Colombian Agency Charges Visa, Mastercard With Anti-Competitive Cross-Border Payment Restrictions

September 22, 2023
Colombia’s antitrust watchdog has accused Visa and Mastercard of hindering domestic payment aggregators from offering alternative cross-border payment services.

Colombia’s antitrust watchdog has accused Visa and Mastercard of hindering domestic payment aggregators from offering alternative cross-border payment services.

On Tuesday (September 19), the Superintendencia de Industria y Comercio (SIC) announced that it had sent a statement of objections to the global card brands concerning their strategies that may have obstructed the operation of alternative payment service providers in cross-border payments.

The case relates to the so-called “local collection agent” (LCA) model in which a payment aggregator in Colombia partners with a foreign acquiring bank to process payments for foreign sales. 

This model allows Colombians to make online purchases or pay for subscription-based services with a payment card issued in Colombia without the need for an international card.

Subscription giants such as Netflix and Spotify are typically paid under this model, the regulator said in a previous document issued in this case.

The SIC argues that payments processed via the LCA model are cheaper because the payment information could go through various local payment processors, not only through the card networks, and because merchants pay a domestic interchange fee instead of an international one.

The LCA model also has the advantage of enabling Colombian consumers to access products and services from foreign businesses as they can pay in Colombian pesos and choose the number of instalments they wish to pay.

As this new type of model gained traction, Visa and Mastercard started to send banks communications urging them to stop partnering with foreign businesses using the LCA model.

Banks that wished to use local agents for cross-border payments were instructed to do so via Visa’s Expanded Merchant Location Program (EMLP) and Mastercard’s Payment Intermediary Foreign Exchange Operators (PIFO) scheme, which charged higher costs for processing card payments.

Visa and Mastercard said these schemes are intended to fix distortions in the market and prevent bad actors from taking “unfair advantage” of treating a payment as a lower-risk domestic transaction instead of an international one, as reported by Vixio. 

Now the SIC alleges that the new programmes were designed to hinder the business model of payment aggregators, threatening their viability and distorting competition. 

The agency also said that the communications sent to the banks could have an exclusionary effect.

“As banks would be crucial allies for payment aggregators, the communications sent by Visa and Mastercard would have been ideal to prevent the aggregators from operating in the market,” according to the SIC.

The case stems from complaints filed by payment aggregators DLocal and PayU and follows regulatory measures adopted last July prohibiting Visa and Mastercard from requiring banks to use the EMLP and PIFO schemes to process LCA transactions. 

The SIC noted that should it find a breach, the card networks could face a fine for as high as 116bn Colombian pesos ($29.5m) for each infringement, while any individual who “had facilitated, authorised, executed or tolerated the anti-competitive conduct” could be fined up to 2.32bn Colombian pesos ($600,000).

Vixio reached out to Visa and Mastercard for comment but did not receive a reply by the time of publication.

New market players specialising in alternative cross-border payment services started to flourish in many Latin American markets during the COVID-19 pandemic.

As the tension between the card brands and these new market players has intensified, the issue has drawn the attention of regulators in other countries in the region as well.

As reported by Vixio, Chile’s central bank proposed new regulations in July with a view to bringing cross-border card acquiring under its regulatory perimeter.

The draft rules would legitimise cross-border acquiring, another alternative payment model in which the foreign merchant or business partners directly with a Chilean acquirer to accept payments.

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