>Nets fee hike revisited

>About a year ago or so, I wrote 2 articles pertaining to the NETS fee hike. Links below.
http://wherebearsroamfree.blogspot.com/2007/07/lets-call-spade-spade.html
http://wherebearsroamfree.blogspot.com/2007/07/fee-hike-for-nets-part-2.html

All along, many believe that one way or another, these costs will be passed down to customers – be it legally or illegally.

Excerpts from Straits Times 30 July 2008
http://www.straitstimes.com/Free/Story/STIStory_262613.html

Heartland shoppers hit hardest by Nets fee hike

Store owners, who have trouble affording the system, pass the fees on to consumers
SOME mom-and-pop stores in the heartland are passing on an increase in Nets fees to consumers, despite being barred from doing so.

A Straits Times check with 80 retailers – ranging from provision shops to second-hand cellphone stores – found that one in three either charges customers to use Nets or place a minimum sum on their purchases.

The stores’ contracts with Nets, Singapore’s dominant player in the cashless transaction game, forbid those practices.

Store owners, however, said they are having trouble affording the system and have little choice but to pass the fees on to consumers.

Last September, the Network for Electronic Transfers (Nets) roughly quadrupled its fees. Store owners now pay the company up to 1.9 per cent of an item’s purchase price. This is on top of the cost to rent the Nets machine, which is between $40 and $80 per month, depending on the individual agreements.

NETS is a dominant player, and as I have argued before, is pulling its weight as a monopolist. (read my 2 earlier posts)

In my opinion, there really is no reason for NETS to increase the fees. Unlike other services, their overhead costs is minimal. Unfortunately, like so many other players very closely linked to the government, NETS will just keep bleeding retailers and consumers to poverty.

Time for consumers to boycott NETS?

>Fee Hike for NETS (Part 2)

>Made a post on 2 July 2007 on the subject of the NETS fee hike. http://wherebearsroamfree.blogspot.com/2007/07/lets-call-spade-spade.html

In the above post, I mentioned that if NETS has the ability to behave like a monopolistic entity and uses that to gain unfair advantage, it should be considered a monopolist and hence, be seen to have infringed the Competition Act.

Today, there is an article by an academic in the ST. (See article below at end of this post)

The writer says the same thing but in a different form. The writer’s main thrust appears to be found in this paragraph.

“Ironically, Nets’ fee increase means that we will soon know the answer. If the fee increase results in little or no impact on the number of retailers accepting Nets cards and the number of Nets transactions, the conclusion must be that Nets indeed has few substitutes. The lack of effective substitutes is crucial evidence of market dominance.”

The argument above is that since there is an increase in the fee, and if the market is not dominated by one player (NETS), then retailers and consumers will move away from NETS. However, if in spite of the increase in fees we see few or no retailers substituting NETS with other forms of payment, then truly NETS is a dominant player, and is in essence, a monopolist. This then requires the commission to have a re-look into the case that NETS has indeed infringed the Competition Act.

The writer is an academic. He presents his case in an academic way. I am not an academic but a ground guy. I work on the ground with the bolts and nuts.

To me, we don’t have to have a study to see if retailers would make the switch in the near future, to judge if NETS is a monopolist. To me, the fact that NETS has already tried to subdue retailers into accepting its terms that it would reduce its fees on condition retailers forgo other forms of payment, is enough evidence that it is a monopolist.

Only a monopolist is able to use its dominant stature to bully others into submission. NETS has done that. That is evidence enough for me that NETS is a monopolist. We don’t have to wait a few months to see if retailers switch modes of payment, for the commission to have a re-look. The commission should re-look into the matter NOW.

Straits Times Article

July 3, 2007

NETS FEE HIKE
A test of dominance

By Ivan Png, For The Straits Times

LAST Sunday, the Network for Electronic Transfers Singapore (Nets) raised its fees to merchants for debit transactions. The merchant fee varies by industry and transaction volume. Prior to the increase, the fee ranged between 0.35 per cent and 0.55 per cent.

From last Sunday, the highest fee will be 1.9 per cent, which is more than three times the previous high. Nets is reportedly offering lower fees of 1.05 per cent to 1.15 per cent to retailers who do not use other electronic payment facilities.

Nets was established in 1985 by Singapore’s local banks: DBS, Keppel Bank, OCBC, OUB, POSB, Tat Lee Bank and UOB. With subsequent consolidation of the banking industry, Nets is now owned by just three banks – DBS, OCBC and UOB.

