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Introduction.

1. Notification was made by Integrated Payment Systems Inc., (IPS) on the 9 November, 1995 with a request for a certificate under Section 4(4) of the Competition Act, 1991, in respect of a Moneygram Agency and Trust agreement between American Express Travel Related Services Company Inc., (AERTS) and JWT (Forex) Limited, its agent in Ireland.

2. This notification concerns an Agency and Trust agreement dated the 19 September 1995 between AETRS and an Irish company called JWT (Forex) Ltd for the provision of a money transfer service (“MoneyGram”) in Ireland. The notifying party is IPS, which at the time of the notification was wholly owned by First Data Corporation, which was 40% owned by American Express. The Agency and Trust agreement was initially made between AETRS and JWT but was novated to IPS before the end of 1996. The MoneyGram service has gone through several changes of ownership since the date of notification-see Section (f), “Subsequent Developments”.

3. A related “Payment Instruments Management Agreement”, dated the 13th of April 1992, between AERTS and IPS provided for the transfer of American Express’s interest in the International money transfer system to IPS. Under this agreement IPS acted as agent for AETRS and performed all the services associated with the MoneyGram service. IPS operated the MoneyGram service under American Express’s name and ownership from 1993 to 1996, when it acquired the necessary money transmission licences to operate under its own name.

4. The parties to the Agreement are Integrated Payment Systems Inc., American Express Travel Related Services and JWT (Forex) Limited. IPS is a company incorporated in the state of Delaware, USA and at the date of notification was a wholly owned subsidiary of First Data Corporation (FDC). FDC is involved in the information processing industry, with particular strength in the financial sector. Moreover, FDC is the largest processor of credit cards, debit cards and merchant transactions in the world. Its registered offices are at 6200 Quebec Street, Englewood, Colorado 80111, USA. FDC through its subsidiary, IPS, was engaged in the provision of payment instrument transaction processing services to financial institutions and to retail consumers. The transaction fees received by IPS from selling agents (17,000 world-wide) amounted to US$109m in 1994. IPS has no subsidiaries. It has no sales or turnover in Ireland except that arising by virtue of the activities of American Express.

5. At the date of notification, the American Express Company held 40% of the stock of FDC. It provides financial services to foreign travellers and issues money instruments. Although IPS and FDC were independent of American Express with their own management, American Express could exercise some control over IPS via the “Payment Instruments Management Agreement”.

6. First Choice Plc is the parent of Falcon/JWT Holidays. Falcon Holidays purchased the sun charter division of Joe Walsh Tours (JWT) for 5.3m in November 1995. Falcon/JWT Holidays had a turnover of £IR92m at the year end October 1998.

7. The parties submit that the product market is the international transfer of money. The MoneyGram money transmission service was offered in approximately 75 countries with IPS itself operating in 25 countries. The money transfer service enables customers to send money to various locations around the world.

8. A service transaction involves a sender, sending location, a receiver (claimant), a receiving location and service authorisation centre. A sender at a sending location requests that a designated amount be made available to a claimant at a receiving location. The transaction is authorised and conducted by telephone instructions to collect and disburse funds in separate locations. There is no direct transfer of funds (no wire transfer) between the receiving and sending locations. Rather, the Authorisation Centre acts as a clearing house for service transactions, verifying the particulars of the transaction from the sending location’s viewpoint, and, separately, authorising the receiving location to disburse a designated amount of funds to a designated claimant in a local currency. In this instance, the flow of funds is handled through IPS, the authorisation centre.

9. IPS submitted that American Express’s market share was currently very small with monthly income received amounting to US$10,000. Neither FDC or IPS currently owned a 25 to 50% shareholding in any organisation competing in the same market and no organisation competing in the same market held 25 to 50% of FDC/IPS.

10. Competition in the money transfer market comes from banks and other money transfer services, such as those offered by Western Union, Euro Currency and OmniGram. Money transfer for Western Union is performed by Fexco, Co. Kerry. Its agency network comprises 250-300 locations throughout Ireland, including, building societies, credit unions, hotels, pharmacies, travel agencies and retailers. EuroCurrency and OmniGram also operate in Ireland. In addition, all banks and other financial institutions with facilities to send money from one location to another are to some degree in competition with the MoneyGram service. For example, money transmission can take place via a number of payment instruments such as money order, check, giro, etc. There are also niche players in this market.

