The banks threaten their customers once again
"From tomorrow - Visa without installment payments," read yesterday's headlines. "Businesses, which expected a rise in sales before the holidays, are likely to be disappointed," the papers hastened to interpret the new threat by the Visa credit card companies, shortly before Rosh Hashana holiday.
True, without installment payments - which constitute one third of all credit card transactions - holiday sales would probably decline sharply. And consumers who use credit cards, just like the businesses that sell to them, would suffer.
Therefore, headlines such as "from tomorrow - Visa without installments" constitute a real threat by two of Israel's three leading credit card companies: Visa Cal, owned by Israel Discount Bank, and Leumi Card, owned by Bank Leumi.
The threat was issued in response to a decision made this week by the Antitrust Tribunal, which ruled against the two Israeli Visa companies. What did the court actually say? It said that it had had enough of the system used by these companies, in which they load all their expenditures - their incredibly high salaries, fancy offices and management overhead - onto the backs of businesses, and through them, the consumers.
The court ruled that in a competitive market, a company cannot load all of its expenses, on a cost-plus basis, onto the consumers. Therefore, the court said, it is improper for the Visa issuers to do so, and it consequently banned their current method of setting cross-clearing fees for businesses. The court decided that an arbitrator should determine a new method for calculating the fees, and of course, the new fees would be lower.
The two Visa companies, Visa Cal and Leumi Card, did not particularly like this ruling - and for good reason. The judgment lowered one of their most important sources of income: the fees that they charge businesses for accepting credit card payments.
However, the credit card issuers have the right to appeal the decision against them, as well as the right to refuse to accept the court's recommendation of an arbitrator on the cross-clearing fees.
There is no obligation to offer cross-clearing - an arrangement that allows a business to sign a clearing contract with only one of the credit card companies while continuing to sell goods and services to holders of both cards. Isracard, Bank Hapoalim's credit card company, for instance, has refused to join any agreement on cross-clearing. Therefore, any company that wants to do business with Isracard customers must reach an agreement directly with Isracard.
The Visa card companies could have decided that they would follow Isracard's example and refuse to serve customers of the rival Visa firm. This would entail nothing more than requiring businesses to reach agreements separately with each of the three credit card issuers, and the credit card companies would have been completely within their rights to take such a step.
However, this would have required businesses to sign three different agreements with three separate companies, and this, of course, would have cost them more. Alternatively, some businesses might have given up on doing business with customers of one of the card issuers and simply refused to accept one of the three main credit cards in Israel.
The result would have been an increase in prices, as well as a situation in which some people would be unable to use their credit card at certain establishments, because those establishments do not accept their particular card.
As noted, the credit card companies have the right to make such a decision, just as they have the right not to allow installment payments from now on, since cross-clearing installment sales is more expensive and complicated that cross-clearing regular sales. The companies have the right to do whatever they wish. If they really wanted to, they could decide that they have had enough of skinflint businesses and annoying customers and decide to stop serving them. Let the customers get by without credit cards. Who needs them, anyway?
If this were not a market with only three companies, owned by the three biggest banks in Israel, no one would even imagine that it was possible to get by without customers. If the credit card business involved real competition, and if it actually strove to serve its customers, then the credit card companies would have stopped to think for a second before dismissing its clients so cavalierly.
They might, for example, have reached a new agreement on cross-clearing fees. It might have been a slightly less convenient agreement for the companies, but it would have allowed the credit card market in Israel to develop and become more sophisticated - and provide better service. Such an agreement might also have included Isracard, which sooner or later will have to join such a deal.
But just before the credit card companies proved to the whole country that the Antitrust Tribunal was right, and the credit card market is not competitive - they had the sense to retract their threats and sign a new agreement.