German banks may be open to sizeable damages claims after a regional court backed findings from the competition regulator that they acted as a cartel in blocking credential-sharing with third-party providers.
Three banking associations in Germany had appealed a 2016 decision by the country’s Federal Cartel Office, or Bundeskartellamt, ordering them to scrap contractual terms and conditions barring customers from disclosing their personal identification numbers (PINs) and transaction authentication numbers (TANs).
The terms and conditions had the effect of stifling the business models of payment initiation service providers (PISPs) and account information service providers (AISPs), but the banking industry argued that credential-sharing jeopardised the security of online banking.
Last week a regional court in Dusseldorf dismissed the banking association’s appeal, according to local media, although the written judgement is not yet available.
Since Germany transposed the EU’s revised Payment Services Directive (PSD2) in January 2018, banks have been legally compelled to open up account access. Once accompanying regulatory technical standards take effect in September, the third-party access regime will be fully formed.
However, the banks have vigorously defended the case because they fear damages claims going back to 2009, when the terms and conditions first became widely used.
The three associations involved in the case — the Association of German Banks (BdB), the National Association of German Cooperative Banks (BVR) and the German Savings Banks Association (DSGV) — said in a joint statement they “do not share the legal opinion of the Higher Regional Court Düsseldorf” and are mulling a fresh appeal.
“The customer conditions in question were necessary for the security of the online banking procedure,” the trio said.
“For that reason it will be necessary to examine, after the written grounds of the judgment have been given, whether a decision on that central question should be brought before the Bundesgerichtshof [Federal Court].”
Dr. Michael Jünemann, head of banking and finance at Bird & Bird in Frankfurt, said the banks could collectively be facing claims comparable to the recent €570m fine levied against Mastercard over historic anticompetitive conduct linked to interchange fees.
The lawyer said merchants could file claims “because they were forced to offer clients credit card payments instead of paying by SEPA credit transfer or its predecessors” through third-party payment providers.
In 2016, SOFORT’s then-chief executive told PaymentsCompliance the firm believed banks were using security arguments “as a pretext to defend their own economic interests”.
According to Jünemann, any potential claims could seek to calculate the difference between then-unregulated interchange fees levied by banks on acquirers — and by extension merchants — and the much lower fees charged by payment initiators.
“So the difference could have been 1 percent on the revenue, and then take Amazon’s revenue for I don’t know how many years, [calculate] 1 percent of it — there you are,” he said.
The original 2016 antitrust decision was spurred by complaints from third-party providers including SOFORT, now a part of Swedish payments firm Klarna.
“Klarna welcomes the Dusseldorf court decision on this important matter, most especially for German consumers and merchants, but we regret that such a decision had to be made at all,” spokesperson Aoife Houlihan told PaymentsCompliance.
“The European-wide PSD2 legislation framework which we as Klarna/SOFORT strongly advocated for now needs to be implemented properly to ensure it achieves the intended objectives for the market and consumers.
“Therefore, the content of this decision upholding the consumers right to share their credentials outside of the banking environment and to use third-party payment providers is extremely important and remains absolutely valid.”
Both Klarna and Giropay, a German PISP that supported the antitrust case, declined to comment on whether they intend seek damages. The Federal Cartel Office did not respond to a request for comment.