CN07 - ACCC authorises amalgamation of payment service providers BPAY - eftpos and NPPA

On 9 September 2021, the Australian Competition and Consumer Commission ("ACCC") authorised the proposed amalgamation of three payment service providers, BPAY Group Holding Pty Ltd ("BPAY"), eftpos Payments Australia Limited ("EPAL") and NPP Australia Limited ("NPPA"), subject to a court enforceable undertaking (the "Undertaking"), provided by the amalgamated entity's holding company, Australian Payments Plus Ltd ("AP").

Key takeaways

• The ACCC authorised the amalgamation of payment service providers BPAY, eftpos and NPPA. This is only the ACCC's third merger authorisation determination, despite the process being available since 2017.
• The merger authorisation process enables parties to seek authorisation of proposed transactions that may substantially lessen competition, on the basis that they result in net public benefits. Nonetheless, in this authorisation process, a court-enforceable undertaking was offered to address competition concerns (a common feature of informal clearance applications for transactions that raise concerns).
• Unlike the informal clearance process, the merger authorisation process is time bound – the ACCC must make a determination within 90 days, unless the applicant agrees to an extension. In this case, the ACCC issued its determination following a 6-month public review.
• The ACCC's review of the proposed amalgamation of BPAY, EPAL and NPPA illustrates the burdensome and unpredictable nature of the authorisation process.

The proposed amalgamation

In March 2021, Industry Committee Administration Pty Ltd (the "applicant") sought merger authorisation from the ACCC to amalgamate ownership of BPAY, EPAL and NPPA under AP+, a new entity.  The three companies provide various payment services to Australian businesses and consumers: an electronic bill payment service by BPAY, an electronic platform for point-of-sale payments between customers and merchants known as "eftpos" by EPAL, and open access real-time payments infrastructure by NPPA.

Importantly, there is a degree of common ownership across the payment schemes; the four major Australian banks - Australia and New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited and Westpac Banking Corporation (together, the "major banks") - each possess a significant interest in the payment services provided, and will continue to do so after the amalgamation.  This interest in, and influence over, the payment services was a key consideration in the ACCC's competition analysis.

The authorisation process

In this case, the lengthy authorisation process involved the following steps:

• 18 March 2021: the applicant submitted an almost 200 page application, accompanied by 97 annexures, seeking authorisation for the proposed amalgamation. The application claimed that the amalgamation would not substantially lessen competition in any market, and was expected to deliver a number of public benefits, without any discernible public detriments;
• 30 March 2021: the ACCC commenced its market inquiries;
• 4 June 2021: the ACCC issued its statement of preliminary views, stating that it was not satisfied the amalgamation would not result in a substantial lessening of competition, and while the amalgamation was likely to result in some public benefits, the extent and significance of those benefits was unclear;
• from June 2021 to August 2021: the ACCC sought, and the applicant provided, further information in relation to the proposed amalgamation;
• 5 August 2021: the applicant offered a draft court-enforceable undertaking under s 87B of the Competition and Consumer Act 2010 (Cth) that included behavioural commitments relating to the availability of eftpos and least cost routing ("LCR"), to the address the ACCC's concerns on this issue;
• 9 September 2021: the ACCC issued its determination granting authorisation for the proposed amalgamation and accepting the Undertaking from AP+; and
• 30 September 2021: Australian fintech company, Controlabill, filed an application to the Australian Competition Tribunal for review of the ACCC's merger authorisation decision. Controlabill submits: (i) that the amalgamation will allow AP+ to infringe Controlabill's patents regarding management of customer-authorised payments, by centralising customer authorities in the same manner covered by the existing patents; and (ii) that the amalgamation "embeds NPPA with price-competitive parties and enables cross-subsidisation of revenues and costs that enable anti-competitive conduct". Controlabill has until 12 November 2021 to serve submissions and/or evidence to support its application, and the application will be listed for hearing on 6 December 2021. This is the first application to the Tribunal since the merger review process changed in 2017 to make the ACCC responsible for all merger approvals at first instance.

Throughout the authorisation process the ACCC took into account over 70 submissions received from interested parties, including competitors, relevant industry associations, academics and the Reserve Bank of Australia ("RBA").

While financial institutions tended to be supportive of the amalgamation on the basis that it would be pro-competitive and the claimed public benefits would be realised, stakeholders such as Mastercard and the Council of Small Business Organisations believed the amalgamation would have long-term anti-competitive effects on the Australian payments market. 

