The Banking World Confronted by New Competition Law Issues: Do network effects and essential facilities apply to the banking sector?


Banking services rely on the use of networks, whether technical (infrastructure to carry out electronic payments for instance) or more “material” (bank agencies) in nature. Banks have thus developed competing or converging networks which form the underlying basis of access to their commercial partners and clients.

That situation may be compared to that prevailing in the telecommunications industry, where the liberalisation of the sector brought to light the importance of the strategic economic strength derived from network running. More so, a significant part of the competition issues that arose in the telecoms sector were linked either to the conditions on which new entrants could obtain access to an existing infrastructure, or the possibility of them developing their own businesses when faced with an incumbent enjoying significant market presence, whether by means of its network of agencies or its vast technical infrastructure. One of the key issues in this respect was therefore to determine the conditions under which a new entrant could claim and gain access to an existing infrastructure.

Could access to networks in the banking world trigger analogous questions, even when the existence of such networks derives from the development of oligopolies and not, as in the telecommunications sector, from former monopolised markets opened up to competition?

It could well be the case, as underlined by M. Monti, in a speech of December 2002[1] where he mentioned that the “right of access” to “electronic platforms is a recurrent topic in the competition analysis”. This issue of the right of access, or of the conditions thereof, is now under close Commission scrutiny, as shown by the recent Visa International decision. Financial conditions for access to the banking infrastructure in France are currently under the Commission’s scrutiny, in an investigation it launched into access to the national French banking cards grouping.

Indeed, on 3rd April 2003, the European Commission published a so-called “Carlsberg Notice”, inviting third parties to provide comments on a notification made by the French Banking Cards Group (the “GIE Cartes Bancaires, hereinafter the “French CB Group”) for negative clearance or exemption.

In substance, in that notification, the French CB Group submitted for the Commission’s appraisal, the modification of the financial contribution imposed upon members for their participation thereto, in particular by substantially increasing the fees to be paid by members who decide to focus their development on the issuing of CB banking cards (withdrawal or credit) rather than on the ‘acquisition business’ i.e., development of the acceptance of the CB cards by new commercial partners and merchants.

This shift in the calculation of the financial contributions is based on the dichotomy between the use and the development of the CB network. In this respect, it should be recalled that the CB network implies the setting up of a technical infrastructure, relating banks, retailers, cash points and, ultimately, customers, which results in a CB card, issued by a member of the French CB Group, being accepted by all participants in the network. Thus, the CB Group considered, under the very terms of the short presentation made by the Commission in its communication, that the acquisition activities “create more positive externalities than issuing activities do” and consequently, that members who do not participate actively in their development should compensate for it financially.

Such analysis of the network value – as presented by the French CB Group – actually seems to implicitly refer to the 2002 Commission Visa decision[2]. Indeed, in that decision, the Commission considered that the Visa network, was, like any other network, characterised by so-called “network externalities”. In other words, the more merchants in the system, the greater the utility to cardholders and vice-versa. The maximum number of users in the system will be achieved if the cost to each category of user is as closely equivalent as possible to the average marginal utility of the system to that category of user. However, the Commission did not mention, contrary to what the CB Group seems to be claiming, that one of the activities created “more externalities” than the other.

More importantly, the Commission also considered that the Visa network entitled banks to provide a service that they could not provide individually. It therefore seems that the Visa network was close to being considered as an essential facility, even though the term is not explicitly mentioned in the decision[3]. In this respect, it should be recalled that an essential facility is “a facility or infrastructure without access to which competitors cannot provide services to their customers”[4]. That qualification has important competition law consequences, because an undertaking (or group of undertakings) holding such a facility must allow access thereto, at a cost-oriented price, unless there is an objective justification for that refusal, such as lack of capacity of the infrastructure in question. Any decision to the contrary could actually allow the facility owner to block the emergence of a potential new service or product, or impede competition on a (existing or potential) product or service market.

Therefore, one of the issues currently arising in the banking sector is to determine whether competition law should be used to regulate access to banking infrastructures, and whether such infrastructures could actually be considered as essential facilities. Should this be the case, is competition law the most appropriate tool to do so, since the banking sector is actually regulated by an autonomous set of rules and institutions?

That question of the competing jurisdictions of competition authorities and sector authorities arose in France, in the Credit Lyonnais / Crédit Agricole merger, concerning another form of network which is the one made up by each bank’s agencies. In that case, in substance, the Committee of Credit Institutions and Investment Companies (in French, the “Comité des établissements de crédit et des entreprises d’investissement” or “CECEI”) had authorised the merger between the two banking groups, conditional on the divestment of 87 agencies, and an obligation on the new entity not to increase its number of agencies during a period of two years.

On appeal, the highest administrative court in France (the “Conseil d’Etat”) had to determine who the competent authority to appraise the matter was. Should it be the Minister of Economy, who has this power for mergers arising in other sectors, or the CECEI, who is the ruling authority for the banking institutions?

Upon examination of the French regulation, the Conseil d’Etat opted, last May, for the latter. However, the Conseil d’Etat noted that the exclusion of the jurisdiction of the Ministry of Economy did not entrust the CECEI with powers enabling it to impose upon banking undertakings, conditions to maintain or restore competition, as the CECEI is not an authority designed to appraise the proper functioning of competition in the banking sector. The Conseil d’Etat thus annulled the conditions imposed by the CECEI. It merely took note of the loophole in the French legislation, which had placed the banking sector outside of the general rules applicable to mergers, while not fixing at the same time any specific rule enabling any authority to ensure for the competition regulation of the sector.

As a result, the network effects of banking infrastructures may be governed by competition law, which may even go as far as requiring their availability for new entrants as well as regulating the price for their access, whilst the network effects resulting from the developing of agencies would - at least in France, as far as mergers are concerned - fall outside competition law. Such a difference of treatment, according to the type of infrastructure at stake or according to the type of procedure, is obviously tricky from a competition law standpoint.

[1] Prof. Mario European Commissioner for Competition Policy. The integration of European capital market infrastructures and competition law – Association of Private Client Investment Managers and Stockbrokers (APCIMS), Brussels, 5 December 2002.

[2] Commission decision of 24 July 2002, Case n°COMP/29.373 – Visa International – Multilateral Interchange fee, OJ n°L.318 of 22/11/2002, p.17.

[3] Contrary to the French Competition Council Decision n°88-D-37 of 11 October 1988 relating to the French CB Group, which expressly stated that affiliation to the Group made access of any credit institution in France to the banking cards market subject to using the inter-bank withdrawal and payment network, covering the entire French territory.

[4] B&I Line plc v. Sealink, Commission decision IV/34.174, [1992] paragraph 41.