Antitrust Authority director Ronit Kan has asked Visa credit card companies, Israel Credit Cards (ICC-Cal) and Leumi Card, to reduce their clearing fees prior to giving her approval for the renewal of the two companies’ joint clearing fee arrangement. Rather than an automatic renewal of the companies’ current five-year agreement which expires in September, Kan prefers that they draft a new agreement, which will include their consent to a reduction of the average clearing fee (the commission paid by a business to a clearing agency) from 1.25% to 1.15%. This reduction, if accepted, will cause the companies an annual revenue loss of NIS 80 million.
The two Visa companies, Leumi Card owned by Bank Leumi (TASE: LUMI), and ICC-Cal, owned by First International Bank of Israel (TASE: FTIN1;FTIN5), have an agreement for clearing of each others’ cards and of Mastercards. The agreement, which enables businesses to work with just of one of the companies and clear transactions made with both cards, caused fierce competition between the two over clearance margins, with the rate of movement by businesses between companies reaching 20% a year.
Visa’s rival, Isracard, owned by Bank Hapoalim (LSE: BKHD; TASE: POLI) has come out strongly against full cross-clearance agreements in the credit card market. Isracard provides clearance for its own cards and is unwilling to allow the Visa companies to clear transactions made using its cards. This gives Isracard a competitive advantage since businesses have to work with it if they want to carry out transactions with the company’s cards, Isracard and Mastercard.
Published by Globes [online], Israel business news - www.globes.co.il - on August 22, 2006
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