Arion Bank and the Icelandic Competition Authority (ICA) have reached a settlement concerning the structure of the payment card system. The system was established more than 30 years ago and was based on a European model. The time period under consideration was from 2007 to 2009. The central issue in the settlement concerns changes to the way in which interchange fees, which card companies pay to the banks, are decided and the awarding of customer loyalty points. Under the settlement changes will also be made to the ownership structure of card companies and Arion Bank will moreover pay a fine of ISK 450 million.
Arion Bank has already implemented the agreed changes
Arion Bank has made changes to its agreements with Valitor and interchange fees are now decided in bilateral agreements between the companies. Arion Bank has also amended its agreements on customer loyalty points. Arion Bank has thus responded to the ICA’s criticisms and made the appropriate changes to its business agreements.
Arion Bank acquires Landsbankinn’s 38% stake in Valitor
Arion Bank has also signed a purchase agreement with Landsbankinn hf. on the acquisition of Landsbankinn's 38% stake in Valitor Holding hf, the parent company of Valitor hf. The acquisition price is ISK 3.6 billion. An additional payment by Arion Bank may be made at a later date in connection with Visa Europe’s option on Visa Inc. The decision to exercise the option rests not with Arion Bank but with Visa Europe, and it is therefore uncertain if and when such a payment would be made and how much it would be.
Following this transaction Arion Bank owns 98% of Valitor Holding hf. while Landsbankinn is no longer a shareholder in the company.
Valitor a vital part of Arion Bank's strategy and future vision
Valitor has been a subsidiary of Arion Bank for many years and is a vital part of the Bank’s strategy and future vision. Offering a wide range of card services is an important part of Arion Bank’s business and the Bank will continue to focus on payment cards from Visa as well as MasterCard, both in partnership with Valitor.
Arion Bank has great confidence in Valitor, which has been a driving force behind the development of a strong and reliable payment card system in Iceland. Valitor has also established itself internationally and the future is therefore exciting for the company.
Similar changes to the system abroad – fines generally not issued
The Icelandic payment card was set up according to a European model around 30 years ago. The system has been open to scrutiny for 30 years, and the way in which interchange fees are determined has not attracted any formal criticism from the authorities until now. The competition authorities in many countries are resolving cases in a similar way as in this country, i.e. concerning changes to payment card systems and the lowering of interchange fees. The European Union has also made proposals aimed at establishing maximum interchange fees. Arion Bank can understand the criticism made of the way the system is organized. The system in some ways reflects the time when it was developed and a lot has changed since it was set up in terms of technology, the distribution and use of cards and the size of the companies issuing them.
In Iceland the people who developed the system, in banks and card companies, did so in good faith, believing that they were working in accordance with laws and regulations, and Arion Bank would have preferred to have negotiated changes to the system without fines being issued. It was hoped that this could be achieved when the Bank approached the ICA to open discussions but this was not to be. The outcome in this respect differs from what has occurred in most of Europe where parties have agreed to make largely similar changes to the payment card system as in Iceland, without incurring fines.
The Icelandic payment card system is efficient and widely established
The payment card system in Iceland is very well established and has been successfully developed. In this country approximately 80% of turnover is conducted with payment cards, a higher proportion than in other countries. The reason for this is that in Iceland it has been possible to develop a simple and effective system where payment cards are accepted by virtually all sellers of goods and services. In Iceland it is generally not the custom to add a surcharge if paying with a credit card as is the case in some places abroad. The cost to the consumer is usually included in the price of the goods, in the same way as the handling cost of notes and coins. Cardholders also enjoy interest-free credit for up to 40 days. The great flexibility of the Icelandic system is also beneficial to merchants – special card periods spread the load on shops. Security is general first rate, both for merchants and consumers.
Consensus on the structure of the payment card system
With the changes introduced now to interchange fees, customer loyalty points and the ownership structure of card companies a consensus has been reached on the structure of the payment card system in Iceland.
For further information please contact Haraldur Gudni Eidsson of Arion Bank's Communications division at haraldur.eidsson@arionbanki.is, or tel. +354 856 7108.