Israel's two largest banks, Bank Leumi and Bank
Hapoalim, are now officially compelled to divest their credit card
businesses - Leumi Card and Isracard – and the engines are
warming up on these sales.
Last week, on January 23rd 2017, the Israeli parliament passed
the "Strum Law"1, obligating Israel's two
largest banks, Bank Leumi and Bank Hapoalim, to divest their credit
card businesses, namely Leumi Card (80% held by Leumi) and Isracard
(99.5% held by Hapoalim). These two payment card companies are the
largest players in the Israeli payment card market and dominate
approx. 76% of the payment card market in Israel (Isracard circa
50% and Leumi Card circa 26%).
According to the Strum Law, in order to enhance competition,
large Israeli financial and non-financial institutions and
corporations are prohibited from purchasing these payment card
companies, which in turn promotes and encourages the entrance of
foreign players such as PE funds and foreign financial participants
(until now prohibited from doing so) to compete for the acquisition
of such businesses.
Bank Leumi and Bank Hapoalim are each required to divest their
credit card companies within three years. An additional year is
granted if at the end of three years, the credit card company is
taken public with a free float of 25% in public hands, and no more
than 40% remains held by the bank. Following the sale, Leumi and
Hapoalim will be prohibited from engaging in merchant acquiring
(clearing) transactions and from providing credit cards issuance
processing (but will be allowed to offer and issue credit cards to
their clients, set the rate of card issuance and usage fees and
provide credit card holders with credit).The banks will be entitled
to acquire clearing and issuance processing services from the
credit card companies and will not be allowed to engage exclusively
with one credit card company.
Credit card companies will be entitled to offer the banks'
clients their own credit cards and the banks will only be allowed
to offer the issue of new credit cards to existing clients within
45 days prior to the expiration date of a card (subject to certain
exceptions). Bank Leumi and Bank Hapoalim are required to reduce,
within the period of four years, the amount of credit provided
through credit cards to 50% of the amount provided by them in 2015
(such limitation will be removed at the end of 2023).
The regulator of the credit card companies will be the central
bank (Bank of Israel), which has announced significant reliefs to
credit card companies and their controlling shareholders, as
opposed to the regulatory regime applicable to banks and their
A key element in these sales that will require close attention
on the part of the selling banks will be the commercial
arrangements to be put in place with the credit card companies
going forward. It is expected that a primary objective of the
selling banks will be to secure a long term cooperation agreement
with respect to an entire host of issues, including clearing and
card issuance processing services to the banks, provision of credit
by the banks to the credit card companies, use of information and
distribution of cards by the banks. This, no doubt, will add a
layer of complexity to the transactions and highlight not only the
price but the full package of terms.
1. The enhancement of competition and limitation of
centralization in the Israeli banking market (Legislative
Amendments) Law, 2017
Originally published February 2nd, 2017
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The new UAE Federal Competition Law (Federal Law No. (4) of 2012) has been published in the Official Gazette and will come into force on 23 February 2013, following its enactment on 23 October 2012.
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