Israel's Antitrust Authority Urges Shakeup of Credit Card Sector

Israeli credit card market suffers from host of structural, technological and regulatory barriers that has raised cost of transactions, agency says.

Bloomberg

The Israeli credit card market suffers from a host of structural, technological and regulatory barriers that has raised the cost of transactions, the Antitrust Authority said in a report on the industry released on Tuesday.

The solution is to increase competition and insist that credit card issuers make available lower-cost debit cards, the authority said in the report, the first it will be issuing in various industries in line with the recommendations of the 2011 Trajtenberg committee on economic and social reforms.

“We believe that the near absence of debt card transactions in Israel is a strong indication of the problematic competitive situation in this sector,” the report said, saying shoppers and businesses were hurt by it.

Debit card transactions are tantamount to cash transactions in that the money is moved from the shopper’s bank account to the retailer’s immediately, mitigating credit risk and reducing transactions costs by half, the authority said.

The authority said the transition to wider use of debit carts should be done quickly, with card issuers given the option of issuing debit-only cards or giving holders the right to choose between credit and debit purchases on their existing cards by the end of next year.

Banks that fail to meet the deadline will be forced to offer all their card holders a mixed-used credit/debit card, it said.

The authority expressed doubts about the conflict of interest between the credit card companies and the commercial banks that own them because it means there was little or no competition for lending to card holders.

“The incentive to raise interest rates charged to credit card holders may not be restrained by fear of losing customers to bank loans, as those who provide the bank credit is the parent company of the credit card company, “ the report said.

Nevertheless, officials said they were not inclined to force the banks to divest their credit card businesses. Rather they urged the Knesset to approve legislation that would ease entry into the market for new competitors. If lawmakers and the Bank of Israel act, it said, new competitors could enter the market in a little more than a year from now.