11. Entry into the Irish banking system is supervised by the Central Bank. There is no specific legislation governing entry in to the payments system itself. Rather, there are rules governing the payments system as determined by the Dublin Bankers Clearing, the Central Exchange and the Daily Interbank Settlement. Furthermore, the second Banking Directive 89/646/EEC sets out the conditions on which a credit institution authorised in one Member State has a right to establish a branch in, or provide a wide range of banking services into, another Member State on the strength of its home country authorisation. Money transmission services are covered by this “single passport”. [1]

12. The Authority considers that the relevant market in this case is the market for money transmission. The relevant geographical market is at least the State.

13. The notified agreement is an Agency and Trust agreement between AETRS and JWT (Forex) Limited (the seller). As AETRS was obliged under the terms of the Agreement to novate the existing Agency and Trust Agreement(s) to IPS in the future, an as this actually happened in 1996, the agreement is considered to be between JWT and IPS. Although the agents have signed contracts with AERTS they have no dealings with anyone other than IPS employees. IPS selects selling agents, negotiates contracts and determines fees to be remitted by selling agents with respect to the MoneyGram service. The Agency and Trust agreement is a standard contract intended to be concluded with a number of parties.

14. The agency agreement sets out the obligations of the JWT and of IPS regarding the provision of the MoneyGram service. IPS appoints JWT as its agent and trustee and authorises it to provide money transfer services. All trust funds held by JWT shall remain the sole and exclusive property of IPS. JWT will provide a money transfer service by operating as a sending location and a receiving location in accordance with the policies and procedures of IPS. JWT is required to deposit all trust funds into a separate Trust Account.

15. Article 3 relates to transfer send transactions. Article 3(a) provides that JWT will collect from the consumer the transfer amount together with the applicable consumer fee. Consumer fees are set by IPS. JWT is liable to IPS for the trust funds in any transfer initiated by JWT itself. Regarding transfer receive transactions, JWT agrees to pay the transfer amount according to the specified procedures. IPS will wire an amount equal to that paid out by JWT on each banking business day (Article 4).

16. Article 7 refers to commission. JWT is remunerated by way of a commission as follows: [ ] Article 7(b) allows IPS to vary from time to time the amount of commission payable to JWT, as IPS may sponsor special money transfer price promotional programs. Under Article 7(c) JWT agrees to pay IPS an agency fee, namely, [ ]

17. Article 9 requires JWT to maintain certain opening hours while Article 11(b) refers to termination of the agreement. The initial term of the agreement is for a period of 3 years. Each party must give 180 days’ notice (6 months) to terminate the agreement. Article 16 requires JWT to obtain written approval from IPS for the use of its name, logo, trade and service marks in any advertising. By Article 17, IPS requires JWT not to simultaneously act as agent or correspondent for any other money transfer service. In addition, JWT may not offer or sell any competing products with MoneyGram “during any notice period proceeding the termination of this agreement and for a period of 180 days following the termination of the agreement.” JWT may not disclose at any time confidential information.

18. The parties submitted that the provisions of the agreement do not have the effect of preventing, restricting or distorting competition. While there may be some restrictions on the activities of the agent, these are necessary to ensure that the money transmission service is efficiently and uniformly operated on an international scale.

19. The parties submitted that the relationship can be categorised as one of principal and agent. While IPS and its agents carry out distinct functions, IPS controls such matters as price, discounts and commissions. IPS submitted that the setting of the consumer fee in article 3(a) is to ensure that IPS can offer the service on a uniform basis world-wide. This provided transparency as regards transaction fees for the benefit of the consumer. Furthermore, IPS submitted that it has not entered into any arrangements with any other providers of a money transmission services to charge a particular rate of commission or transaction fee for the provision of the service.

20. In relation to remunerating JWT, IPS believed that the provisions of Article 7(a) and (b) of this agreement are consistent with earlier Authority decisions (Decision no. 374, [2] 375, [3] 376, [4] 400 [5] and 410 [6]) and as such believed the provisions to be reasonable.

21. IPS claims that requiring the agent to seek written approval for the use of the IPS name, logo, trademarks etc., is simply to protect the intellectual property rights of IPS and to obtain a “branded identity” for the service being provided by IPS through its agents.

