Israel's credit card market is expected to make room for new competitors within the next two years, following a directive issued on Tuesday by Antitrust Authority Director General David Gilo.
The authority notified Automated Banking Services, known by its Hebrew acronym Shva, that it must drastically change how it operates so that new players can easily and inexpensively join the country’s credit card market. Automated Banking Services is a privately owned company established by a consortium of Israel's five major Israel banks: Bank Leumi, Bank Hapoalim, Israel Discount Bank, and United Mizrahi Bank (now part of Mizrahi Tefahot Bank) and First International Bank of Israel (FIBI). The firm has until October 1, 2015, to implement changes that would allow its services for processing and clearing credit-based payments to be used by new competitors.
The Antitrust Authority said in its statement Tuesday that one of the main barriers for new credit card companies who want to enter the market is the difficulty in connecting to Shva's payment-processing systems. “This area is characterized by extremely restricted competition, and a number of attempts by players to enter the field...in the past have failed completely,” the authority said.
The authority also pointed to the decline in credit card interchange fees, which are paid between banks for the acceptance of card-based transactions, in recent years, adding that the share of clearance fees the transaction processing company has kept has increased significantly over time.
Three credit companies operating in Israel today are connected to Automated Banking Services’ system: Isracard, which is owned by Bank Hapoalim, Leumi Card, owned by Bank Leumi, and Israel Credit Cards-Cal (more commonly known as Visa Cal) owned by Discount Bank and FIBI. Together, according to the authority, the three companies generate close to NIS 1.2 billion in profits for the banks annually.
The authority's move could have far-reaching implications for the local banking system. The lack of competition in the credit card industry has helped the banks rake in billions of shekels per year thanks to fees charged to cardholders and businesses that accept credit cards and double-digit interest rates charged to credit card holders.