Cade approves, with restrictions, joint venture between Itaú Unibanco and Mastercard
The Administrative Council for Economic Defense – CADE approved, in the judgment session of 11 May 2016, the joint venture between Itaú Unibanco and Mastercard for the creation of a new debit and credit card flag in the Brazilian market. To approve the transaction, the agency has imposed several restrictions to the parties (Merger File No. 08700.009363/2015-10), which will have 30 days to adjust the contracting and corporate documents of the transaction to move forward with the partnership.
The brand of the new card flag one of the restrictions. To avoid the “tumbling” of the current clients of Itaú’s cards with the Mastercard flag to the new flag, it was established that a new brand of payment cards must be created, which cannot refer to Itaú Unibanco or to Mastercard.
Another restriction is the creation of corporate governance rules. CADE understood that the composition of the joint venture’s administrative council as presented by the parties should be changed, because it would give veto power to Itaú. The agency determined the elimination of this prerogative, in a way the new company’s decisions are equally taken by the two parties.
CADE also imposed a duration period of seven years for the joint venture – the parties asked for 20 years. The reduction of time will allow CADE to re-examine the operation in light of the future market structure, after the effective entry of the new card flag, as well as assuring that the alleged benefits are effectively introduced in the market, in favor of the costumers. The introduction of new technologies that allow, for example, the creation of the so-called “e-wallet” and of “tap and go” payment mechanisms are among the benefits.
“The existence of a deadline reinforces the incentives to the fulfilment of the imposed conditions and of the commitments assumed by the parties in the contractual and corporate documents presented to CADE”, said the reporting commissioner, Paulo Burnier.
The obligation of transparency and non-discrimination is another condition imposed by the agency. Itaú Unibanco and Mastercard agreed to adjust the contract, in order to publicize to the market the single fees practiced, besides informing each “accrediting” about the portion related to the exchange fee passed on to the card issuer.
To Burnier, the restrictions imposed by CADE solve the competition problems verified in the analysis of the operation. “The Brazilian market of payment arrangements has unique characteristics and a high complexity level. The restrictions imposed in the session this Wednesday fit these particularities aiming at protecting competition among the different players in this sector”, stated the commissioner.
By approving the operation with restrictions, CADE’s Tribunal also recommended to the General Superintendence to analyze the contract of transaction processing services provision of the cards Hipercard through the system Banknet.
The document was submitted to the agency on 8 April 2016, period considered as insufficient to an accurate analysis, according to commissioner Burnier – considering that the merger was presented to CADE on 18 September 2015, and the agency has a maximum deadline of 240 days to complete the analysis. By the date of judgment, the case completed 233 days of analysis.