Brazil's competition enforcer has approved a joint venture that will introduce a new debit and credit card provider to the country's economy, but has imposed strict structural and behavioural conditions on the deal to tackle anticompetitive effects on an already highly concentrated market.
The joint venture between retail bank Itaú Unibanco and credit card company Mastercard was announced last September. In January, Brazil's General Superintendence of the Council for Economic Defence (CADE) issued an opinion that suggested the deal should be blocked.
Despite this, it was announced two weeks ago that the deal had been approved with commitments that will last for the next seven years.
The new entity must not refer to either Itaú Unibanco or to Mastercard in its branding, and the companies must not automatically transfer Itaú customers who already use Mastercard credit or debit cards to the new venture.
CADE has also banned a provision in the original terms of the venture that granted Itaú veto powers on the company's board. As banks and credit card companies both charge each other for various services, the competition enforcer sought to prevent Itaú from gaining additional influence over the joint venture and the market.
In January, the authority had expressed concerns about the vertical relationship between Itaú and retailers that use its credit card services. But the week before last, CADE said it was right to give Mastercard an equal share in the management of the new entity, as it would have less of an incentive to apply discriminatory conditions to other banks that compete with Itaú.
CADE imposed a duration of seven years on the joint venture, after which the authority will re-examine the market. Itaú and Mastercard will need to seek fresh approval of the joint venture should they wish to keep operating it after the seven-year deadline; credit cards in Brazil, on average, are valid for five to eight years.
After that time the companies will have to reapply to CADE if they want to continue with the joint venture. Seven years is the maximum period the authority has used in previous merger settlements.
The parties have also agreed to help introduce new technologies into the credit and debit card market that should benefit consumers. Both companies will use their existing infrastructure to introduce e-wallet and contactless payment technology to the Brazilian market.
Paulo Burnier, who oversaw CADE's review, said in a statement that the specific conditions are a reflection of the unique and complex nature of the payments market in Brazil. The seven-year deadline will help the authority ensure the commitments are met, he said.
Mastercard said it is pleased with the decision and is confident the tie-up will benefit consumers. "Our proposal to create a joint venture was done in accordance with current legislation, which seeks to foster increased competition in the market, more innovation, and more options for consumers," a spokesperson said.
Ademir Pereira Jr at Advocacia Jose Del Chiaro said the decision is important because of the nature of the credit and debit card markets in Brazil. "The industry continues to be highly concentrated and has several vertical integrations that are potentially harmful due to the high levels of concentration," he said.
Pereira said the authority will need to continue to monitor the marketplace to improve competition. "CADE has ultimately cleared recent deals that reinforced integrations and overlaps; it also requires a lot of attention now [for] behavioural matters," he said.
Counsel to Itaú Unibanco
BMA - Barbosa, Müssnich, Aragão - Partner Barbara Rosenberg and associates Jose Carlos da Matta Berardo and Guilherme Morgulis
Counsel to Mastercard
Pinheiro Neto Advogados - Partner Cristianne Saccab Zarzur and associate Marina Penn