In what some are appropriately calling a "sea change"
in the Canadian credit card industry, the Competition Commissioner
has formally announced that the Competition Bureau will no longer
oppose duality of membership in credit card networks that operate
in Canada. This announcement was made in a letter issued in
November, 2008 to Canada's major credit card issuing banks and
financial institutions, credit card networks and other interested
Until recently, Canadian credit card issuers had to choose
between a membership in Visa or MasterCard, being the two major
credit card networks in Canada, while merchant acquirers and
processors of credit card transactions had to utilize innovative
and sometimes complex and costly sponsorship arrangements in order
to acquire and process both Visa and MasterCard transactions. Until
relatively recently, Visa had a formal by-law that prevented
duality in Canada. MasterCard still has in place a competitive
programs policy that prohibits duality in Canada with schemes in
competition with MasterCard.
Over the last couple of years, Visa and MasterCard have changed
their organizational structure from member associations to publicly
traded companies. Under the prior structures, the concern had been
that if an issuer or acquirer were a member of both associations,
then it would be possible to simultaneously influence the corporate
governance and competitive decisions of both associations.
The Commissioner's Announcement
With the new ownership structures, in the words of the
Commissioner, "the Bureau is no longer concerned that there is
a potential for a member, or group of members, of one credit card
network to negatively influence the competitive operations of
another card network through dual governance." As a result,
the Commissioner has stated that the Competition Bureau will not
bring an enforcement action under the Competition Act
against any credit card network, issuer or acquirer, who
simultaneously enters into agreements in respect of multiple credit
card brands or networks.
Recent Duality Development
Interestingly, JPMorgan Chase Bank, N.A. became a member of Visa
in Canada in August of 2008, well in advance of the release of the
Commissioner's letter and despite the existence of the
MasterCard policy. JPMorgan has been a member of MasterCard in
Canada since its purchase of the Sears credit card business a few
years ago. Accordingly, it was thought that the MasterCard
competitive programs policy would have prohibited it from becoming
a member of Visa in Canada.
Prior to this there have been instances of duality within the
same ownership group. For example, in 2005 Bank of America, N.A. (a
Visa issuer in Canada) purchased the parent of MBNA Bank Canada (a
MasterCard issuer in Canada). However, these instances were always
on an exceptional basis and did not involve the same legal entity.
It has been rumoured that another Canadian bank that is a member of
MasterCard has also become a member of Visa this past summer, but
this has not yet been confirmed publicly. Accordingly, although the
details surrounding this development remain murky, what is clear is
that JPMorgan's membership in both Visa and MasterCard is the
first instance of true duality in Canada.
Competition Bureau's New Focus
In light of the Commissioner's announcement, the Competition
Bureau's focus has shifted to how payment system networks might
affect competition. The Commissioner has indicated that the
Competition Bureau will be concerned and may take enforcement
action where competition is affected in the following
Where a major or dominant payment systems network induces an
issuer or acquirer to deal with that network in a way that is
likely to "substantially lessen" competition.
Where the governance structure of a payment systems network
permits one or more issuers or acquirers to "materially
influence" the decisions of more than one credit card
What Lies Ahead
Given this new announcement from the Commissioner, and the
earlier repeal of Visa's by-law that precluded duality in
Canada, it is widely expected that MasterCard will repeal its
duality prohibition. With such repeal, it will indeed be smooth
sailing ahead for duality in Canada. Issuers and acquirers will
have wide-open seas to create new relationships and introduce
innovative products. In addition, with the right political climate,
bank mergers that may once have been called into question on the
basis of duality restrictions, will now be able to proceed without
impediment on this basis.
As always, BLG will be there with our clients to assist in
taking advantage of the new opportunities that are now
The Commissioner of Competition addressed innovation, enforcement and policy initiatives at the Competition Bureau in his keynote speech, "Strengthening Competition: Innovation, Collaboration and Transparency."
Used car listing website operator CarGurus Inc.'s attempt to force rival Trader Corporation to supply it with vehicle listing data has encountered a dead end as the Competition Tribunal denied it leave to commence a private application under several provisions of the Competition Act.
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