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You are here: Home topics Competition Antitrust: EU Commission fine for Visa for refusing to admit Morgan Stanley as a member – frequently asked questions

Antitrust: EU Commission fine for Visa for refusing to admit Morgan Stanley as a member – frequently asked questions

03 October 2007
by eub2 -- last modified 03 October 2007

The European Commission on 3 October 2007 fined Visa EUR 10,200,000 for a serious infringement of the EC Treaty and EEA Agreement rules on restrictive business practices (Article 81 of the EC Treaty and Article 53 of the EEA Agreement). From March 2000 to September 2006, Visa refused to admit Morgan Stanley as a member without an objective justification. The Commission found that the exclusion of Morgan Stanley from Visa membership restricted competition in the provision of credit card acceptance services to merchants in the United Kingdom. Morgan Stanley had concrete plans and expertise to contribute to more efficient competition and generate positive effects on prices and the quality of service in a highly concentrated market.


How does this decision fit with the construction of SEPA, the Single Euro Payments Area?

SEPA is an industry initiative that aims at ensuring that the Single Market for payments becomes a reality. In this context, the payment cards industry plays a key role and the ability of companies to become part of a payment card network is crucial. The Commission, in its role as guardian of the Treaties, has the duty to ensure that anticompetitive behaviour does not take place and will therefore intervene if companies are illegally refused membership of payment card networks.

What was the Commission's legal reasoning?

The Commission found that Visa's unjustified and discriminatory refusal to accept Morgan Stanley as a member constitutes a restriction of competition under the EC Treaty's ban on restrictive business practices (Article 81).

As retailers demand that Visa and MasterCard acquiring services are offered as a package, the exclusion of Morgan Stanley from the Visa network resulted in its exclusion from the merchant acquiring market altogether, not only as regards Visa cards. The UK acquiring market is very concentrated and there is scope for further competition on quality and prices.

The Commission considered that Morgan Stanley is not a competitor of Visa in the EU (see below) and that Visa’s refusal to admit Morgan Stanley was not indispensable to prevent Morgan Stanley from "free-riding" (see below).

Finally, Visa failed to demonstrate that the conditions to exempt their behaviour from the ban of restrictive business practices (under Article 81 (3) of the EC Treaty) were fulfilled: there were no efficiencies that would outweigh the negative effects of the competition restriction on the offer of acquiring services to merchants and on innovation in the market. The fact that Visa actually admitted Morgan Stanley to its network in Europe on 22 September 2006 demonstrates that the initial refusal to do so was unnecessarily restrictive and that admission was feasible in reality. It shows that there are less restrictive means of preventing the risk of free-riding (which, in addition, has not been demonstrated in the case of Morgan Stanley) than an outright refusal of membership, such as the conclusion of confidentiality agreements.

Why did the Commission find an infringement of Article 81 of the EC Treaty and Article 53 of the EEA Agreement, and not an abuse of a dominant position under Article 82 of the EC Treaty and Article 54 of the EEA Agreement?

Articles 81 and 82 of the EC Treaty (Articles 53 and 54 of the EEA Agreement) are complementary inasmuch as they are both tools pursuing the objective of undistorted competition in the Single Market set out in Article 3 g) of the EC Treaty. The application of Article 81 EC to a decision of an association of undertakings or to an agreement does not exclude the applicability of Article 82. In this case, the Commission applied Article 81 because it provided an appropriate tool to pursue the infringement at hand (a decision of an association of undertakings/an agreement between undertakings which produced anticompetitive effects).

Wasn’t Morgan Stanley a competitor of Visa and wasn’t it therefore legitimate for Visa to refuse to admit Morgan Stanley as a member?

Visa claims that it is entitled to prevent competitors from joining their system. However, the behaviour that the Commission found to be anticompetitive was not the ban on competitors in itself but rather an unjustified and discriminatory application of these rules.

First, there were no objective reasons to refuse membership: Morgan Stanley is not a competitor of Visa in the EU card networks market and wished to become a Visa member as any other bank.

There are no realistic possibilities that Discover, Morgan Stanley’s card network in the US, would expand into the EEA in the near future as, inter alia:

(i) there are very high barriers to entry into the card networks market in the EEA: network effects are very important in card systems, making it extremely difficult to introduce a successful system unless entry occurs from the start at a very large scale and heavy investment is made in order to reach that necessary minimum scale;

(ii) Discover was launched in the USA with the cooperation of the largest USA retailer, Sears but in Europe Morgan Stanley has no equivalent to Sears for launching Discover; and

(iii) Discover is a relatively small "proprietary" card system, with nearly no international card acceptance.

