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Mexico’s antitrust watchdog has urged the country’s financial regulators to fix what it says is an anti-competitive card processing market and establish an interchange fee cap.
Earlier in September, Cofece, Mexico’s competition regulator, that competition is not working well in the country’s card processing market, particularly regarding the country’s two clearing houses, E-Global and Prosa.
Cofece found that the existing regulatory ecosystem “tends to favour” the duopoly of the bank-owned clearing houses and enable the incumbents to set excessive fees.
According to Cofece, the total cost of processing a card payment is, on average,1.36 percent in Mexico, almost six times as high as Europe’s interchange rate of 0.2 percent for debit cards.
The competition watchdog argued that this is due to the fact that the interchange rate is set by industry consensus and the players are not allowed to diverge from it.
According to Cofece, Mexico’s central bank Banxico and the financial regulator Comisión Nacional Bancaria y de Valores (CNBV) should intervene, establish a cap on interchange fees and clarify that market players could charge less for processing card payments than the fee set by the regulators.
Duopoly of Prosa and E-Global
The agency’s competition concerns largely come from the fact that the card payment processing market is highly concentrated in Mexico.
Owned by the country’s top banks, Prosa and E-Global are the only clearing houses that facilitate the processing of America Express, Visa and Mastercard transactions in the country.
Prosa, which is owned by HSBC México, Santander México, Scotiabank, Banorte, Invex and Banjército (among others), was founded in 1968 and processes around 4.4bn transactions annually via its switch. This accounts for around 60 percent of all transactions, according to Prosa’s .
E-Global is owned by BBVA México and Banamex and about 2.6bn transactions a year.
According to an accompanying the announcement, Visa and Mastercard are also authorised to clear transactions in Mexico; however, they do not initiate domestic transactions in the country.
Cofece’s decision, which concludes nearly five years of investigation, has now found that the existing rules that govern the operations of the clearing houses enable the incumbents to hinder new players from entering the market.
For example, current rules do not define the tests for validating operations between clearing houses, although discussions have been ongoing since 2019. In the absence of clear testing criteria, the clearing houses could request unnecessary tests from new market entrants, increasing their investment costs, Cofece said.
Additionally, under the existing rules, the organisation that certifies the creation of a new clearing house is one that already operates in the market — Prosa or E-Global.
Meanwhile, it is also the two existing clearing houses that set the costs of the connection and interconnectivity tests, and the timeline for certification.
Cofece also raised the alarm that current rules enable the network participants to operate in a regulatory capacity that should originally belong to Banxico.
This self-regulation scheme “has had the effect of hindering the entry of new competitors into the [card payment processing] market,” the agency said.
It also warned that the ownership structure of the clearing houses may “create structures that could facilitate anti-competitive behaviour” and urged the financial regulators to take steps to mitigate the possibility of collusion between the banks.
Vixio reached out to Prosa and E-Global for comment but did not receive a reply by the time of publication.
