JOINT DIGITAL WALLET OF BANKS FOUND ANTI-COMPETITIVE BY TURKISH COMPETITON AUTHORITY
Metin Pektaş, Partner, NAZALI Tax and Legal, Competition Law/Antitrust and Compliance
Turkish Competition Authority (TCA) revoked the individual exemption granted in 2016 to BKM Express, the joint digital wallet service of 13 leading banks, operated by The Interbank Card Center (BKM[1]). TCA also mandated the termination of this application in 60 days after declaration of justified decision. This is a landmark antitrust intervention of Turkish antitrust watchdog, addressing the rising competition concerns in the newly emerging fintech markets in order to ensure a competitive market structure and pave the way for innovative fintech startups to enter the market and operate effectively.
TCA evaluated the business model and operations of BKM Express in detail with respect to requirements of individual exemption set out in the Article 5 of the Turkish Competition Act. Accordingly, any agreement between competing undertakings can be exempted from the sanctions in case they fulfill the terms; (a) ensure new developments and improvements, or economic or technical development, (b) create consumer benefit, (c) do not eliminate competition in a significant part of the relevant market, (d) do limiting competition more than what is compulsory for achieving the goals. These assessments of the authority for each term can be summarized as below:
a. Ensuring new developments and improvements, or economic or technical development:
Though BKM Express provide various technical improvements, these comes true as a result of integration provided by member banks that cannot be achieved by any single payment institution. TCA focus on three improvements:
TCA determined that these 3 improvements arise from cooperation among banks and BKM has the privilege to achieve any required information from the member banks. SMS-OTP of BKM Express is accepted as the equivalent of 3D secure but SMS verification other payment institutions is not accepted as so. That’s why in case of any problem, the related institution has to make the refund. Therefore no economic or technological development specific to BKM Express is found and first condition of exemption is not fulfilled.
b. Benefitting the consumer
BKM listed several consumer benefits such as; free service, transactions without card, transactions with QR Code, choosing easily between system-defined cards and transferring money to other cards. TCA determined that they are not specific to BKM Express, since all other digital wallets could provide these services. Another accentuated point in the case is the consumer perception that the service provided by BKM Express is safer. It is inferred that there is no gauge for safety and this perception arises from structure of BKM as joint service of member banks
c. Not eliminating competition in a significant part of the relevant market
BKM and the member banks are competing undertakings in the market of digital payment services. TCA determined that motivation of member banks to compete will not be strong and member banks will passively depend on consumer choices without any active competitive behavior. Besides banks provide infrastructure services special to BKM that makes market entry difficult. The Board focused on 5 points as difference between BKM Express and other digital wallet services:
Other payment institutions are deprived of efficient integration among banks and this causes market entry barriers and also makes it difficult to compete in the market. BKM has the ability to cross-subsidize this activity by the profits from markets where it has a market power. BKM is able to reach strategic information of member banks within the scope of DEA. Based on these evaluations, TCA comes to conclusion that competition had disappeared in the large part of the market.
d. Not limiting competition more than what is compulsory for achieving the goals:
It is necessary not to limit competition more than what is compulsory for achieving requirements which are listed in Article 5 [sub-paragraphs (a) and (b)] of the Act. As per the evaluations above, BKM Express do not fulfill those requirements. Therefore, the Authority determined that competition is limited more than compulsory.
As a result, TCA found the joint digital wallet service of banks anti-competitive and decided to revoke the individual exemption given in 2016 (TCA Decision - 23.09.2016 16-31/525-236) and mandate the termination of this activity in 60 days (TCA Decision - 30.05.2019, 19-20/291-126). This is a landmark antitrust intervention to ensure competitive structure of the fintech markets.
[1] BKM is a joint venture established by 13 public and private Turkish banks in 1990, for the purpose of dealing with common problems and developing the rules and standards of credit and debit cards in Turkey.