22. IPS submitted that the exclusivity requirement is necessary to ensure the efficient operation of the MoneyGram service and to build brand loyalty. The local agent benefits from this brand loyalty when he signed up to be a MoneyGram agent. IPS believed that the six month non-compete clause is no more than is necessary to protect IPS business interests, given the level of investment made. Moreover, the exclusivity clause is restricted to locations where the MoneyGram service has been offered to consumers.

23. Finally, IPS believed that the introduction of its MoneyGram service in Ireland will greatly expand the number and range of outlets through which consumers can avail of this service.

24. Arguments in support of issuing a Licence were not given with this notification as the parties are seeking a certificate only.

25. The MoneyGram service was initially created in 1989 and was operated by a division of American Express Travel Related Services Company, Inc. (“American Express”). At that time, the money transmitter licences required by approximately 43 US states were obtained in American Express’s name. In 1993, American Express bundled its bankcard processing and financial instrument issuing businesses (including the MoneyGram service, American Express Money Order and Official Check operations) into a new entity, First Data Corporation, which it then spun off as a separate, independently managed company. American Express initially retained ownership of approximately 40% of First Data Corporation’s shares, but that ownership was reduced to less than 5% over a period of several years. The shares of First Data Corporation are publicly traded on the New York Stock Exchange.

26. When it was created, First Data Corporation organised its various businesses into separate operating companies. The MoneyGram service, American Express Money Order and Official Check business were operated by a wholly-owned subsidiary of First Data Corporation, named Integrated Payments Systems Inc. (“IPS”). At the time First Data Corporation was created, American Express granted it the right to continue using the “American Express” name and licences related to the financial services products for a period of five years. At the time the notification was made to the Competition Authority, IPS was in the process of obtaining the required money transmitter licenses. That process was subsequently completed in 1996. At that time First Data Corporation and IPS discontinued using the American Express licences and the “American Express” name.

27. In 1996, First Data Corporation merged with First Financial Management Company (“FFMC”). FFMC owned another international money transfer company, named Western Union Financial Services, Inc. (“Western Union”). As a condition of its approval of the merger, the US Federal Trade Commission required First Data Corporation to divest itself of either the MoneyGram service or Western Union. First Data Corporation elected to divest itself of the MoneyGram service and incorporated a new entity called MoneyGram Payment Systems, Inc. (“MPSI”). First Data Corporation sold its interest in MPSI through a public offering of MPSI’s shares on the New York Stock Exchange. The initial public offering took place on 11 December 1996. First Data Corporation retained no significant ownership of MPSI. In an arrangement similar to that which existed between First Data Corporation and American Express, MPSI was granted the right to operate under IPS’s US state money transmitter licences pending receipt of its own licences. MPSI obtained the necessary U.S. state licenses and discontinued relying on the IPS licences.

28. On 26th May 1998, MPSI was acquired by Travelers Express Company, Inc. (“Travelers Express”). Travelers Express is a payment services company, offering among other products Money Orders. In this regard, Travelers Express is a direct competitor of First Data Corporation, both in terms of Money Order products and international money transfer services. Travelers Express is a wholly owned subsidiary of Viad Corp., a multi-industry company with its shares publicly traded on the New York Stock Exchange.

29. Section 4(1) of the Competition Act, 1991, as amended, states that “all agreements between undertakings, decisions by associations of undertakings and concerted practices, which have as their object or effect the prevention, restriction or distortion of competition in goods or services in the State or in any part of the State are prohibited and void.”

30. Section 3(1) of the Competition Act defines an undertaking as “a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.”

31. The parties to the agreement are Integrated Payment Systems Inc., American Express Travel Related Services and JWT (Forex) Limited. American Express is engaged for gain in the provision of financial services to foreign travellers and issues money instruments and is, therefore, an undertaking within the meaning of Section 3(1) of the Competition Act. Integrated Payment Systems Inc., is also an undertaking, engaged in the provision of payment instrument transaction processing services to financial institutions and to retail consumers. It acts as agent for American Express and performs all the services associated with the MoneyGram service. JWT (Forex) Limited is an undertaking by virtue of the fact that it is part of Joe Walsh Tours and principally engaged in the provision of foreign exchange services. It also provides a MoneyGram service in the State. The Agreement is an agreement between undertakings having effect within the State.

