COFECE Finds Non-Competitive Practices in Card Payment Processing

The Federal Economic Competition Commission (COFECE) has identified significant barriers to competition in Mexico's card payment processing market carried out by clearing houses. These barriers contribute to the exclusion of vulnerable groups and MSMEs from the financial system due to their inability to afford high commissions, stated COFECE.

In Mexico, commissions paid between banks for card payment system operations average 1.36%. In contrast, European nations have commissions as low as 0.2%. This difference is hampering economic dynamism, discouraging formality and impeding financial inclusion, according to COFECE. The commission has emphasized that access to and use of financial services promote savings, financial planning, formal economic activity and overall economic development.

COFECE determined that the lack of effective competition conditions is primarily due to the excessive market concentration, with only two providers, E-Global and Prosa, and a regulatory framework that favors the status quo. Current regulations make it challenging for new competitors to enter the market and hinder innovation and differentiation of services due to the application of their own operating rules and the establishment of competitive commissions. Furthermore, clearing houses are owned by banks, which also issue cards or provide Point of Sale (POS) terminals, creating structures that could facilitate anticompetitive behavior in related markets.

Considering these findings, COFECE has made several recommendations:

Modification of Regulatory Norms: COFECE recommends that Banxico and the National Banking and Securities Commission (CNBV) modify regulations to ensure interoperability of card payment networks.

Abolishing Consensual Setting of Interchange Fees: To foster competition, COFECE recommends ceasing the consensual establishment of interchange fees (which are part of commissions), so that these fees are no longer uniform for all participants.

Reforming the Fee Determination Formula: COFECE suggests that Banxico and CNBV revise the formula for determining interchange fees, considering factors such as operational system costs, incentives for cost reduction and the promotion of financial inclusion.

Establishing Rules for New Clearing House Systems: Banxico should set rules, mechanisms and protocols for handling information within Clearing Houses to mitigate collusion risks among banks.

Regulating Clearing House Board Members: Banxico and CNBV should consider regulating the requirements and qualifications for members of clearing house boards to prevent their participation in a bank, aggregator, brand holder or another clearing house, which could impact their performance and enable anticompetitive behavior.

Compliance Programs for Market Leaders: Leading players like E-Global and Prosa should develop, implement and disseminate effective compliance programs for the Federal Economic Competition Law. They should also designate a compliance officer to oversee the program.