15 Sep 2015

$18 million penalty for Visa's exclusive dealing in dynamic currency conversion

The ACCC has had a substantial victory in its long-running case against Visa Worldwide over alleged exclusive dealing in breach of section 47 of the Competition and Consumer Act, with the Federal Court imposing an $18 million fine, plus $2 million in costs.

Visa admitted a contravention by exclusive dealing on the brink of the trial, choosing not to contest that part of the ACCC case.

Dynamic currency conversion services

The case relates to Dynamic Currency Conversion services (DCC) which allow purchasers paying by Visa card in a foreign currency to have the cost of transactions converted to, and shown in, their home currency at the point of sale or at an ATM. If DCC is selected the transaction is routed through Visa's system in the cardholders currency and Visa is denied the opportunity to convert the foreign currency at a rate it selects and to charge a fee for that conversion

DCC services compete against Visa's own currency conversion service which applies where a Visa cardholder purchases goods or services in a foreign currency.

The chief advantages of DCC for consumers are:

  • seeing and understanding pricing in foreign countries relative to their home currency;
  • a locked-in exchange rate; and
  • simplified business travellers’ expense accounting.

The price of this convenience may be a different exchange rate than if the transaction had been done in the local currency and then converted “back-office” by payment card networks. The foreign exchange margin can also be applied at a varying rate, depending on the credit card company, DCC provider, payment gateway or merchant, and the DCC charge accrues in addition to any conversion fee or commission.

Visa introduced a "moratorium" in 2010 for a few months which prohibited DCC providers from adding new merchants to their merchant network in Australia, thus stalling the further rollout of those DCC services across the retail sector.

Visa did not make any concession on the part of the ACCC case concerning Visa's policies on currency conversion through ATMs.

Visa did not concede that its actions involved any misuse of substantial market power under section 46 nor that it possessed substantial degree of market power in the Australian payment systems market.

Visa's breaches of section 47

Section 47 prohibits certain exclusive dealing practices that have the purpose or likely effect of substantially lessening competition. Here Visa's admission were only as to an effect or likely effect on competition and not any admission that that was Visa's purpose.

Section 46 has no effect test (at the current time) and requires proof of a purpose to prevent or deter competition, which Visa did not concede.

The ACCC alleged that Visa would only supply multicurrency point-of-sale card services to Australian banks which are "acquirers" of credit card transactions from merchants, on condition that they would not, except to a limited extent, acquire currency conversion services from competing providers of DCC services. The alleged anticompetitive purposes behind the conduct were to prevent DCC from expanding into new merchant outlets such as retail stores. Visa gained foreign currency trading revenue and fees.

On the rationale for Visa's conduct the Court noted there were some legitimate concerns expressed about detriment to Visa cardholders from some DCC providers activities. Nonetheless the Court found it was also clear that the potential loss of revenue to Visa from growth in DCC services was a material concern and a 'motivator' for its rule changes.

For that reason alone, the case is a timely reminder that the Act can catch strategies which reduce competition, even if they are based on a mix of neutral or legitimate reasons as well as a desire to protect revenues and sales against emerging competition.

The Court suggested that there were other ways Visa could have legitimately responded to the issues raised by DCC usage instead of the rule changes which were "somewhat blunt" and "likely to reduce competition"

No discussion of section 46

Because the decision did not deal with the section 46 issue, it does not provide any support or insight into whether Australia's abuse of market power law, section 46, is adequate or requires reform, a matter of some controversy at the current time.  The Federal Cabinet has reportedly deferred consideration of the Harper Committee recommendation to strengthen section 46, in response to a long-running campaign by many critics who argue the law in section 46 is too difficult to apply.

The Harper Committee reform of section 46 would make two major changes:

  • introduce a new "effect of substantially lessening competition" standard into section 46, as an alternative to requiring proof of an anticompetitive purpose; and 
  • remove the requirement to prove that abusive conduct involved a "use" or "taking advantage of" a corporation's substantial market power.

Determination of penalty amount

The Court followed the decision in Director, Fair Work Building Industry Inspectorate v CFMEU that is was not appropriate when proposing admissions of liability, for the parties to submit or propose any particular amount or range of penalty amounts as being the appropriate pecuniary penalty amount or range, or that if they did, it would bind the Court.

In determining the penalty amount, it was relevant to the Court that the Visa payment card network was the largest such network in Australia and that Visa had the power to control and regulate the use of that network by financial institutions.

Further, the Court wished to send a strong message to corporations in a similar position to Visa that they cannot respond to legitimate corporate concerns by imposing conditions on the supply of their services in breach of the Act.

Another consideration in setting the penalty amount was that the parties had reached agreement that Visa's conduct was of mid-range seriousness and by reference to Visa's annual turnover and the maximum penalty set by section 76(1A)(b)(iii), the penalty amount should be towards the top of the mid-range of penalties available.

How does the Visa decision affect you?

When this case began in 2013, we noted the ACCC's increasing willingness to pursue its enforcement goals by litigation where necessary, including against higher-profile international companies, and its increasingly strategic thinking on competition enforcement.

The decision is consistent with other exclusive dealing cases such as Universal Music v ACCC involving firms with a strong market position being found to have acted anti-competitively when pursuing strategies that capped or limited the ability of smaller rivals to expand.

To avoid risks under the Act, companies in a strong market position, as Visa was, and which impose contractual restrictions on their customers' ability to deal with rivals, need to consider the effects of their actions on smaller competitors, and also to ensure that none of the reasons for implementing the restrictive strategy are directed at reducing rivals' ability to compete.

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