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Australia’s consumer watchdog has opened a Federal Court case against Mastercard, accusing the payments giant of attempting to reduce competition in the supply of debit card acceptance services.
According to the Australian Competition and Consumer Commission (ACCC), Mastercard’s anti-competitive behaviour allegedly began in late 2017, when the Reserve Bank of Australia (RBA) launched its least-cost routing initiative.
In Australia, debit cards are typically dual-branded with eftpost, a local debit card scheme, alongside Visa or Mastercard.
Through least-cost routing, the RBA aimed to increase competition in the supply of debit card acceptance services and reduce costs for merchants accepting cards, by allowing them to choose the lowest-cost network (i.e. eftpos) to route their transactions.
In October 2021, the RBA said in its Review of Retail Payments Regulation that least-cost routing, while currently available for all in-person transactions, will be made available for all online transactions by the end of 2022.
The ACCC alleges that Mastercard used its market power to enter agreements with more than 20 major retailers — including supermarkets, fast food chains and clothing stores — to distort the market in Mastercard’s favour.
According to the agreements, these businesses would allegedly receive discounted interchange rates for Mastercard credit card transactions, in return for processing all or most of their Mastercard-eftpos debit card transactions through Mastercard rather than eftpos.
“We allege that Mastercard had substantial power in the market for the supply of credit card acceptance services and that a substantial purpose of Mastercard’s conduct was to hinder the competitive process by deterring businesses from using eftpos for processing debit transactions,” said Gina Cass-Gottlieb, chair of the ACCC.
“We are concerned that Mastercard’s alleged conduct meant that businesses did not receive the full benefit of the increased competition that was intended to flow from the least-cost routing initiative.
“Reducing costs for businesses enables them to offer their customers better prices. Making sure the major card schemes — Mastercard, Visa and eftpos — compete vigorously is important for both those businesses and their customers.”
The ACCC said that promoting competition and investigating allegations of anti-competitive conduct in financial services — and especially in the payment systems sector — is one of its top priorities.
Cass-Gottlieb added that the case demonstrates the ACCC’s heightened interest in addressing competitive harm caused by exclusive arrangements pushed by firms with market power.
Responding to the allegations, a Mastercard spokesperson told VIXIO: “We are reviewing the proceedings filed by the ACCC this morning and are disappointed that this has reached the point of litigation.
"For several months, we have been in close contact with the commission, and will continue this engagement, defending our actions to innovate and compete in Australia’s payments market.”
Legal basis
The ACCC alleges that Mastercard’s actions constitute a breach of the Competition and Consumer Act 2010.
The act outlaws conduct by any business with substantial market power that has the purpose, effect or likely effect of substantially lessening competition in a relevant market.
In court filings seen by VIXIO, the ACCC noted that Mastercard debit cards and credit cards are accepted by a significant proportion of merchants throughout Australia, and that almost all Mastercard debit cards are dual-network cards that can be processed using either the Mastercard or eftpos debit card network.
Mastercard credit cards are also a “must have” form of payment for Australian merchants, given their ubiquity among cardholders and their widespread acceptance by other merchants.
Based on the evidence it has gathered, the ACCC clearly feels that by offering credit card discounts in order to benefit its debit card processing, Mastercard is lessening competition.
For example, the ACCC notes that eftpos' operating company, Eftpos Payments Australia Limited (EPAL), could not compete with similar discounts because it did not offer credit card acceptance services.
EPAL was the only supplier other than Mastercard of debit card acceptance services for dual Mastercard-eftpos debit cards.
There is also some precedent for ACCC’s actions. In March 2021, Visa was caught in similar hot water after being accused of offering “strategic merchant rates”.
After an investigation Visa accepted a court-enforceable undertaking, but made no admission of any breach of competition law.
As with Mastercard, the ACCC’s complaint against Visa focused on its offering of discount interchange fees to larger merchants, in exchange for routing dual-network debit card payments through the Visa network.
“Visa’s undertaking means that it cannot offer strategic merchant rates for credit card payments to merchants on condition that the merchant processes debit card payments through the Visa network,” Rod Sims, then chair of the ACCC, said at the time.
The undertaking also ensured that merchants could make decisions about which debit card network processes Visa-branded dual-network debit card payments, without Visa increasing the cost of processing their Visa credit cards payments as a consequence.
“Australian consumers use debit cards every day when buying goods or services, and COVID-19 has accelerated the transition from cash to card payments,” said Sims.
“With this in mind, the importance of competition in card acceptance markets is vital to both merchants and consumers alike.”
ASIC comes for ANZ
Visa and Mastercard are not the only financial service firms to be under closer scrutiny in Australia.
On Monday (May 30), the Australian Securities and Investments Commission (ASIC) said it has commenced civil penalty proceedings in the Federal Court against Australia and New Zealand Banking Group (ANZ).
ASIC alleges that ANZ overstated the available funds and balances customers had on their credit card accounts, and charged fees and interest to customers who relied on this information when making withdrawals.
According to ASIC, the alleged misconduct is the result of "system errors" made between May 2016 and September 2021.
These errors allegedly misled customers to believe their credit card balance and available funds were in credit, and that the balance would be available to withdraw from without incurring fees or interest.