It is common practice among banks that issue credit and debit cards to levy an ‘interchange fee’ on all transactions. For instance, if I charge $100 to my Citibank Visa card at Harvey Norman, then Citibank would collect a percentage of the $100 in an interchange fee.

Historically, the banks issuing Nets cards did not require Nets to pay the interchange fee to them. However, Nets now contends that if it does not pay an interchange fee, its shareholder banks would cease to issue Nets cards. The increase in the merchant fee effective from last Sunday is to cover an interchange fee as high as 1.45 per cent.

In Singapore, Nets terminals are almost ubiquitous. Indeed, its corporate website declares proudly: ‘With 30,000 points of access at 19,000 outlets, Nets has become an almost indispensable method for day-to-day purchases.’

Merchants also pay a monthly fee of between $60 and $80 for each Nets terminal. Nets’ annual revenue from these subscriptions would exceed $21.6 million.

Hence, it was not surprising that the Consumer Association of Singapore (Case) complained about the fee increase to the Competition Commission of Singapore (CCS). However, the CCS decided that the fee increase did not infringe Section 47 of the Competition Act.

Section 47 prohibits any business from abusing a dominant position in its market. In justifying its decision, the CCS appeared to take the position that Nets does not have a dominant position.

Although Nets itself proclaimed its card to be ‘almost indispensable’, the CCS stated that there were many substitute payment methods, including credit, debit and ez-link cards.

Last year, the CCS commissioned New Zealand consultants Castalia to study the competitiveness of payment systems in Singapore. One presumes that the Castalia report would have had a bearing on the CCS view on Nets’ fee increase. If so, and in any case, for transparency of government, shouldn’t the CCS publish the results of the Castalia study?

The key issue in whether a business has a dominant position is its share of its market.

Payments by Nets are limited to a maximum of $500. Many retailers will not accept credit cards for small transactions, but will accept Nets. Petrol stations will not accept credit cards for purchase of parking coupons, but will accept Nets. So, if the relevant market is for small transactions, are there indeed so many substitutes as the CCS asserts?

Ironically, Nets’ fee increase means that we will soon know the answer. If the fee increase results in little or no impact on the number of retailers accepting Nets cards and the number of Nets transactions, the conclusion must be that Nets indeed has few substitutes. The lack of effective substitutes is crucial evidence of market dominance.

Hopefully, Case and the CCS will make sure to collect the appropriate data to determine the impact of the Nets fee increase. With this information, it would then be possible to empirically establish whether Nets has a dominant position in its market.

If Nets does indeed have a dominant position, then it would be prohibited from discriminatory practices that limit competition. In this light, it would be interesting to know whether the CCS considers a merchant fee that is conditional on the merchant not using other payment systems to be anti-competitive.

Dr Ivan Png is a professor of information systems, business policy and economics at the National University of Singapore, and partner of Economic Analysis Associates. The opinions expressed here are personal.

>Let’s Call a Spade, A Spade

>It looks like monopoly, it sounds like monopoly, it behaves like monopoly….well, what do you know? It is monopoly!

The Competition Commission of Singapore’s conclusion that the fee increase by NETS is not an infringement of the Competition is nothing short of a farce. (Refer to Article 1 at the end of this post)

The reason given that there are alternative modes of payment like credit cards, debit cards and EZ link cards does not give a true picture of the real world that is happening in the retail sector.

A monopolist is able to control the market. It is able to control the market such that consumers are disadvantaged. In the case of NETS, while it is true that there are alternative modes of payment, those who do make use of such payments form a small portion of consumers. By and large, the average consumer depends heavily on NETS.

If the proportion of NETS users is such that it is so large, hence the market begins to behave such that NETS has the ability to bully other parties into submission, then technically, NETS should be considered a monopolist.

If an institution has the ability to behave like a monopolist, then it is only fair that the institution be considered a monopolist. Giving excuses that it is not, allows the monopolistic institution to bully other parties, consumers included.

The evidence that NETS displays monopolistic behaviour can be found in Article 2 at the end of this post.

NETS has set a condition on retailers that to enjoy a lower fee, they have to abandon other modes of payment, including use of credit cards. If this is not monopolistic behaviour, bullying other parties into submission, then what is it?

The Competition Commission of Singapore should take this latest development into consideration. If a party behaves like a bully, then let’s brand it a bully.

In other words, if NETS behaves like a monopolist with no real competitors, then let’s brand NETS an “infringer” of the Competition Act.

