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Mercado Pago joins the controversial battle against Transbank's interchange fees in Chile

Despite regulatory interchange fees draft bill approval, the procedures being reviewed by the Chilean antitrust watchdog (such as the one from MeLi) will continue

Photo by LABS
  • Transbank has the acquiring monopoly of Chile’s payments sector since the late 1980s;
  • Last week, the Chilean Senate dispatched and approved a project that overhauls the structure of the local acquiring market.

The battle against Transbank‘s interchange fees in Chile has gained new chapters. This month, Mercado Pago, Mercado Libre‘s fintech arm, filed a formal query to the Tribunal for the Defense of Free Competition (TDLC, in Spanish) because it needs to sign a contract with Transbank to start its cards operations in Chile, and it found the organization’s fees too high. Also, last week, the country’s Senate approved a project that overhauls the structure of the local acquiring market.

According to Mercado Pago, Transbank’s interchange fee has not been evaluated or authorized by the economic court. “In addition, probably this rate has not yet been reported by Transbank to the Commission for the Financial Market (CMF), as required by sector regulations,” Mercado Pago’s document says. The fintech said that this could harm competition, so it presented the query to obtain legal certainty of the facts.

READ ALSO: Is the four-part model the formula to fix the “deadly sin” of the Chilean payments industry?

As LABS has shown, Transbank has been enjoying the acquirer monopoly in Chile since the late 1980s. While the four-part acquiring model separates credit, debit, and prepaid card issuers (banks and other types of financial institutions) from the acquiring companies, which operate and generate the technology for payment solutions; the three-part model, in which Transbank was set, allowed it to manage both the acquiring and operation of payment methods for its owners (banks, controlling shareholders such as BICEBanco de ChileBCIBanco FalabellaInternacionalSecurity, among others).

As a payment operator and acquirer, Transbank could so far process transactions and at the same time partner with merchants so that they accept cards from banks in their POS.

READ ALSO: Fintechs that are not afraid to get their hands dirty: Why is the industry in Colombia living its greatest moment?

It turned Chile into a unique case regarding the payment methods industry, in which the acquiring side is practically integrated –, without any competition – with the issuing side. But now Chile is slowly opening up its acquiring market and implementing a four-part model – something that happened more than a decade ago in Brazil, spurring a series of innovations, from the spread of POS terminals throughout the country to the rise of fintechs. This four-part model is being implemented to bring in new acquirers or processors unrelated to the issuing party.

In September, it will be three years since Chile‘s antitrust Court declared that Transbank didn’t comply with establishing public and objective fees not to harm competition, triggering the whole sector’s transformation.

In December 2019, Transbank appealed to the Supreme Court. In March 2020, the Court asked Transbank to build a plan to show how it would adjust itself to the new circumstances (at the time, the organization’s interchange fees for large businesses were different from that for small and medium-sized businesses). 

READ ALSO: Brazilian fintech Cora wants to surf the wave of new financial regulations in the country

By April 2020, TDLC didn’t approve Transbank’s proposal. Later on, in mid-May, Transbank adopted and presented to the TDLC a charging model “as self-regulation,” describing “maximum prices for its services to issuers and a pricing at economical cost” for the services the company wanted to deliver to payment processing providers and other operators.

This “model” bothered players such as Farmacias AhumadaFlow, IGT GlobalMastercardSMUUniredVisaWalmartBanco Santander – the first bank to announce its exit from Transbank scheme, in 2018 – and the fintechs in general.

After so much controversy, TLDC passed its responsibility to the Ministry of Finance, which had to present a bill to regulate the matter. On July 9, 2020, the Minister of Finance, Ignacio Brionesannounced that he would send a project to regulate interchange fees to Congress.

READ ALSO: Colombian watchdog grants Mercado Pago a financial company license

Finally, last week, the Chilean Senate dispatched and approved a project that establishes a mechanism to set the interchange rates throughout the payment system.

According to the new law, these rates will be determined by a Committee, which will be made up of a member appointed by the Central Bank, one from the Commission for the Financial Market, another by the National Economic Prosecutor’s Office, and one by the Ministry of Finance. A first decision needs to be presented within six months after the publication of the law. The committee will meet every six months, and rate limits will be established every three years.

Despite the approval of the law, the procedures being reviewed by the TDLC will continue. The entity is consulting different stakeholders about the matter, seeking to establish the rates that will rule the industry. This week, a hearing is scheduled for Wednesday and Thursday, where about 20 entities will participate, according to Diario Financiero

Several stakeholders are planning to ask for the overrule TDLC’s process since it’s very similar to that of the new committee defined by the new legislation.

READ ALSO: Regulation and new market players pave the way for financial digitization in Colombia and Mexico

“So far, there is an industry consensus in favor of the draft bill,” says payments expert Ignacio Carballo, AMI‘s Southern Cone Affiliate, in an interview with LABS. “We still do not know how many institutions will be part of the committee, but it will be an external committee (…); the interchange rate amount will not be defined by a single player of the market.”

In Carballo’s view, this change is positive since it puts Chile in line with not only the developed countries that have regulated the interchange rate but also with its peers in the region.

The industry has been following the bill closely as newcomers can now threaten Transbank’s dominance in Chile, such as Getnet, from Santander, that recently announced that it received authorization from the Financial Market Commission (CMF) in Chile to start the operations of its acquiring arm.

“Argentina and Mexico are advancing in breaking monopolies in the payments value chain and come towards the four-part model. I hope we can start to see a more competitive market in Chile soon and that it has [good] consequences like those in Brazil.”

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