Second, Visa’s refusal to accept Morgan Stanley was discriminatory because Visa had previously accepted other card network operators, such as Citigroup (the owner of Diners' Club) or the shareholders of the JCB card, as members.

Didn't Visa have other legitimate reasons to refuse Morgan Stanley as a member such as confidentiality concerns?

Refusing membership is disproportionate to address the alleged (but unproven) confidentiality concerns invoked by Visa. As a Visa member, Morgan Stanley would not have access to confidential information that could benefit Discover in the USA. Moreover, there is no proven risk for the Visa system to disclose information to Morgan Stanley. There were other, less restrictive means available to Visa if confidentiality had been a genuine issue, such as confidentiality undertakings. Confidentiality undertakings from Morgan Stanley were actually accepted by Visa when it finally admitted Morgan Stanley as a member in September 2006.

Why fine Visa if Morgan Stanley withdrew its complaint and was admitted as Visa member?

Morgan Stanley was excluded from the UK acquiring market for six and a half years – more than 2 years after the Commission sent Visa a Statement of Objections (the formal document setting forth the Commission’s preliminary findings). This means that over a significant period of time Visa hindered competition in the merchant acquiring market in the UK by preventing the possibility of positive developments in the quality of service and the level of merchant fees, with a downwards effect on retail prices.

What was the duration of the infringement?

The infringement lasted six and a half years, from 22 March 2000 (when Visa informed Morgan Stanley that it would not be admitted as a Visa member and refused to provide an application form) until 22 September 2006 (when Morgan Stanley was admitted as a member of Visa Europe).

The infringement came to an end on 22 September 2006. What was then the Commission's legitimate interest to adopt an infringement decision?

The Commission found it necessary to adopt a decision for the following reasons:

- Visa continues to deny that its behaviour was contrary to Article 81;

- It is important for the proper functioning of the Single Market for payments that anti-competitive practices committed by market players are not tolerated; and

- as explained above, the Commission has the power to impose fines in the present case and wishes to do so. It is established case law that the power to impose fines necessarily entails a power to find an infringement, and that the Commission’s power to impose fines is in no way affected by the fact that the conduct constituting the infringement has ceased.

Visa had notified under former Regulation 17 a rule according to which it wouldn't admit competitors as members. Doesn’t this notification warrant immunity from fines?

The rule Visa invoked to refuse membership to Morgan Stanley was introduced in December 1989 and notified to the Commission in early 1990 as part of Visa’s rulebook (Visa By-Laws and Operating Regulations).

As explained above, Visa can legitimately claim that it is entitled to prevent competitors from joining their system. The object of the antitrust decision is the application of the rule to Morgan Stanley, not the rule itself. Morgan Stanley cannot be qualified as a competitor of Visa in that it does not operate a card network in the EEA and has no realistic possibilities of establishing one in the near future.

In any case, the notification of the rule could not ensure immunity from fines beyond the date of entry into force of regulation No 1/2003 on 1 May 2004, and the Commission made clear in its Statement of Objections of 2 August 2004 that it intended to impose fines.

Did the Commission take into account the whole duration of the infringement for calculating the amount of the fine?

No. Until the notification of the Commission's Statement of Objections on 2 August 2004 Visa might have thought that its behaviour was immune from fines. Therefore, the Commission decided to take into account only the period from the notification to Visa of the Statement of Objections to Morgan Stanley's admission as Visa member on 22 September 2006 for the calculation of the fine.

Does the Commission decision aim at protecting Morgan Stanley?

No. The decision will have an overall beneficial effect on the markets concerned because (i) merchant acquiring is an economically significant activity that remains compartmentalised along national borders and is characterised by weak competition; and (ii) new entrants in the acquiring market are scarce, particularly those with a pan-European potential like Morgan Stanley.

Does Morgan Stanley’s spin off of Discover, completed on 30 June 2007, affect the findings of the decision?

No. The infringement subject of the decision occurred from March 2000 until September 2006, i.e. before Morgan Stanley’s spin off of Discover.

Background on the companies concerned

Visa is a global firm operating the Visa card network worldwide. It comprises several incorporated companies, including Visa International Service Association and Visa Europe Limited, which are the addressees of the decision.

Morgan Stanley is a global financial services firm which, through its subsidiaries and affiliates, provides a wide variety of products and services, including credit and investment services. It controlled the Discover card network until 30 June 2007. Morgan Stanley Bank Dean Witter Bank Limited (now Morgan Stanley Bank International Limited) is a bank incorporated in the UK by Morgan Stanley.

The Discover network is a card network that operates in North America. Discover cards are issued primarily in the United States and were originally introduced by Sears, then the largest retailer in the United States. The Discover network was part of Morgan Stanley until 30 June 2007, when Discover Financial Services became an independent company.

Source: European Commission