First Commercial Bank and 7 Other Financial Institutions

1216th Commissioners' Meeting

Case:

First Bank and 7 other financial institutions applying for permission to extend their concerted action of the “Pan-public Bank Credit Card Alliance”

Keyword(s):

Credit card, concerted action permission, financial institution

Reference:

Fair Trade Commission Decision of February 25, 2015 (the 1216th Commissioners’ Meeting), Letter Kung Lian Tzu No. 104002

Industry:

Banks (6412)

Relevant Law(s):

Articles 15 and 16 of the Fair Trade Law

Summary:

1. First Commercial Bank Co. Ltd. (hereinafter referred to as First Bank) and seven other banks having government agencies on their lists of shareholders formed the “Pan-public Bank Credit Card Alliance” to promote their credit cards by offering users discounts at specific retail outlets and free gifts. Earlier, the FTC decided to approve the formation of the alliance at its 1063rd Commissioners’ Meeting on Mar. 21, 2012 with conditions attached. When the approved period expired on Mar. 1, 2015, the said banks acted according to Paragraph 2 of Article 15 of the Fair Trade Law before amendment and applied to the FTC for permission to extend the concerted action.

2. After reviewing the application, the FTC concluded that the content of the concerted action of the “Pan-public Bank Credit Card Alliance” included joint registration and possession and use of the trademark, images and domain name of the “Pan-public Bank Credit Card Alliance” whereas the participating banks would also work cooperatively to promote business. The condition met the description of “unifying the specifications or models of goods or services for the purpose of reducing costs, improving quality, or increasing efficiency” set forth in Subparagraph 1 of Paragraph 1 of Article 15 of the Fair Trade Law. In the meantime, the participating banks also worked together to negotiate the contents of special offers with specific stores and the results applied to all the participants. This part of the deal met the description of “joint research and development on goods, services, or markets for the purpose of upgrading technology, improving quality, reducing costs, or increasing efficiency” specified in Subparagraph 2 of Paragraph 1 of Article 15 of the Fair Trade Law. In addition, the implementation of the concerted action in this case also met the requirement of “beneficial to the economy as a whole and in the public interest” prescribed in the proviso of Paragraph 1 of Article 15 of the Fair Trade Law.

   (1)	When reviewing the application from First Bank and the said seven financial institutions for approval to form the “Pan-public Bank Credit Card Alliance” at its 1063rd Commissioners’ Meeting on Mar. 21, 2012, the FTC had already analyzed the nature and content of the intended concerted action, the market power of the participating banks, whether exclusivity existed and likely effects on market competitors that were not part of the alliance. The FTC then reached a conclusion was that the formation of the alliance would not lead to any significant competition restriction.
   (2)	During the aforesaid meeting, the commissioners also considered that the intended concerted action could result in positive effects of cost reduction and quality improvement, both of which could enhance efficiency while the content of the action also would not go beyond the necessary degree for efficiency enhancement. Furthermore, credit card holders and the specific stores could also share the positive results to a reasonable extent. The FTC believed the concerted action would be beneficial to the economy as a whole, serve the public interest and thus decided give its approval with conditions attached.
   (3)	First Bank and the said seven financial institutions signed the “Pan-public Bank Credit Card Alliance” agreement on Sep. 5, 2014 with the purpose of conduct transactions with stores providing special offers. However, the participating banks have never fully executed the content of concerted action as they planned and it is true that there had not been any significant change in structure of the credit card service market since the said first application. According to the credit card business statistics from the Financial Supervisory Commission, the HHI (Herfindahl-Hirschman Index, a commonly applied measure of market concentration) of the time when the first application was filed and current data showed that the credit card service market did not become more concentrated during the period in between. In addition, the aggregate market share of the participating banks of the said Alliance also did not grow any bigger after the first application. Furthermore, the content of the application for permission submitted this time to extend the concerted action was the same as that of the previous application. In other words, there was no new factor that could lead to competition restrictions on the market at issue.

3. Based on the above analysis, the FTC concluded that continuation of the concerted action in this case would be beneficial to the economy as a whole and serve the public interest. Citing Paragraph 1 of Article 15 and Paragraph 2 of Article 16 of the Fair Trade Law, the FTC approved the concerted action to be extended for another five years form Mar. 2, 2015 to Mar. 1, 2020. However, to eliminate doubts about the likelihood of competition restrictions thereof incurred and also to supervise the actual execution of the concerted action, the FTC cited Paragraph 1 of Article of the Fair Trade Law and approved the extension with attached conditions that are the same as those attached to the previous decision made by the FTC in 2012.