The ACCC's analysis 

The authorisation test

In order to grant an authorisation, the ACCC must be satisfied, in all circumstances, that:

• the proposed acquisition would not have the effect, or would not be likely to have the effect, of substantially lessening competition ("competition limb"); or 
• the proposed acquisition would result, or be likely to result, in a benefit to the public and that benefit would outweigh the detriment to the public that would result, or be likely to result, from the proposed acquisition ("net public benefit limb").

Competition limb

The ACCC was satisfied in all the circumstances, including its acceptance of the Undertaking from AP+, that the amalgamation would not, or would not be likely to, substantially lessen competition, in any market.  

The key aspects of the ACCC's competition analysis included:

Likely effect of the amalgamation on the future availability of eftpos and LCR

In the absence of the Undertaking, the ACCC identified a risk that the proposed amalgamation may substantially lessen competition in the market for routing of debit card payments.  EPAL's independent eftpos service (the only domestic debit card scheme) plays an important role in maintaining competition in the routing of debit card payments by providing LCR, a viable low-cost alternative to similar debit schemes offered by Visa and Mastercard.  The ACCC was concerned that the mixed incentives of the major banks to support eftpos and make LCR available to their customers, and the ability of the major banks to materially affect AP+'s investment decisions, may diminish the role of eftpos in Australia with the amalgamation.  To address these concerns, AP+ offered the Undertaking which imposes obligations on AP+ to support eftpos through a variety of behavioural measures, including a commitment to do all things in its control to make available and promote LCR for at least four years.  The ACCC concluded that, with the Undertaking, the amalgamation was unlikely to result in a substantial lessening of competition in relation to the routing of debit card payments.

Softening of competition between certain payment services

The ACCC considered that the amalgamation would likely soften but not substantially lessen competition between the payment services.  While several areas of "potential overlap" between BPAY, EPAL and NPPA were identified in the analysis (e.g. point of sale payments), the parties' core offerings were not in direct competition and were not key competitors of each other.  Rather, the payment services were mostly "complementary", and their overlap typically involved fringe components of each business.  

Loss of potential competition between BPAY, EPAL and NPPA to supply new services 

The ACCC considered that the amalgamation would reduce incentives for BPAY, EPAL and NPPA to compete to bring new innovations to the market, and this would likely result in some lessening of competition, but concluded that this risk was mitigated by the following factors:

• in the context of the relevant markets, competition will continue to be provided by Mastercard and Visa and the threat of entry by international tech companies like Apple or Google; and
• with or without the amalgamation, the major banks (who are highly influential in determining whether a domestic payment service offering successfully achieves scale) would be reluctant to support multiple payment service initiatives with overlapping use cases.

Likely effect of the amalgamation on third party access to the New Payments Platform ("NPP")

The ACCC considered that the amalgamation was unlikely to materially change third party access to the NPP (open access infrastructure used to facilitate real-time payments between bank accounts within Australia).  While the ACCC acknowledged that post-amalgamation AP+ would control multiple payments infrastructure and have some ability to foreclose third party access to the NPP, it was satisfied that there remained significant regulatory constraints (including RBA intervention) to limit AP+'s ability and incentive to deny access. 

Net public benefit limb

While it was not necessary for the ACCC to apply the net public benefit limb of the authorisation test, the ACCC considered that the amalgamation was likely to result in some public benefits, and that the public benefits would likely outweigh any likely detriment arising from the amalgamation, including from any lessening of competition.

Implications for future merger authorisation applications

This is only the third merger authorisation granted by the ACCC since the process became available in November 2017.  Interestingly, although the ability to take into account public benefits is one of the key advantages of the merger authorisation process, all three merger authorisations so far have been granted under the competition limb of the authorisation test.  The ACCC was satisfied that AP Eagers' acquisition of Automotive Holdings Group (subject to a s87B divestment undertaking) in July 2019, and Gumtree's acquisition of Cox Australia Media Solutions in April 2020, were not likely to substantially lessen competition in any relevant market. 

Unlike the previous authorisations, however, the 6 month process for the AP+ amalgamation significantly exceeded the statutory time limit of 90 days (subject to the applicant agreeing an extension).  This recent authorisation decision illustrates the burdensome and unpredictable nature of the authorisation process.  Parties should expect close scrutiny of public benefit arguments, and be prepared to offer behavioural or divestment undertakings to obtain a favourable determination.

For a comprehensive comparison of the benefits of the informal merger clearance and authorisation processes in Australia, see our Merger Control Review 2020 chapter.

With thanks to Jessica Apel and Veronica Murdoch of Ashurst for their contribution.