UK Regulator imposes fines of £33 million (€40 million) following the conclusion of its investigation into two cartels in the prepaid cards market
Locations
The Payment Systems Regulator (“PSR”) is the regulator which oversees the payment systems industry in the UK and also has concurrent competition powers. The PSR became fully operational on 1 April 2015.
The PSR’s statutory objectives are as follows:
- to ensure that payment systems are operated and developed in a way that considers and promotes the interests of all the businesses and consumers that use them
- to promote effective competition in the markets for payment systems and services between operators, payment service providers (“PSPs”) and infrastructure providers
- to promote the development of and innovation in payment systems, in particular the infrastructure used to operate those systems.
The PSR is charged with a range of strong regulatory and concurrent competition powers to include:
- giving directions to take action and set standards
- imposing requirements regarding system rules
- requiring operators to provide direct access to payment systems
- requiring PSPs to provide indirect access to smaller PSPs
- amending agreements relating to payment systems, including fees and charges
- investigating behaviour that is not consistent with its directions
- acting where it sees anti-competitive behaviour, alongside the Competition and Markets Authority[1]
The recent decision of the PSR relates to a case involving prepaid cards that are used by local authorities to distribute welfare payments to vulnerable members of society, including people without homes, victims of domestic abuse and asylum seekers.
Investigation
The five companies involved in the investigation by the PSR were Mastercard, Allpay, Advanced Payment Solutions (“APS”), Prepaid Financial Services (“PFS”) and Sulion. The PSR opened an investigation in October 2017, following a complaint made by Allpay, which is an electronic money institution.
In February 2018, the PSR undertook an unannounced search of the premises of some of the parties to the investigation.
The PSR issued provisional findings in March 2021. It provisionally concluded that the parties coordinated their commercial behaviour. The PSR found that they shared the market and allocated customers in relation to the supply of prepaid card services used for welfare disbursements to public bodies in the UK. It also found that the prepaid cards operated solely on the Mastercard scheme.
During the course of the investigation, all parties entered into settlement as they admitted to having breached competition law and were willing to agree to a streamlined administrative procedure for the remainder of the investigation.
Decision
Following the conclusion of the investigation, the PSR imposed fines of more than £33 million (€40 million) to the five parties for their participation in the illegal conduct, with Mastercard being fined £31,560,062 (€37.7 million) and PFS nearly £1 million. Allpay was fined £28,553 and APS was fined £755,419 with Sulion being fined £572 for its limited role.
The PSR found that there were two market sharing cartels in the prepaid cards market in violation of the Competition Act 1998.
The first cartel involved all five parties and lasted from 2012 to 2018. This cartel was developed against the backdrop of the National Prepaid Cards Network (the “Network”). The Network brought together public sector bodies who were potentially interested in prepaid cards and Mastercard program managers (“PMs”). The five parties arranged for the PMs not to target or poach each other’s public sector customers who were already in a contractual relationship with another PM.
The second cartel involved APS and PFS and lasted from 2014 to 2016. This cartel involved a separate arrangement between APS and PFS, which was not to target each other’s public sector customers when a contract was up for renewal.
Consequently, public bodies were limited in the choice of suppliers of prepaid card services. In turn, this potentially deprived public bodies of lower prices and better quality for those services.
In response to the decision, the Managing Director of the PSR noted:
“This investigation and the significant fines we have imposed send a clear message that the PSR has zero tolerance for cartel behaviour. We will intervene and enforce the law strictly to ensure there is effective competition in payments markets. This case is particularly serious because the illegal cartel behaviour meant there was less competition and choice for local authorities. This means they may have missed out on cheaper or better-quality products which were used by some of the most vulnerable in society.”
Ongoing investigations
PSF was acquired by EML Payments, an Australian fintech, in 2019. EML’s Irish based PFS Card Services Ireland Ltd subsidiary is currently under investigation by the Central Bank of Ireland on foot of governance, risk and control frameworks as well as regulatory concerns over anti-money laundering compliance. It is understood that the investigation has yet to conclude however the Irish based subsidiary was given permission by the Central Bank of Ireland to sign up new customers with certain restrictions in place.
