Share­hold­ers say JCC a mo­nop­oly again

Financial Mirror (Cyprus) - - FRONT PAGE -

The ba­sic facts lead­ing to the sus­pen­sion of op­er­a­tions at FBME Card Ser­vices are well known: Just be­fore 11 pm on 21 July 2014, the Cen­tral Bank of Cyprus cit­ing the FinCEN no­tices of 17 July, in­voked the Res­o­lu­tion De­cree against the Cyprus branch of FBME. This re­sulted in the “straight­jacket ban” on all FBME trans­ac­tions in Cyprus that lasted un­til, ef­fec­tively, 2 Septem­ber, a mea­sure that com­pletely stran­gled FBME Card Ser­vices (aka IMSP), a di­rect sub­sidiary of FBME Bank Tan­za­nia.

“There was no pos­si­ble route for­ward for FBME Card Ser­vices, an in­de­pen­dently li­censed or­ga­ni­za­tion,” the share­hold­ers of FBME Limited said in an an­nounce­ment is­sued Tues­day.

Ac­cord­ing to the share­hold­ers, “on 7 Au­gust op­er­a­tions were sus­pended and all out­stand­ing com­mit­ments to mer­chants were met. On 11 Au­gust, 72 mem­bers of the company’s staff were made re­dun­dant; three more were put on no­tice, while 30 re­main. But th­ese re­dun­dan­cies also have se­ri­ous im­pli­ca­tions for the coun­try as a whole.

“First of all, there is the cost of re­dun­dancy. Then there is the loss of fu­ture tax rev­enue from the company and from its staff. There are knock-on ef­fects on sup­pli­ers and many oth­ers. For ev­ery per­son made re­dun­dant there are many more in­di­rectly af­fected.

“Then there is the im­pact on card ser­vices gen­er­ally. Maybe if we had sev­eral card com­pa­nies this could have been min­imised. But in Cyprus there were just two com­pa­nies car­ry­ing out what is called ‘ac­quir­ing’. This means they sup­ply the ter­mi­nals and other equip­ment to shops, ho­tels, restau­rants and mer­chants, and follow up by pro­cess­ing trans­ac­tions be­tween mer­chants’ and the cus­tomers’ banks, and ar­range for the mer­chant to be re­im­bursed. For this ser­vice they charge the mer­chant a fee levied as a per­cent­age on each trans­ac­tion.”

Prior to Au­gust, the two com­pa­nies in Cyprus work­ing as an ‘ac­quirer’ were banks-owned JCC Pay­ments Sys­tems and the IMSP unit of FBME Card Ser­vices – now there is only one. With FBME out of the way there are huge im­pli­ca­tions for JCC, the share­hold­ers claim.

“JCC was founded in 1989 and was orig­i­nally owned by ten fi­nan­cial in­sti­tu­tions. To­day, the Bank of Cyprus has a 75% share of the business and the rest is held by a con­sor­tium com­pris­ing Hel­lenic Bank, Na­tional Bank of Greece, Pi­raeus Bank and Al­pha Bank. Orig­i­nally, JCC had the mar­ket to it­self and the level of its fees charged to mer­chants re­flected this mo­nop­oly sit­u­a­tion. They were high; prob­a­bly among the high­est in the EU - that’s the way of mo­nop­o­lies. This cer­tainly con­trib­uted to the over­all price paid for goods and ser­vices in Cyprus which have been long con­sid­ered to be ar­ti­fi­cially ex­pen­sive.

“What changed this was IMSP, which started to pro­vide a com­pet­ing ac­quirer ser­vice to mer­chants in 2008. Formed by a group of young Cyprus busi­ness­men, IMSP was a rad­i­cal start-up and made im­me­di­ate in­roads. It of­fered much bet­ter tech­nol­ogy such as ter­mi­nals at point of sale; it cut the fee charged to mer­chants to half of JCC’s level, and it also in­tro­duced a much bet­ter next-day set­tle­ment ser­vice, so mer­chants re­ceived their re­im­burse­ment within 24 hours rather than the slug­gish three days that it took JCC.

“JCC re­sponded by slash­ing its own rates and step­ping up its ser­vice qual­ity. Given that fees are of­ten passed on to the end con­sumer, it is likely that the launch of IMSP led to the sav­ing of mil­lions of euros by card­hold­ers in Cyprus. Com­pe­ti­tion showed what com­pe­ti­tion al­ways shows: ben­e­fits all around in a much health­ier en­vi­ron­ment.

“IMSP’s po­ten­tial was clear. FBME Bank ac­quired the company and its em­ploy­ees in 2012 in a friendly takeover. Since then IMSP has formed part of FBME Card Ser­vices.

“JCC re­acted with counter-com­pet­i­tive mea­sures tar­get­ing FBME clients. For the past five years there has been an in­ves­ti­ga­tion car­ried out by the Com­mis­sion for the Pro­tec­tion of Com­pe­ti­tion. A pre­lim­i­nary decision found for FBME Card Ser­vices in April 2014 and FBME will con­tinue to support this in­ves­ti­ga­tion to its con­clu­sion: it is im­por­tant for the Repub­lic of Cyprus that this is done. All mar­kets need com­pe­ti­tion.

“Since the un­fath­omable Res­o­lu­tion mea­sures in­tro­duced by the Cyprus Cen­tral Bank forced FBME Card Ser­vices out of the mar­ket, Cyprus has re­verted to a mo­nop­oly. Now what are we hear­ing? Pre­dictably, JCC’s fees to mer­chants are again ris­ing, squeez­ing mar­gins and, almost cer­tainly, con­tribut­ing to ris­ing prices in shops, ho­tels, restau­rants and other out­lets,” the FBME share­hold­ers con­cluded.

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