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- Transbank’s monopoly crumbles as rivals take 30 percent market share in two and a half years
- Landmark Supreme Court ruling said Transbank fee structure "far" from good
- Cost of card acceptance set to fall in coming years after regulatory intervention
Following a decade-long battle to open up competition in the card-acquiring market, Chile’s one-time monopoly acquirer has proposed new fee changes and a more market-driven approach from 2024 onwards.
Transbank, Chile’s largest acquirer, is seeking regulatory approval from the Chilean Competition Court (TDLC) for a new fee scheme, after the country’s Supreme Court overturned its previous fee structure.
The changes concern the calculation of the acquirer margin, which is part of the merchant discount rate that merchants pay to the acquirer when they accept card payments.
Transbank’s current acquirer fees are UF0.001302 ($0.059) per transaction for credit cards and UF0.001212 ($0.55) per transaction for debit and prepaid cards.
Under the proposal, the acquirer margin would be calculated by taking a flat fee and a percentage of the transaction. The figures are different for credit and debit cards, and depend on the customer.
For instance, Transbank would charge merchants around $0.023 plus 0.08 percent of the transaction value for a credit card payment, while payment service providers (PSPs) would have to pay $0.015 plus 0.09 percent.
Credit CardsDebit and Prepaid CardsMerchantsUF0.00051 ($0.023) + 0.08%UF0.00050 ($0.022) + 0.22%PSPsUF0.00034 ($0.015) + 0.09%UF0.00034 ($0.015) + 0.22%Card operatorsUF0.00033 ($0.015) + 0.09%UF0.00033 ($0.015) + 0.18%
Starting from October 2024, Transbank has suggested ending the self-regulatory system and instead negotiating the acquirer fee based on a market-driven approach.
Transbank has argued that the proposal makes sense because the card-acquiring landscape has changed significantly since the self-regulatory system was invented almost two decades ago.
In 2021, Transbank almost had a total monopoly, with a 98 percent market share. But by the end of 2022 Transbank’s share had dropped to 80 percent, and is expected to drop to below 70 percent by the end of this year.
According to Transbank, this is a clear sign of the strong competition that it faces from other acquirers and PSPs.
There are currently six card acquirers operating in Chile, with three others awaiting regulatory approval, and 20 PSPs that may too compete with Transbank.
“Transbank has lost close to 15 percent market share, according to the number of transactions settled, in just one year,” the company wrote.
Transbank added that, unlike in 2005, there is no longer a need for such self-regulation, as market conditions back then were “substantially different”.
In an email statement, Transbank said its proposed model is “solid, endorsed by the technical report of the panel of experts, based on economic terms and is consistent with the new circumstances that have developed in the country”.
Chile’s unique system for card payments
For a long time, Transbank operated as the sole acquirer of international cards in Chile.
The company was set up by Chile’s large banks in 1989 and authorised by the competition authority in 1991, on the condition that it would still allow for entry by new issuers and operators.
The company soon became a pioneer in payments innovation, being among the first to bring card acceptance, e-commerce payments, payment gateway services and mobile payments to Chile.
But by the mid-2000s, regulators became wary that the lack of competition had hurt businesses and consumers.
As a long-time monopoly in card acquiring, Transbank was ordered in 2005 to self-regulate its fees based on a set of principles to ensure it does not abuse its monopoly position.
In 2016, this monopoly was eventually broken up when Transbank’s first competitor, Multicaja, entered the market, but new market players could not gain a sizable market share until very recently.
Concerns about Transbank’s monopoly led to several investigations, orders and agreements with the courts, the antitrust watchdog and the Chilean National Economic Prosecutor’s Office (FNE).
In 2020, as a result of these investigations, Transbank agreed to halt any further increases to its acquiring fees.
The company also agreed to move to a four-party model whereby it separates its acquiring role from the issuing role of its owner banks.
However, Transbank’s new fee model and efforts to transition to the four-party model soon came under fire, and last August the Supreme Court ordered Transbank to set up a new fee structure.
Transbank’s fee structure “is far from being one that protects free competition and maximises the well-being of all the players in the payment card system”, judges wrote.
“Quite the contrary, it increases its dominant position in the market, creating incentives to increase rates and put up market entry barriers that prevent new companies from competing effectively.”
The court set out a series of directions on how Transbank should structure its fees, which included that it must set reasonable and non-discriminatory fees that cover its costs but are not so low as to hinder rival firms from entering or operating in the market.
Moreover, the court found that Transbank did not allow for full interoperability between all issuers and acquirers, a key requisite of a well-functioning four-party model.
“At first sight, it is not easy to bring Transbank’s consultation in line with the ongoing proceedings at the Supreme Court and those of the TDLC”, both of which gave directions to Transbank on how to set its fees, Cristián Reyes, senior counsel at Chilean law firm Aninat, told VIXIO.
Additionally, Transbank's position is “categorically contrary” to how the FNE interprets the Supreme Court ruling, Reyes added.
The prosecutor’s office has long advocated for a single 0.40 percent fee for all types of card payments, arguing this level would not lead to “a general increase in fees”.
Card acceptance set to become far cheaper in Chile
The cost of card acceptance in general is expected to drop significantly in the coming years, as a result of two significant regulatory interventions related to the merchant discount rate.
As per an April decision, policymakers capped the interchange fee at 0.8 percent for credit card payments and 0.35 percent for debit card transactions.
The caps, which will come into effect next October, are expected to result in a respective 46 percent and 42 percent decrease in credit and debit card interchange fees.
Additionally, in August last year, the TDLC ordered Visa and Mastercard to make specific changes to their commercial rules and practices to increase competition between the acquirers and PSPs.
The order sets deadlines for the full implementation of interoperability between acquirers and issuers and prohibits the card brands’ "no surcharge" rule and "honour all cards" rule, both of which meant significant costs for merchants.