Comment
This decision of the PSR in the UK marks the first time that the PSR has imposed a financial penalty and shows that the PSR will not hesitate to take enforcement action in order to protect vulnerable customers.
With payment systems ever evolving, the actions of the PSR highlight the important role of financial regulators in maintaining effective supervision of financial firms to prevent abusive behaviour and to ensure a proper and stable financial system as well as offering protection to members of society.
Click here for more information on the work of the Payment Systems Regulator.
Investigation
The five companies involved in the investigation by the PSR were Mastercard, Allpay, Advanced Payment Solutions (“APS”), Prepaid Financial Services (“PFS”) and Sulion. The PSR opened an investigation in October 2017, following a complaint made by Allpay, which is an electronic money institution.
In February 2018, the PSR undertook an unannounced search of the premises of some of the parties to the investigation.
The PSR issued provisional findings in March 2021. It provisionally concluded that the parties coordinated their commercial behaviour. The PSR found that they shared the market and allocated customers in relation to the supply of prepaid card services used for welfare disbursements to public bodies in the UK. It also found that the prepaid cards operated solely on the Mastercard scheme.
During the course of the investigation, all parties entered into settlement as they admitted to having breached competition law and were willing to agree to a streamlined administrative procedure for the remainder of the investigation.
Decision
Following the conclusion of the investigation, the PSR imposed fines of more than £33 million (€40 million) to the five parties for their participation in the illegal conduct, with Mastercard being fined £31,560,062 (€37.7 million) and PFS nearly £1 million. Allpay was fined £28,553 and APS was fined £755,419 with Sulion being fined £572 for its limited role.
The PSR found that there were two market sharing cartels in the prepaid cards market in violation of the Competition Act 1998.
The first cartel involved all five parties and lasted from 2012 to 2018. This cartel was developed against the backdrop of the National Prepaid Cards Network (the “Network”). The Network brought together public sector bodies who were potentially interested in prepaid cards and Mastercard program managers (“PMs”). The five parties arranged for the PMs not to target or poach each other’s public sector customers who were already in a contractual relationship with another PM.
The second cartel involved APS and PFS and lasted from 2014 to 2016. This cartel involved a separate arrangement between APS and PFS, which was not to target each other’s public sector customers when a contract was up for renewal.
Consequently, public bodies were limited in the choice of suppliers of prepaid card services. In turn, this potentially deprived public bodies of lower prices and better quality for those services.
In response to the decision, the Managing Director of the PSR noted:
“This investigation and the significant fines we have imposed send a clear message that the PSR has zero tolerance for cartel behaviour. We will intervene and enforce the law strictly to ensure there is effective competition in payments markets. This case is particularly serious because the illegal cartel behaviour meant there was less competition and choice for local authorities. This means they may have missed out on cheaper or better-quality products which were used by some of the most vulnerable in society.”
Ongoing investigations
PSF was acquired by EML Payments, an Australian fintech, in 2019. EML’s Irish based PFS Card Services Ireland Ltd subsidiary is currently under investigation by the Central Bank of Ireland on foot of governance, risk and control frameworks as well as regulatory concerns over anti-money laundering compliance. It is understood that the investigation has yet to conclude however the Irish based subsidiary was given permission by the Central Bank of Ireland to sign up new customers with certain restrictions in place.
Comment
This decision of the PSR in the UK marks the first time that the PSR has imposed a financial penalty and shows that the PSR will not hesitate to take enforcement action in order to protect vulnerable customers.
With payment systems ever evolving, the actions of the PSR highlight the important role of financial regulators in maintaining effective supervision of financial firms to prevent abusive behaviour and to ensure a proper and stable financial system as well as offering protection to members of society.
Click here for more information on the work of the Payment Systems Regulator.
[1] The principle UK regulator tasked to ensure that markets are competitive and deliver the best deal possible for consumers