Traditionally, payments for goods or services offered abroad by credit or debit cards are made through the ‘Cross Border’ model, which uses the international payment networks of card franchises.
For five years, a new alternative model has been implemented, ‘Local Withholding Agent’ (LCA). Under this new system, agents create local entities in each country that directly connect foreign merchants with local payment systems and consumers.
Local agents under the LCA system transfer the resources received to foreign businesses without the need for the use and intermediation of card franchise networks, which would be a less expensive model. Several subscriptions and payments for streaming services are being made under this model.
According to the complaint filed by one of these local agents, Visa and Mastercard would be carrying out actions to block, eliminate or make the LCA model more expensive in several Latin American countries like Chile, Argentina, Peru, and Colombia.
Visa and Mastercard would also have offered local banks that the transactions in the LCA system be processed under programs created by the same two companies, which would imply that the additional costs and fees would increase the value of the transactions between seven and ten times the real value.
Moreover, they would have sent letters and communications to the banks in Colombia pointing out a possible breach of their conditions of use by allowing the LCA model and threatening the imposition of periodic and successive fines, as well as the revocation of the card licenses.
According to what was stated in the complaint, the programs created by Visa and Mastercard would come into operation in Colombia between the months of July and September 2022, which would mean an increase in fees in LCA model transactions that would range between 700% and 1000%, increasing the prices of goods and services offered by foreign electronic businesses and the exclusion of those businesses that do not adhere to the programs created by these franchises.
With this, the prices of the goods and services offered by foreign electronic businesses would increase, and those businesses that do not adhere to the programs created by these franchises would be excluded.
The Superintendence found pieces of evidence that led to a degree of certainty about the probable execution by Visa and Mastercard of the restrictive behaviours of competition.
Therefore, the warning from the Superintendence of Industry and Commerce seeks to prevent the two companies from limiting the free competition of payments in foreign currency to the traditional system, the ‘Cross Border’, which establishes that purchases must be made via a credit card.
As a precautionary measure, the Superintendency of Industry and Commerce imposed two orders on Visa and Mastercard. Firstly, to not implement any rule, program or measure that restricts the activity carried by LCA agents. Secondly, to suspend any type of communication, claim or threat against the entities that carry out the acquisition activity in Colombia to prevent them from continuing to contract with agents that offer the LCA model in the country.
The Superintendence of Industry and Commerce also urged financial entities and banks that carry out activities in the Colombian financial system to continue contracting with agents that offer the LCA model.
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