In line with a settlement between Landsbankinn and the Icelandic Competition Authority, the Bank has been working on changes to payment card operations, intended to simplify and improve service to customers while simultaneously ensuring the Bank's independence in this market. In so doing, the Bank actively participates in implementing changes in the payment card market, designed to ensure a natural competitive environment. While these changes have been in the works for an extended period, customers will come to notice them gradually over the coming months and years.
- The changes involve the Bank's sale of its minority shareholding in both Valitor and Borgun and in so doing agrees with the principle set out by the Icelandic Competition Authority, that two or more banks should not jointly own a payment card company.
- Landsbankinn will discontinue all Mastercard products and will as of next spring only offer customers VISA cards.
- The Bank has also concluded an agreement with VISA Europe, aiming to boost the Bank's services with new and improved solutions for customers.
- Landsbankinn intends to alter the structure of its payment card products considerably, offer simpler and more accessible services as well as new solutions for customer through, for example, increased use of debit cards.
- Landsbankinn will be freed from the influence of competitors in Valitor and Borgun who have controlled the payment card market without Landsbankinn being able to influence matters, despite owning a considerable share in both payment card companies.
- Landsbankinn has had considerable funds tied up in the payment card companies and these changes will allow the Bank to put those funds to better use, for example, through dividend payments to owners.
- Landsbankinn has concluded a settlement with the Icelandic Competition Authority to advance these changes and has agreed to pay ISK 450 million in fines for issues originating in 2007.
- The settlement with the Authority should, all things remaining equal, translate into lower fees charged to retailers by transaction acquirers and so result in lower prices for consumers.
Landsbankinn has been working to achieve these changes over a long period, both because of its position as regards Valitor and Borgun, but also due to impending changes to the payment card market with regard to both technology and pricing. Landsbankinn is taking action and promoting competition in the payment card market by discontinuing ownership in payment card companies and through other actions. By boosting its independence in payment card matters, the Bank will be in a position to tender for services offered by the payment card companies and thus reduce cost. By concentrating on VISA cards, the Bank also improves efficiency.
Minority shareholding in Valitor sold to Arion Bank
Landsbankinn has sold its 38% share in Valitor Holding hf. (parent of Valitor hf.) to Arion Bank for ISK 3.6 billion. This brings the value of Valitor's total share capital to ISK 9.5 billion. Arion Bank will pay an additional consideration if Valitor receives payment from VISA Europe for an option in place between VISA Europe and VISA Inc. in the US. This additional consideration is expected to amount to a significant portion of the value of Landsbankinn's share capital in Valitor Holding hf., should it come to fruition. The final amount of this additional consideration is uncertain and unclear when it might take place; the option is valid for an unlimited period. It is of primary importance to Landsbankinn that Arion Bank is willing to secure these additional interests of Landsbankinn for the long term. Arion Bank is and intends to remain a majority shareholder in Valitor Holding hf. Landsbankinn's interests are thus far more secure than through a sale to investors purchasing a minority share in the company. For these reasons, it was considered contrary to Landsbankinn's interests to offer the shareholding for sale on the open market.
Agreement with VISA Europe
Landsbankinn has signed an agreement with VISA Europe providing, inter alia, for a direct business relationship with the company. This agreement will facilitate the Bank's payment card operation and create a platform for increased independence to issue cards, simplify tenders for card-related services, both domestically and abroad, and make it easier for Landsbankinn to introduce innovations from VISA. Furthermore, the agreement will allow the Bank to control card services and card products better than hitherto and access to advisors from VISA Europe will advance product development significantly. This ensures that Landsbankinn will at any given time be able to offer customers the best VISA products. Since nigh on 98% of Landsbankinn's customers use VISA payment cards, the agreement is a logical step for the Bank.
Settlement with the Icelandic Competition Authority
Landsbankinn has signed a settlement with the Icelandic Competition Authority concerning the investigation into violations on the payment card market involving the three large banks and the companies Valitor and Borgun. Through this settlement, the Bank agrees to work to introduce changes to the structure of the payment card market, designed to promote competition.
Landsbankinn concedes that certain practices on the payment card market in 2007-2009 were in violation of Article 10 of the Competition Act and Article 53 of the EEA Agreement, agrees to pay a fine in the amount of ISK 450 million and to take action designed to promote competition.
Such action includes capping the so-called interchange fee on consumer cards paid by parties who acquire transactions to payment card issuers and which are intended to cover the cost incurred by issuers for payment guarantees, financing of withdrawals, payment card fraud and product development. Interchange fees will decrease as a result of the settlement which should lead to lower prices. The settlement also stipulates that Landsbankinn not own shares in Borgun and Valitor alongside other commercial banks.
In the settlement, the Icelandic Competition Authority states that the Bank contacted the Authority of its own volition and declared its willingness to alter its payment card operations before the Authority made public its initial findings in the matter. Furthermore, it mentions that the Bank had no direct managerial input in the payment card companies from the year 2008. Nothing indicates that the Bank's employees had reason to doubt the legality of the Bank's agreements with Valitor and Borgun, providing for interchange fees. The Authority further states in the settlement that Landsbankinn showed extensive readiness to co-operate and complied with the investigative effort and procedures of the Authority. This settlement concludes the investigation of Landsbankinn by the Icelandic Competition Authority.
Agreement with Valitor for near-term service
Landsbankinn has also in recent months re-evaluated its position on the payment card market, including agreements on the issuing process of payment cards and electronic money. This evaluation looked to various factors, including an analysis of the competitive position on the payment card market and the results of a survey of the pricing and service of payment card companies carried out by the Bank in March 2014. Valitor and Landsbankinn later signed an agreement whereby Valitor will continue to issue and process credit and debit cards for Landsbankinn. This agreement does not provide for transaction acquisitions by Valitor or the relationship between Landsbankinn and parties who acquire transactions, in full keeping with the Icelandic Competition Authority's settlement that stipulates a clear division between transaction acquisition and payment card issuance. Steinþór Pálsson, CEO of Landsbankinn hf., and Viðar Þorkelsson, CEO of Valitor hf., signed an agreement to this effect on 12 December 2014. The agreement enters into effect on 22 April 2015 and is valid for a period of four years.
For further information contact:
Kristján Kristjánsson, pr@landsbankinn.is, +354 410 4011/+354 899 9352
