Irish Banks’ response to Revolut - the story so far
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Consumer expectation in relation to accessing financial services via digital channels has led to a rapid development in banking technologies and the emerging of neobanks (i.e. digital only financial services providers of different guises such as Revolut, N26, Starling, Yolt). According to the Business Insider, neobanks have approximately 39 million users, and that number is expected to rise to 98 million by 2024. Globally, traditional banking institutions are focusing on technology and innovation to remain competitive.
In early January of this year newspapers reported that Allied Irish Banks (“AIB”), Bank of Ireland (“BOI”), Permanent TSB (“PTSB”), and KBC Ireland (“KBC”) were in the process of setting up Synch Payments - a real-time money transfer solution and that the banks had chosen Italian fintech giant Sia (which is reported to be in the process of merging with Nexi) to provide the technology. The banks invested just under €5.9 million of initial capital into Synch Payments DAC - the joint venture company behind the plan.
On 21 January, the Competition and Consumer Protection Commission (“CCPC”) announced it had rejected as invalid a merger notification relating to a joint venture between AIB, BOI, PTSB and KBC (understood to be in relation to Synch Payments). It is important to note that the notification on behalf of the banks was on a voluntary basis as opposed to a compulsory basis.
Under the Irish Competition Act 2002, as amended (the “Act”), there are two circumstances in which a merger can be reviewed by the CCPC. The first is where the Act provides for a compulsory notification, while the second provides the parties with the option to voluntarily notify the CCPC of a transaction.
The obligation to notify a merger or acquisition within the meaning of the Act arises:
(a) where in the most recent financial year:
(i) the aggregate turnover in the State of the undertakings involved is no less than €60,000,000, and
(ii) the turnover in the State of each of two or more of the undertakings involved is not less than €10,000,000.
(b) in relation to a specific category of mergers, designated by the Minister for Trade and Employment, which must be notified irrespective of whether or not the thresholds for compulsory notification are met (and currently the only specific category is that of media mergers).
Even if a merger or acquisition does not satisfy the above thresholds of the Act, the CCPC may choose to investigate that merger if:
(a) among other things, the agreement between the undertakings involved aims to prevent, restrict or distort or results in the prevention, restriction or distortion of competition and trade in goods and services in the State.
(b) could result in the abuse of dominant position in trade in goods and services in the State.
The Act permits any of the parties to a non-notifiable merger to voluntarily notify that merger to the CCPC. Such notification may be made in writing by any of the undertakings involved after any of the following have occurred:
(a) one of the undertakings involved has publicly announced an intention to make a public bid or a public bid is made but not yet accepted;
(b) the undertakings involved demonstrate to the CCPC a good faith intention to conclude an agreement or a merger or acquisition is agreed; or
(c) in relation to a scheme of arrangement, a scheme document is posted to shareholders.
In addition, if the parties choose to notify a transaction, then there is an obligation to suspend the implementation of the transaction pending approval of the merger by the CCPC or failure by the CCPC to reach a determination prior to the expiry of the relevant time period. Implementing the transaction without clearance from the CCPS will result in the merger or acquisition being void.
Merger Review Process
As explained above, until a notified transaction is cleared, the parties must not put it into effect. If they do, the merger or acquisition is void as a matter of law.
Voluntary notifications are considered in the same way and under the same rules as compulsory notifications. The merger review process comprises an initial investigation period (phase 1) and, if necessary, a second stage full investigation (phase 2). The first step in phase 1 of the merger review process is the preliminary assessment of the merger notification by the CCPC to:
(a) ensure that the notified transaction is a merger or acquisition within the meaning the Act,
(b) consider, where appropriate, whether it is a media merger; and
(c) to confirm that all requisite information has been furnished.
In addition to the requirement to notify the CCPC in writing, the Act requires the undertakings involved to provide “full details” of the proposed merger or acquisition. The CCPC reads “full details” as requiring that the Notification Form be completed fully. The Notification Form requires the provision of information such as identification of the undertakings involved, description of the proposed transaction, details of the persons controlling the undertakings involved directly or indirectly, overlapping products and/or services and other relationships between the undertakings involved, and supporting documentation.
As soon as practicable after receiving a notification, the CCPC examines it to verify whether full details are provided. Where full details are not provided, the CCPC informs the undertakings involved that it is of the opinion that the full details required by the Act have not been provided. In such circumstances, the relevant notification will not be valid. The appropriate date shall be the date that the undertakings involved submit full details to the CCPC.
The Irish Banks’ Notification
The notification on behalf of the banks was made on a voluntary basis. Mergers and acquisitions between parties whose turnover does not exceed the thresholds noted above (and which are not media mergers) do not have to be notified, but they may be voluntarily notified to the CCPC by the parties. This is an option which is ordinarily used where the parties believe their transaction may be challenged in the courts on the grounds that it is likely to result in a substantial lessening of competition. In such cases, submitting a voluntary notification is advantageous because it not only obliges the CCPC to make a decision in relation to the notified merger within a set period of time but also because if the notified merger is cleared, a third party will be precluded from challenging it in the courts on competition grounds. In practice, few transactions are voluntarily notified to the CCPC.
When analysing whether the result of a notified merger will or will not be to substantially lessen competition, the CCPC focuses on the effect of the transaction on consumer welfare, especially by reference to the effect on indicators such as price, quantity, quality, consumer choice and innovation.
According to the official publication on the CCPC website, following a preliminary review of the notification, the CCPC:
(a) formed the view that the notifying parties did not provide full details of the proposed transaction as a result of which the CCPC was unable to determine whether the proposed transaction is a merger or acquisition within the meaning of the Act;
(b) has been unable to determine whether the proposed transaction should have been notified to the CCPC on a compulsory basis;
(c) rejected the notification as invalid.
The CCPC’s official publication states that it has written to the notifying parties informing them of its decision and expressed its willingness to further engage with the notifying parties in relation to the issues raised in its letter. The Irish Times later reported that Banking & Payments Federation Ireland (who are coordinating the project) expressed readiness to further engage with the CCPC in relation to the information required.
Because the initial notification was not valid, it remains to be seen whether the banks will provide the necessary information or will proceed without notifying the CCPC. The latter option seems unlikely not only due to both sides’ publicly expressed willingness to engage further but also because the joint venture involves some of Ireland’s largest banks and implementing the project without CCPC clearance would expose it to challenge on competition grounds in the future.