Thursday, 28 June 2007

Nets fee increase 'did not breach law'

TOAY contacted me for a quote on this story, and I obliged. But I actually said something more which was omitted, and to be honest I don't blame the reporter for leaving it out. It's not a soundbite, and it might not go down well.

I basically said that both sides had their own points, and elaborated a bit on that -- this was as reported in the article. But I also went on to point out that this is actually a more fundamental issue about how Singapore is run: what do we do when the free market meets a social goal?

NETS was created as part of the drive towards a cashless society. But NETS is made up of the 3 local banks, all private profit-maximising entities (even if DBS is a Temasek-linked company). So there is a tension between NETS' role as a profit-maximising entity, and its public service in driving society's adoption of cashless modes of payment.

In this case, obviously profit maximisation and the free market won. But is that necessarily the most desirable result? I'm not necessarily so sure, and this is something that I feel is quite endemic in Singapore.

When it comes to charges and fees, the economic/financial argument and justification is almost always framed in a very narrow context, of cost and a reasonable profit. But such arguments fail to take into account other relevant factors. From the perspective of the private profit-maximising entity, that is rightly so.

But that is not the only valid perspective to consider. If and when you change the frame of reference, the correct decisoin could suddenly look very different. My wish is that at some point, such other points of view will get more of a hearing than they already do.

Nets fee increase 'did not breach law'

Competition Commission says alternative payment methods are available
Tuesday • June 26, 2007
Lin Yanqin
THE increase had the consumer watchdog crying foul, but the Competition Commission of Singapore says the Network for Electronic Transfers' (Nets) decision to raise fees did not breach competition law.

In a statement yesterday, the commission said the hike "does not amount to an infringement of Section 47 of the Competition Act".

In particular, alternative payment methods such as credit, debit and EZ-Link cards, were available to consumers, the commission pointed out. It also clarified that regulating pricing decisions was not within the Act's purview.

Under Section 47, firms with dominant market power cannot abuse their power by acting in ways that are anti-competitive, such as using predatory pricing to prevent a new, more efficient competitor from competing on the merits of its goods and services.

Earlier this month, the Consumers' Association of Singapore (Case) had protested against Nets' "unjustified" decision to raise the transaction fee levied on merchants. Case felt Nets was abusing its dominant position".

The Nets platform, according to Case, was so widely used and accepted that merchants had little choice but to accept the new fee — which will be raised come July to between 1.5 and 1.8 per cent of each transaction, from 0.45 or 0.55 per cent.

Nets had said it was forced to raise fees to keep up with the competition posed by debit and credit facilities, and that its new fees were still lower than what those facilities charged.

Yesterday, Case president Yeo Guat Kwang said that he was "deeply disappointed" by the commission's decision.

He told Today he disagreed that debit and credit were alternatives to Nets as "there are also many who only have Nets as a cashless payment option".

Case said banks had the responsibility to support Nets and keep interchange fees low: "Unfettered and unrestrained transaction fees increases will only serve to render Nets uncompetitive and less popular among consumers … accelerating its demise. We will all be worse off should that happen."

Its immediate concern is that retailers may pass the higher fees on to consumers. The association has already received two complaints of this nature, ahead of the hike.

Nets said on its website that it welcomed the commission's decision. Lawyer and Nominated Member of Parliament Siew Kum Hong felt that both Case and Nets had their "fair points".

"Nets was part of the effort in the drive towards a cashless society, and to benefit the public, so there was a public service element at the beginning," he said. "So Case was right to say it's not really the same as debit and credit cards."

But as a business, Nets has to watch its bottomline. "In the first place, Nets' fees are still lower than the debit card and credit card charges," he said. "In that sense, they are not abusing their power. And as a private entity, it's unfair to expect them to act like a public service."


HaveAHacks said...

Ah, but the question is whether the 3 local banks acted in concert to raise their interchange fees ? They control access to the bank accounts of almost 100% of Singaporeans, and they also own NETS itself, so whatever "negotiations' took place were certainly not at arm's length. Neither the banks nor NETS have said anything about any extra services that we will be getting for the money, so bottom line is that we (both retailers & consumers) are getting screwed.

Siew Kum Hong said...

To haveahacks: Actually, the issue of the 3 banks acting in concert is not one of competition. That's because the banks do not compete in the market that NETS competes in. So any agreement between them (and really, as the shareholders of NETS, they would have had to agree) would not constitute price-fixing or a similar anti-competitive agreement or concerted practice.

Their "control" (your words, though I don't really think that's appropriate) of access to bank accounts is also not really material, since they cannot stop people from paying in cash.

And that to me is the key. There remains ready substitutes in the market. There is no data on whether NETS is dominant -- presumably it is not, reading between the lines of the CCS decision. And as consumers, you always have the option of paying cash. In fact I seldom use NETS nowadays, preferring either cash or credit card.

HaveAHacks said...

Not so clear cut, I think. Foreign banks were excluded from NETS until recently, and that was a clear case of erecting (govt-endorsed) barriers to entry. Even now, an expat driving in Singapore has to have an acct with a local bank (or one foreign bank) to top up his cashcard.

In the case of the interchange fees, I am actually quite sympathetic to NETS' predicament of having to be the "pai nang". They are essentially the banks' collection agent for the interchange fees. Whatever NETS collects just flows through to the banks.

The issue is how widely you draw the boundaries of the relevant market. I would argue that just looking at NETS alone is insufficient. You have to look upstream to the banks as well.

As to having the choice of using cash, many banks overseas charge fees for ATM and/or branch withdrawals. It won't be long now before you see the same in Singapore.

Siew Kum Hong said...

To haveahacks: I'm not sure how you can describe banks as a substitute for NETS, which is the method by which markets are drawn. CashCard, yes. EZ-Link, yes. Signature-based debit cards (e.g. Visa Electron), yes. Credit cards, maybe. Cash, maybe. But banks? Banks provide banking/financial services, not methods of payment. So actually, I don't agree with your analysis from a competition law perspective.

gooder said...

If the CCS and the authorities are really serious about giving the public an alternative to NETS payment system, they should allow a group of foreign banks to set up a similar payment system which are able to charge the previous reasonable rate.

With all these Wayang going on nowadays, the public is really disillusioned with what's going on and are feeling helpless and don't bother to protest any more. This could blow up one day in someone's face to the detriment of our society.

Good news on ST 23/7/07 MONEY page H21 ,CITIBANK is a very good alternative to our 3 local banks.

If our own merged-banks squeeze us for mercenary reasons, now we can migrate our accounts to the foreign banks who are allowed to operate and compete with our local banks. CCS should be very happy about this, we are doing the work for them to bring delinquent banks in line.

Siew Kum Hong said...

To gooder: Actually, there is such a similar payment system. It's the Visa Electron debit system. Exactly the same thing except that it runs on the Visa network and is signature-based and not PIN-based. My impression from press reports is that the revised NETS charges are still lower than the Visa Electron charges.

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