32. While IPS is the notifying party, the Agency and Trust Agreement for the operation of the MoneyGram service was initially between AETRS and JWT. It is clear that the relationships among the parties have changed considerably since the date of notification. The MoneyGram service was divested by First Data Corporation, the parent of IPS, in 1996, as MPSI. It was acquired in 1998 by Travelers Express, a direct competitor of First Data. Nevertheless, the agency agreement between JWT and MPSI, the successor to IPS, remains in place, IPS having taken over American Express’s obligations in 1996 when it acquired its own money transmission licences. The Authority considers this to be a notifiable agreement under Section 7 of the Competition Act.

33. In its dealings with IPS, JWT does not act as an independent trader. JWT’s role, operating from its own premises, is to obtain customers who will send money through the MoneyGram service. The customer deals with JWT but the money transfer contract is made with IPS. Proceeds of sale are remitted to IPS and then payment of a commission is made by IPS to JWT. JWT does not have to purchase stocks of products nor pay IPS sums of money in advance for the entitlement to provide services. Moreover, JWT does not have the discretion to determine the price at which the MoneyGram service is to be sold or the terms on which the service is supplied to customers. JWT is obliged to obey IPS’s instruction in relation to carrying out the service. The Authority considers that the nature of the relationship created by the agreement is a principal-agent one. JWT is an intermediary between AETRS and the purchasers of money transfer services. It concludes the sale of the MoneyGram service on behalf of AMEX. The Authority considers that JWT is an auxiliary organ forming an integral part of AETRS MoneyGram service as it is not in a position to make independent commercial decisions within the terms of this Agreement. The Authority, therefore, concludes that JWT can be considered to be a commercial agent.

34. The Authority has stated in the Conoco consignee agreement [7] that the relationship of principal and agent does not in itself contravene Section 4(1), and that certain restrictions which are necessary to that relationship also do not offend. The arrangement is such that JWT acts for IPS, and is authorised to provide money transfer services on its behalf. It does not simultaneously act as agent or correspondent for any other money transfer service. The Authority takes the view that the “exclusivity” of the agreement does not prevent other payment systems providers from providing a MoneyGram service through other outlets or their direct sales forces. The Authority, therefore, considers that the agreement between IPS and JWT, insofar as it creates an exclusive agency relationship between the principal and the commercial agents, does not contravene Section 4(1).

35. The Authority has also stated in its decision on Conoco that, even though the basic arrangement of commercial agency may not offend against Section 4(1), certain clauses of the agreement may occasionally do so. In the Authority’s opinion many of the clauses in the notified agreement, which might otherwise raise issues under the competition act, arise from this basic arrangement and therefore do not offend against Section 4(1). These include the arrangements for exclusivity, the setting of prices and contract conditions by IPS, the payment of commission and fees.

36. Clause 17 of the notified agreement contains a 6 month non-compete clause following the termination of the agreement. The non-compete clause here is limited in scope and duration. It is restricted to locations where the MoneyGram service had been offered to customers by JWT and applies only for a period of 6 months. JWT is not prevented from offering money transmission services from other outlets or otherwise competing with IPS. The EU Directive on Commercial Agents provides for a maximum post-term non-compete clause of 2 years from termination. In its decision on Cerestar/Betco [8] the Authority took the view that a one year post-termination non-compete clause arose from the basic arrangement between Cerestar and Betco and did not contravene Section 4(1). The Authority considers that the provisions of clause 17 are reasonable. In the Authority’s opinion, none of the provisions in the notified agreement offend against Section 4(1).

37. In the Authority’s opinion, American Express Travel Related Services Company Inc., Integrated Payment Systems Inc. and JWT (Forex) Limited are undertakings within the meaning of Section 3(1) of the Competition Act, 1991, and the notified agreement is an agreement between undertakings. In the Authority’s opinion, the notified agreement did not have the object or effect of preventing, restricting or distorting competition and therefore did not contravene Section 4(1) of the Competition Act, 1991, as amended, during the period up to and including 11 December 1996

The Competition Authority has issued the following certificate

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the Agency and Trust agreement dated the 19th September 1995 between American Express Travel Related Services Company Inc., Integrated Payment Systems Inc. and JWT (Forex) Limited notified to it on 9 November 1995 (Notification No. CA/38/95) did not contravene Section 4(1) of the Competition Act, 1991, as amended up to and including 11 December 1996.