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Councils may have suffered because of ‘pre-paid cards’ cartel, according to provisional findings of regulator

Local authorities may have missed out on an alternative supplier of pre-paid cards or products that were either cheaper or better suited to both their needs and the needs of those using such cards, the Payment Systems Regulator (PSR) has said after provisionally finding that five companies engaged in cartel behaviour.

Pre-paid cards are used by local authorities to distribute welfare payments to vulnerable members of society, such as the homeless, victims of domestic violence and asylum seekers.

However, the regulator last month sent a statement of objections alleging that Mastercard, allpay, APS, PFS and Sulion had engaged in anti-competitive behaviour by agreeing not to compete or poach each other’s clients.

In the statement of objections the PSR alleged that there were two infringements of the Competition Act 1998 that took the form of market sharing/customer allocation:

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  • One lasting six years (between 2012 and 2018) and involving all five parties.
  • The other lasting two years (between 2014 and 2016) and involving APS and PFS.

The parties now have the opportunity to make representations on the provisional findings.

In February 2021 Mastercard, allpay and PFS agreed to settle with the PSR and admitted that they took part in the alleged anticompetitive arrangement(s).

Should the PSR ultimately conclude that there have been infringements, Mastercard, allpay and PFS have agreed to pay maximum fines totalling over £32m.

Chris Hemsley, the PSR’s Managing Director, said: “Collusion in payments is absolutely unacceptable. Where we see it happening, we will take action, stop it, and seek to impose significant penalties.”

The regulator said it had first started work on the investigation in October 2017. In February 2018, it carried out unannounced searches at a number of premises.

In its statement of objections, the PSR provisionally concluded that the parties coordinated their commercial behaviour to share the market and allocate customers in relation to the supply of prepaid card services used for welfare disbursements to public bodies in England, Scotland and Wales. The pre-paid cards operated on just one card scheme: Mastercard.

“Other than for a short period in 2016, Mastercard sponsored and wholly funded the National Prepaid Cards Network (Network), whose members were the public sector bodies potentially interested in prepaid cards (local authorities, etc) and the Mastercard programme managers (PMs). The Network was central to one of the cartels investigated by the PSR, which took place between 2012 and 2018,” the regulator said.

“The PSR has provisionally found that during this period the five parties arranged for the PMs which were members of the Network not to target or poach each other’s public sector customers that were in contract with other Network PM or were being provided services through a pilot programme by other Network PM. In the early days of the Network, the parties also colluded to exclusively allocate the leads from Network promotional events between the Network PMs.”

The PSR said that in addition, it had provisionally found that between 2014 and 2016 APS and PFS arranged not to target each other’s public sector customers when a contract was up for renewal, including through a public tender.

According to a report on the BBC, Mastercard blamed two former employees, and said it settled the matter "at the earliest possible opportunity." The report said the company would pay almost all of the £32m fines, which reflected its much larger size, not the degree of culpability.

The BBC meanwhile said Allpay claimed its staff were the ones who blew the whistle on the alleged cartel.

Sulion is said to have not admitted liability.

In a statement APS said: "We welcome last week’s announcement which provides some specific details around the focus of the PSR’s investigation. This concerns alleged competition issues within a market in which APS operated at very small scale and exited more than five years ago.

"We are currently evaluating the Statement of Objections received on Wednesday, but we are confident that our activities in this market did not cause any customer or market detriment. We have cooperated fully with the PSR’s investigation to date and will continue to do so.

"For the short time we operated in this market, our focus was on providing good value services to local authorities to help them support potentially vulnerable people. We did not make a profit from these services and it represented a very small, single-digit proportion of our revenues."

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