Let’s be brave and call a spade, a spade.

But alas, the Commission, like CASE and all other government controlled bodies, is not interested in consumers’ or retailers’ interest.

Come to think of it. This latest farcical event, like the GST hike, like the overblown ministers’ pay, like the Means Testing and all other events, is actually a non-event. Singaporeans have learnt to live with it.

Article 1 (From Channel News Asia Website)

NETS fee hike does not infringe Competition Act: competition panel

25 Jun 2007 1432 hrs (GMT + 8hrs)

SINGAPORE: The Competition Commission of Singapore has concluded that the impending fee increase by NETS is not an infringement of the Competition Act.

It will therefore not be taking any further action at this point in time.

The Commission made the statement after reviewing available information, following a complaint filed by the Consumers’ Association of Singapore (CASE).

NETS had announced that it would be increasing its fees from July 1.

The Commission clarified that it is not generally within the purview of the Competition Act to review or regulate pricing decisions.

It said the Act is only relevant when a party acts in a manner that abuses its dominant position.

The Commission added that in this case, there are alternative payment methods such as credit, debit and EZ-Link cards that consumers can use.

Section 47 of the Competition Act prohibits firms with dominant market power from abusing it in ways that are anti-competitive and work against long-term economic efficiency.

CASE has expressed its disappointment over the Commission’s decision not to take action on the the NETS fee increase.

It is concerned retailers may pass the increased NETS transaction fees onto consumers, despite NETS saying that retailers are not supposed to do so.

CASE has advised consumers to ask retailers about additional costs, check receipts and report retailers who pass on the increased NETS fee to consumers.

It also stressed that banks have the responsibility to support NETS but they could keep interchange fees low.

Article 2 (From Straits Times Interactive)

July 2, 2007

Nets trims some retailers’ fees – with a catch

By Lim Wei Chean

THE Network for Electronic Transfers (Nets) has softened its stance on its recently announced fee increase by offering some retailers a better deal – with a catch.

Four heartland merchant associations, with about 4,000 members, have told The Straits Times that Nets has offered to charge them a lower rate, but only if they do not have other debit or credit payment facilities.

But this may work against consumers as it means less payment options if retailers take up Nets’ offer.

The electronic payment company declined to comment on the issue, saying that these are ‘commercially sensitive’ special rates.

The Straits Times understands that Nets retailers with no other cashless facility will be charged from 1.05 per cent to 1.15 per cent of purchases. Nets will also offer up to 25 per cent rebates on fees paid by these retailers until December.

The new rates, effective from yesterday, are lower than the 1.5 per cent to 1.7 per cent of purchases that retailers previously said they were to be charged.

Prior to this increase, Nets had charged retailers from 0.35 per cent to 0.55 per cent of purchases.

Mr Poh San Jin, chairman of the Bras Basah Merchants’ Association, said in Mandarin: ‘The new rate is more acceptable than the last.’

However, two association chiefs remain unhappy with Nets’ latest carrot.

Mr Chua Ser Keng, president of the umbrella Federation of Merchants’ Association, said the latest offer is unfair as it benefits only retailers without credit card facilities or those willing to give up other payment modes. And it is the consumer who will have the most to lose as the public will have fewer payment options, he added.

Mr Chua, who owns a pet shop, said he will not give up his credit card facilities as more than 50 per cent of his customers pay by credit cards, and only 30 per cent by Nets. The rest use cash.

He said in Mandarin: ‘Most consumers are used to spending on credit now. They also tend to buy more when spending on credit. If we take that away, our sales will be adversely affected.’

Mr Hiang Meng, president of the Toa Payoh Central Merchants’ Association, said that even though credit card companies impose higher transaction charges – Visa charges 2 per cent, while American Express charges 3 per cent – Nets’ tactics may push retailers to abandon Nets.

This is because consumers prefer using credit cards when paying for big-ticket items as they can earn reward points, and they will also not feel the pinch immediately.

Mr Hiang said credit card terminals are also more versatile as they can take both credit and debit cards.

Two credit card companies contacted did not want to comment on Nets’ latest move.

Although Nets was cleared by the Competition Commission of Singapore of abusing its monopoly position by increasing fees, offering special rates on condition that merchants give up credit card terminals may run afoul of the Competition Act, said a lawyer who specialises in such matters.

She told The Straits Times yesterday that while it may not be a problem for Nets to offer this to existing customers, it may be anti-competitive for it to demand that new clients give up other forms of electronic payment.