPS and also the rates of ATM cash withdrawal and UBPS charges to be paid to the member banks by their customers. Such decisions on price fixing by 1-Link, and price fixing agreements acceded to by member banks, prima facie, have object or effect of restricting competition in contravention of Section 4(1), in particular, Section 4(2)(a) of the Act. Based on the findings of the Enquiry Report, CCP initiated proceedings under Section 30 of the Act and issued Show Cause Notice to 1-Link and its member banks on 14 March, 2012. The Bench heard the parties at length and passed an order which primarily decided the following issues: a. fixed interchange/bank to bank fee (PKR 11.67)) in respect of ATM cash-withdrawal and IBFT services; and b. Uniform rates of PKR 15 for Off-US ATM cash withdrawal transaction to be paid to the member banks by their customers. The parties pleaded before the Bench to grant them exemption in respect of fixed interchange fee for ATM cash withdrawal and IBFT services under Section 5 read with Section 9 of the Act. 1-Link also submitted applications in respect of 1-Link Agreement and IBFT Agreement to seek exemptions. With respect to this multilateral arrangement of a fixed interchange fee the Bench observed that collaboration of 1-Link member banks to the extent of ATM network (1-Link) presents a scenario where banks agree to permit their customers to use their cards at other member banks ATMs. For that banks that are otherwise economically independent competitors pool their capital and invest in deploying ATMs to expand services to e-banking and develop new products and they share the risks of loss as well as the opportunity of profit as a joint venture. Co-operation is the lynchpin of the value added by a joint venture and joint venture is considered as a single entity. Therefore, a price fixing agreement may be considered under rule of reason when parties collaborate like a joint venture for creating significant and beneficial efficiencies that could not otherwise be accomplished. After discussing in details the pro-competitive effects of fixed interchange fee in terms of (a) improving production or distribution; (b) allowing consumers a fair share of the resulting benefit; and (c) the benefits that clearly outweigh the anti-competitive effects held that 1-Link Agreement and IBFT Agreement, to the extent of fixed interchange fee, qualify for exemption under the criteria given in the Section 9 of the Act. However, the Bench required the parties to submit the UBPS Agreement to seek exemption in terms of findings given on UBPS fee in the Order. The Bench held that while no anti-competitive effects have resulted from the multilateral arrangement of banks with 1-Link and the parties have come forward to seek exemption, therefore, no penalty will be imposed for not seeking timely exemption. However, the Bench granted exemptions subject to the condition that the network parties/member banks should have a non-proprietary structure of 1-Link (switch/network) or at least have a corporate model which does not allow owner banks to have influential decision making rights by virtue of Board Directorship. Therefore, 1-Link was directed to submit within a period of 06 months from the date of issuance of this Order an appropriate corporate model in line with international practice for its implementation within next 06 months for clearance from the Commission on competition aspects of such structuring. With respect to customer charges, during the hearing the parties maintained that PKR 15 for Off-Us ATM cash withdrawal charges being the standardized fee fixed by SBP, the regulator, was passed on uniformly to the customers in good faith and without any agreement amongst them. After hearing the parties at length and seeking clarification from the representative of SBP during the hearing, the Bench held that SBP prescribed the ceiling of PKR 15 considering it affordable for consumers and sufficiently remunerative for banks. Hence, it was not a fee fixed by SBP. The Bench held that 1-Link member banks are acting in a collective manner by charging a uniform fee to their customers for Off Us ATM cash withdrawal transactions. The banks which were previously not charging have now joined the other banks in their practice of charging PKR 15. The Bench further highlighted that the action in concert between the parties is established by various factors as follows: (i) None of the banks placed any Board decision with respect to passing on PKR 15 on its customers and/or any deliberation and reasoning (at whatever level) in respect thereof; (ii) Adoption and implementation by the banks of the schedule of charges issued by 1-Link which provides for the charges to the customers. (iii) “Customers Account” used in Schedule of Charges refers to the cardholders account and not member banks’ accounts. Therefore, 1-Link required the member banks to deduct PKR15 from their customers’ accounts. (iv) Services requiring independent economic decisions on part of banks were discussed and decided by 1-Link Board. Documents on record establish that 1-Link required its member banks to incorporate the decision made in its Board meeting regarding increase of off-us ATM cash withdrawal charges PKR.15 to PKR. 20/- in their own schedule of charges issued to their customers biannually. Similarly, 1-Link Committee made recommendation that PKR5.00 may be charged to customers for balance inquiry transaction by its member banks. (v) Finally, the letter sent by 1-Link to SBP on 29 March 2012 to seek clarification from SBP is critical to highlight 1-Link’s role. It demonstrates how 1-Link assumes the role of front runner acting more as association for banks and doing advocacy on their behalf before the regulator with respect to a concern (PKR 15 charged to customers/account holders) which admittedly does not fall within its purview. 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. The Bench emphasized that in this particular case, the amount of PKR 15 may or may not be a higher charge for customers and more likely it appears to be reasonable rather than unreasonable in terms of international trends. Though the question of such practice and its effect on competition in the relevant market in terms of economic value may be limited; nonetheless, the Bench observed that between the period of December 2004 and November 2010, the number of ATMs on 1-Link network increased from 475 to 4040 showing a remarkable growth of 741% since 2004 and the same implies the cost effectiveness of a financial transaction on a 1-Link ATM and accruing benefits must have increased significantly over this period. The Bench emphasized that it is the horizontal fixing of uniform charges amongst the competitors which has the object of preventing, restricting and reducing the competition, therefore, no need to apply the rule of reason for establishing its anti-competitive effects and it is for this reason it has not been considered a case even eligible for exemption. In this respect the Bench held that “What is important to appreciate is the fact that our intervention is with respect to the aspect of behavior of banks who have acted in a collective manner to charge uniformly their customers for ‘Off Us” ATM cash withdrawal transactions without any effort to take an independent economic decision vis-a-vis a particular product market thus resulting in market fixing. Such conduct is perhaps symbolic in terms of reflecting a pattern and a behavioral trend that does not make this industry competitive vis-a-vis various banking product/services markets. In banking regulation, competition issues seem to have been neglected or overlooked and such behavioral trends prevent more efficient systems to emerge in the banking industry.”
