Uniform ATM charges for cash withdrawal: CCP checks 1-Link to collect evidence of collusion with banks

A team of designated officers of the Competition Commission of Pakistan (CCP) on Thursday conducted search and inspection of 1-Link (Guarantee) Limited in Karachi to collect evidence of possible collusion or such practice among banks for charging uniform amount for ATM cash withdrawal.
According to an announcement of the CCP here on Thursday, the CCP team has conducted search and inspection under Section 34 of the Competition Act, 2010. The important data has been confiscated by the authorised officials of CCP, which will be scrutinised by the Commission. The CCP team has impounded evidences of possible collusion falling under the purview of prohibited category in terms of Section 4 of the Competition Act, 2010.
The CCP took notice of ATM cash withdrawal charges implemented by banks in Pakistan as majority of banks, ie 26 banks, were charging uniform amount of Rs 15 for ATM cash withdrawal transaction. In the absence of any guideline from the State Bank of Pakistan, chargeability of ATM cash withdrawal services in a similar manner raised a suspicion of collusion among banks.
An enquiry conducted by CCP revealed that in Pakistan ATM cash withdrawal service is provided by two ATM networks/switch namely: 1-Link and M NET. The State Bank of Pakistan has mandated that all commercial banks in Pakistan, both foreign and domestic, have to become members of one or the other switch to provide ATM services to their own customers as well as customers of other banks. 1-Link is a consortium of major banks (total 31) and owned by the consortium of 11 major banks that own and operate the largest representative shared financial services network of Pakistan, while MNET switch has approximately 15 members, the CCP said.
During the enquiry, the SBP informed the CCP that the State Bank does not monitor and regulate banks at such micro level but it is the discretion of banks to charge customers on ATM cash withdrawal services. The CCP stated that the suspicion of collusion was strengthened by the fact that 31 banks are members of 1-Link, which may provide them a forum to discuss and agree on ATM charges.
It was revealed that 1-Link is a guarantee limited company incorporated to carry out e-banking services, which include shared ATM network, utility bill payments and interbank fund transfer. 1-Link provides services on 3850+ ATMs in 200+ cities nation-wide. Card base of its member banks exceeds 8.68 million resulting into monthly Rs 25 billion (approximately) ATM withdrawal through Rs 700 million (approximately) volume of VISA transactions.
Even though the modality of revenue sharing generated from such huge volume of ATM transactions is not known, however, number of transactions carried out through 1-Link, prima facie, reflects common interests of 1-Link and its member banks to fix ATM charges.
More importantly, personnel from 11 major banks constitute Board of Directors of 1-Link. Whereas rest of the banks become its members by entering into a membership agreement which establishes the rights and obligations for participation in the network and binds members on 1 Link's operating rules. There was a possibility that the Board of Directors comprising all leading banks in Pakistan took the decision as to the ATM cash withdrawal services, which are implemented by all the other members, the CCP said.
The Commission's stance is that banks can be differentiated in terms of ATMs installed and transactions carried out on their ATMs, therefore, their ATM charges should also vary from each other under competitive conditions. Uniform ATM charges show absence of competition among banks which, prima facie, violates Section 4 (2)(a) of the Competition Act, 2010 in terms of fixing ATM cash withdrawal service charges.
Given the facts and scenario that the banks charging uniform ATM charges are members of 1-Link and 11 major banks constitute the Board of directors of 1-Link, 1-Link was possibly playing front role in this collusive activity of fixing ATM charges; hence a search and inspection was necessitated to obtain evidence of any anti competitive practices.
During the search and inspection, the management of 1-Link extended full co-operation to the Commission's team and provided full access to all the documents and requisitioned by them. The Commission commends positive behaviour of 1-Link management towards enforcement of Competition Laws in Pakistan, the CCP added.
Background of the search and inspection revealed that the CCP observed that majority of banks are charging uniform amount of Rs 15 for ATM cash withdrawal transaction. In Pakistan ATM cash withdrawal service is provided by two ATM networks/switch namely: 1-Link and MNET. The State Bank of Pakistan has mandated that all commercial banks in Pakistan, both foreign and domestic, have to become members of one or the other switch to provide ATM services to their own customers as well as customers of other banks.
Additionally, these two switches have been interconnected since 2006, which means that a consumer holding an ATM or debit card issued by any bank in Pakistan may use any ATM located throughout the country. State Bank of Pakistan was contacted to enquire if any regulation/directive/circular or guidelines has been issued by the State Bank of Pakistan regarding ATM service charges.
Additional director, Banking Policy and Regulation, SBP informed that the State Bank does not monitor and regulate banks at such micro level. It is discretion of banks to charge customers on ATM cash withdrawal services. In the absence of any guideline from the State Bank, chargeability of ATM cash withdrawal services in a similar manner raises a suspicion of collusion among banks. Majority banks ie 26 banks have been found to charge a uniform amount (Rs 15) for ATM cash withdrawal services.
The CCP observed that the banks with large number of ATM machines and more number of transactions should compete rigorously by providing cheap services. A healthy competition under free market forces should have set a range of ATM charges but this is not the case here. Uniform ATM charges show absence of competition among banks which, prima facie, violates Section 4 (2)(a) of the Competition Act, 2010 in terms of fixing ATM cash withdrawal service charges.
The CCP has also examined the international trend in ATM cash withdrawal service charges. In India, situation is very clear as Reserve Bank of India has issued a directive to banks that with effect from 1st July 2011 customers will be charged Rs 16 and Rs 20 for ATM cash withdrawal through four different networks/switches. In UK ATM cash withdrawal charges vary from 1.5 percent to 2.25 percent or 1.5 pounds to 5 pounds.
Given the facts and scenario that the banks shown above in the table charging uniform ATM charges are members of 1-Link and 11 major banks constitute the Board of directors of 1-Link, it is possible that 1-Link is playing front role in this collusive activity of fixing ATM charges. It is, therefore, natural that in order to obtain evidence of any anti competitive practices, the most natural choice of the Commission will be 1-Link.
In cases of alleged collusive activities, it is crucial to obtain evidence while maintaining an element of surprise since otherwise evidence of such activities maybe destroyed since collusion is essentially a conspiracy. In view of above it is proposed that the Commission may authorise a search and inspection of 1-Link office under Section 34 the Act, the CCP added.