Payments regulator steps in to address alleged cartel

Agreement of the settlement is conditional on the UK’s Payment Systems Regulator (PSR) confirming provisional findings it has publicised from an ongoing investigation in which it has scrutinised practices in the market for the supply of prepaid card services used for welfare disbursements to public bodies in England, Scotland and Wales.

The PSR has alleged that market sharing and customer allocation arrangements, in breach of the Chapter I prohibition regarding anti-competitive agreements in the Competition Act 1998, were in place in the market and that this limited the choice of supplier open to the public bodies and “potentially deprived [those customers] of lower prices and better quality for those services”.

Two distinct infringements of competition law in the market are alleged by the PSR at this stage in its investigation.

The first alleged infringement was carried out by Mastercard, allpay and PFS, together with consultancy firm Sulion and another electronic money institution, APS. The alleged anti-competitive conduct centres on the operation of a National Prepaid Cards Network (Network), whose members were the public sector bodies potentially interested in prepaid cards, such as local authorities, and Mastercard’s licensed card issuers known as Mastercard programme managers (PMs). The Network was sponsored and wholly funded by Mastercard.

The PSR has said that, between 2012 and 2018, the companies arranged for allpay, PFS and APS, acting as PMs, “not to target or poach each other’s public sector customers that were in contract with other Network PM or were being provided services through a pilot programme by other Network PM”. The five companies “also colluded to exclusively allocate the leads from Network promotional events between the Network PMs” in the “early days” of the Network, according to the PSR’s provisional findings.

The second alleged infringement involves APS and PFS. The companies are said to have “arranged not to target each other’s public sector customers when a contract was up for renewal, including through a public tender” between 2014 and 2016.

Only Mastercard, allpay and PFS have “admitted that they took part in the alleged anti-competitive arrangement(s)”.

Competition law expert Alan Davis of Pinsent Masons, the law firm behind Out-Law, said there are a number of interesting points arising from the PSR’s investigation and the regulator’s announcement that it has issued a statement of objections in the case.

“First, the decision is notable given that this is the first time that the PSR has exercised its concurrent powers to enforce competition law, at least to provisional decision stage. As this investigation is firmly in the payments sector, it is not surprising that the Competition and Markets Authority (CMA) and PSR determined that the PSR was best placed to undertake the investigation.”

“Second, it is also notable that whilst three parties have agreed to settle the case by admitting liability and agreeing to pay penalties, two other parties have not done so – a so-called ‘hybrid settlement’ case,” Davis said.

“The particular wording of the PSR’s statement that the settling parties would only agree to pay the penalties ‘in the event that the PSR's final decision conclude that there were infringements’ and that the ‘parties now have the opportunity to make representations on the provisional findings’ is slightly unusual as it suggests that  all the parties may respond to the ‘statement of objections’ the regulator has issued. Usually, the settling parties will already have been offered the opportunity to make limited representations on a ‘statement of facts’ at this stage, and would not be able to make representations on the statement of objections. However, it may simply suggest that the PSR wishes to make clear that its consideration of the representations of the non-settling parties will not be prejudiced by the settlements,” he said.

“It also remains possible that the other parties may decide to settle the case at a later stage after the statement of objections. However, should they do so they would receive a lower level of discount than if they had settled at an earlier stage,” Davis said. It has also been reported that allpay brought the matter to the PSR's attention, and may therefore have benefited from a significant reduction in penalty under the CMA's leniency programme.

The PSR’s statement also highlighted the role of Sulion in the alleged cartel arrangement involving all five companies. The PSR said that Sulion’s “key function was to provide services to Mastercard for which Sulion was remunerated” and that the consultancy had set-up the National Prepaid Cards Network in promoting the use of pre-paid cards in the public sector.

Davis said: “Previous cases at UK and EU level have found that facilitators of anti-competitive agreements can be liable and fined for their part in the agreement.”

It is possible that the PSR or CMA could pursue director disqualification proceedings against individual directors at the companies involved in the alleged anti-competitive behaviour if the PSR confirms its provisional findings at the end of its investigation. He said “this is now the CMA’s common practice in such cases”. If local authorities could provide that they suffered loss as a result of the alleged anti-competitive bid rigging agreement, they could in principle bring a follow-on claim for damages, Davis added.