The Competition Commission of Pakistan (CCP) has imposed 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.
However, the Bench has granted exemption to the 1- Link Agreement entered into by and between founding members and Inter Bank Fund Transfer (IBFT) Agreement entered into by and between 1-Link and TPS Pakistan (Private) Limited and ABN AMRO Bank N.V. (now known as Faisal Bank Limited), to the extent of interchange (bank to bank) fee for ATM cash withdrawal and IBFT services and also Utility Bill Payment Services (UBPS) Agreements entered into by 1-Link with utilities companies.
CCP on its own took notice of the uniform rates implemented by the banks in Pakistan for ATM cash withdrawal transactions. In preliminary fact finding it was observed that 1-Link holds 80% of market share in shared ATM network services in Pakistan and is a consortium of 11 major banks that are also represented on its Board of Directors while the other 20 banks are its members. To further assess the matter CCP approached the State Bank of Pakistan (SBP) to enquire whether it has fixed the ATM charges. SBP in response stated the banks are free to determine these charges. Moreover, in response to letters sent to various banks seeking rationale for uniform rates, two member banks of 1-Link confirmed that they have to comply with the schedule of charges devised by the 1-Link. Given facts and circumstances raised a suspicion that 1-Link and its member banks may be engaged in any suspected collaborative activity to fix the rates of ATM transactions. Therefore an Enquiry Committee was appointed to conduct an enquiry as to whether 1-Link and member banks are engaged in any prohibited activity in terms of Section 4 of the Act and submit a detailed Enquiry Report. The Enquiry Report concluded that 1-Link Agreement appears to fix Off-Us cash withdrawal charges which the other network parties/members have acceded to by signing an Accession Memorandum. Whereas UBPS Agreement and IBFT Agreement entered into by 1-Link on behalf of its members also apparently fix the charges in respect of both services. Further, 1-Link has issued schedule of charges periodically to its member banks and has, prima facie, taken decisions acting as an association of undertakings to fix interchange (bank to bank) fee in respect of ATM cash-withdrawal and IBFT services and bill payee bank fee in respect of UBPS and also the rates of ATM cash withdrawal and UBPS charges to be paid to the member banks by their customers. Such decisions on price fixing by 1-Link, and price fixing agreements acceded to by member banks, prima facie, have object or effect of restricting competition in contravention of Section 4(1), in particular, Section 4(2)(a) of the Act. Based on the findings of the Enquiry Report, CCP initiated proceedings under Section 30 of the Act and issued Show Cause Notice to 1-Link and its member banks on 14 March, 2012. The Bench heard the parties at length and passed an order which primarily decided the following issues: a. fixed interchange/bank to bank fee (PKR 11.67)) in respect of ATM cash-withdrawal and IBFT services; and b. Uniform rates of PKR 15 for Off-US ATM cash withdrawal transaction to be paid to the member banks by their customers.
