Payment at businesses through the banks' payment apps - bit, Pepper Pay, and PayBox - will be restricted for the next two and a half years, the Bank of Israel, headed by Governor Prof. Amit Yaron, ruled today. Use of these apps, however, will not be completely blocked; it will be permitted under certain conditions.
The aim of the restriction is to provide protection for the credit card companies, especially Isracard and Max (formerly Leumi Card), which became independent companies when they were sold by Bank Hapoalim and Bank Leumi as a result of the reform aimed at bolstering competition in the credit market.
The Bank of Israel ruled that activity of each of the banks in payment apps would be restricted where businesses were concerned, but not among the general public and private individuals. This restriction will be for up to NIS 2 billion for each bank in aggregate turnover in payment deals by businesses in 2019, up to NIS 2.5 billion for each bank in 2020, and up to NIS 3 billion for each bank in 2021.
The banks, whose current turnover in payment apps deals is estimated at NIS 1.6 billion, will therefore by allowed to greatly increase their current market shares, but will not be allowed to utilize their full power with businesses.
"The volume is very limited in comparison with the current means of payment in the market. For the sake of comparison, the credit card companies' activity turnover is NIS 300 billion a year, 20% of which is small businesses," the Bank of Israel stated, but added that the restriction was limited in time, because it wanted "to support increased competition in the payments sector."
Temporary victory for the credit card companies
The Bank of Israel's ruling is ostensibly beneficial to credit card companies Isracard, which became a public company in April; Max, which was sold earlier this year to the Warburg Pincus fund; and ICC-Cal, owned by Israel Discount Bank and First International Bank. For the credit card companies, the restriction on the banks is temporary, but not insignificant.
On the other hand, the partial entry now permitted for the banks will change the balance of power in everything pertaining to the connection between the credit card companies and a large proportion of their businesses, which pay clearance commissions of up to 2.5% of the deal.
A few moments after the Bank of Israel's decision was published, Bank Leumi released a announcement under the heading, "The payments revolution in Israel is reaching a new level." The announcement says that the Pepper Pay app can be used as a connection to Idea Information Systems in order to sign agreements for "making digital payments at hundreds of businesses around Israel directly through a mobile phone, without a credit card or cash… The agreement includes leading chains, such as Aroma, Duty Free, and the Golf group." It appears that the commissions for Bank Leumi's payment application for these concerns will be lower, even as low as 1.1%, which could change the equilibrium point for segments of the credit card companies' customers.
This is not necessarily the case, however, for businesses that need the credit card companies. What about smaller businesses? Today, many businesses have trouble getting service from the three credit card companies, certainly the payment is not large, and they sometimes use corporations and other providers of clearance solutions. Ostensibly, these concerns could benefit from free entry of applications, but it appears that these businesses will be left in the same situation as now.
The biggest news for the banks is that the long period that they have waited for a decision is at an end. They see light at the end of the tunnel, but there are senior officeholders at the banks who are worried that meanwhile, international applications and electronic wallets, such as Google Pay and Apple Pay, will grab part of their market share. Banking system sources also assert that the restriction applying to the applications for now will prevent a change in the market and lower price for businesses, and possibly also for customers as a result.
These statements were made following the recent increase in prices for services by the two credit card companies that left the banking system and became independent companies this year.
Published by Globes, Israel business news - en.globes.co.il - on July 10, 2019
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