The parties pleaded before the Bench to grant them exemption in respect of fixed interchange fee for ATM cash withdrawal and IBFT services under Section 5 read with Section 9 of the Act. 1-Link also submitted applications in respect of 1-Link Agreement and IBFT Agreement to seek exemptions. With respect to this multilateral arrangement of a fixed interchange fee the Bench observed that collaboration of 1-Link member banks to the extent of ATM network (1-Link) presents a scenario where banks agree to permit their customers to use their cards at other member banks ATMs. For that banks that are otherwise economically independent competitors pool their capital and invest in deploying ATMs to expand services to e-banking and develop new products and they share the risks of loss as well as the opportunity of profit as a joint venture. Co-operation is the lynchpin of the value added by a joint venture and joint venture is considered as a single entity. Therefore, a price fixing agreement may be considered under rule of reason when parties collaborate like a joint venture for creating significant and beneficial efficiencies that could not otherwise be accomplished. After discussing in details the pro-competitive effects of fixed interchange fee in terms of (a) improving production or distribution; (b) allowing consumers a fair share of the resulting benefit; and (c) the benefits that clearly outweigh the anti-competitive effects held that 1-Link Agreement and IBFT Agreement, to the extent of fixed interchange fee, qualify for exemption under the criteria given in the Section 9 of the Act. However, the Bench required the parties to submit the UBPS Agreement to seek exemption in terms of findings given on UBPS fee in the Order. The Bench held that while no anti-competitive effects have resulted from the multilateral arrangement of banks with 1-Link and the parties have come forward to seek exemption, therefore, no penalty will be imposed for not seeking timely exemption. However, the Bench granted exemptions subject to the condition that the network parties/member banks should have a non-proprietary structure of 1-Link (switch/network) or at least have a corporate model which does not allow owner banks to have influential decision making rights by virtue of Board Directorship. Therefore, 1-Link was directed to submit within a period of 06 months from the date of issuance of this Order an appropriate corporate model in line with international practice for its implementation within next 06 months for clearance from the Commission on competition aspects of such structuring.
With respect to customer charges, during the hearing the parties maintained that PKR 15 for Off-Us ATM cash withdrawal charges being the standardized fee fixed by SBP, the regulator, was passed on uniformly to the customers in good faith and without any agreement amongst them. After hearing the parties at length and seeking clarification from the representative of SBP during the hearing, the Bench held that SBP prescribed the ceiling of PKR 15 considering it affordable for consumers and sufficiently remunerative for banks. Hence, it was not a fee fixed by SBP.
The Bench held that 1-Link member banks are acting in a collective manner by charging a uniform fee to their customers for Off Us ATM cash withdrawal transactions. The banks which were previously not charging have now joined the other banks in their practice of charging PKR 15. The Bench further highlighted that the action in concert between the parties is established by various factors as follows: (i) None of the banks placed any Board decision with respect to passing on PKR 15 on its customers and/or any deliberation and reasoning (at whatever level) in respect thereof; (ii) Adoption and implementation by the banks of the schedule of charges issued by 1-Link which provides for the charges to the customers. (iii) “Customers Account” used in Schedule of Charges refers to the cardholders account and not member banks’ accounts. Therefore, 1-Link required the member banks to deduct PKR15 from their customers’ accounts. (iv) Services requiring independent economic decisions on part of banks were discussed and decided by 1-Link Board. Documents on record establish that 1-Link required its member banks to incorporate the decision made in its Board meeting regarding increase of off-us ATM cash withdrawal charges PKR.15 to PKR. 20/- in their own schedule of charges issued to their customers biannually. Similarly, 1-Link Committee made recommendation that PKR5.00 may be charged to customers for balance inquiry transaction by its member banks. (v) Finally, the letter sent by 1-Link to SBP on 29 March 2012 to seek clarification from SBP is critical to highlight 1-Link’s role. It demonstrates how 1-Link assumes the role of front runner acting more as association for banks and doing advocacy on their behalf before the regulator with respect to a concern (PKR 15 charged to customers/account holders) which admittedly does not fall within its purview.
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.
The Bench emphasized that in this particular case, the amount of PKR 15 may or may not be a higher charge for customers and more likely it appears to be reasonable rather than unreasonable in terms of international trends. Though the question of such practice and its effect on competition in the relevant market in terms of economic value may be limited; nonetheless, the Bench observed that between the period of December 2004 and November 2010, the number of ATMs on 1-Link network increased from 475 to 4040 showing a remarkable growth of 741% since 2004 and the same implies the cost effectiveness of a financial transaction on a 1-Link ATM and accruing benefits must have increased significantly over this period. The Bench emphasized that it is the horizontal fixing of uniform charges amongst the competitors which has the object of preventing, restricting and reducing the competition, therefore, no need to apply the rule of reason for establishing its anti-competitive effects and it is for this reason it has not been considered a case even eligible for exemption. In this respect the Bench held that “What is important to appreciate is the fact that our intervention is with respect to the aspect of behavior of banks who have acted in a collective manner to charge uniformly their customers for ‘Off Us” ATM cash withdrawal transactions without any effort to take an independent economic decision vis-a-vis a particular product market thus resulting in market fixing. Such conduct is perhaps symbolic in terms of reflecting a pattern and a behavioral trend that does not make this industry competitive vis-a-vis various banking product/services markets. In banking regulation, competition issues seem to have been neglected or overlooked and such behavioral trends prevent more efficient systems to emerge in the banking industry.”
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