DEPARTMENT OF JUSTICE
Antitrust Division
ANDREW
C.
FINCH
Acting Assistant Attorney General
RFK
Main
Justice
Building
950
Pennsylvania
Avenue,
N.W.
Washington,
D.C.
20530-0001
(202)514-2401 / (202)616-2645
(Fax)
September 21, 2017
Mr. Richard Taffet
Morgan, Lewis & Bockius LLP
101 Park Avenue
New
York,
NY
10178
Re: The Clearing House Payments Company LLC Business Review Request
Dear Mr. Taffet:
This letter responds to your request
on
behalf
of
The Clearing House Payments Company
LLC
("TCH") for a business review letter from the Department
of
Justice pursuant to the
Department's Business Review Procedure, 28 C.F.R. ยง 50.6. Specifically, you have asked for a
statement
of
the
Departmenfs
present enforcement intentions regarding TCH's proposal to
create and operate a new real-time payment rail, the Real Time Payment system ("RTP" or "the
RTP
system").
1
Based
on
the information and representations you provided, and after a thorough
review, the Department presently does not intend to challenge RTP for the reasons explained
below. In accordance with the Department's usual practice, however, it reserves the right to
challenge RTP
in the future
if
RTP's operations are determined to
be
anticompetitive in purpose
or effect.
I. Backgroutnd
2
TCH is a joint venture owned by 24
of
the largest banks
in
the United States.
3
TCH's
owner banks hold approximately 60%
of
all U.S. deposits. TCH is led by a Supervisory Board
1
Letter
from
Richard Taffet, Esq.,
Morgan,
Lewis & Bockius
LLP,
to
Renata Hesse, Acting Assistant Att'y
Gen.,
U.S. Dep't of Justice
(Oct.
11,
2016) [hereinafter Request Letter];
see
also
Letter from Richard Taffet
to
Stephanie
Beckett, Att'y Advisor,
U.S.
Dep't ofJustice
(Jan.
10,
2017)
[hereinafter Further Submission].
2
All
facts
set out in
this
section regarding
the
proposed
RTP
system
are
based on TCH' s
repres.entations
to
the
Department.
3
TCH's
owner
banks
are:
Bank of America, N.A.; Bank of the
West;
Barclays; The Bank of
New
York
Mellon;
Branch Banking
and
Trust Co.; Capital
One,
N.A.; Citibank,
N.A.;
Citizens Bank; Comerica
Bank;
Deutsche Bank
Trust
Co.
Americas; Fifth Third
Bank;
HSBC
Bank
USA,
N.A.;
JP
Morgan Chase Bank,
N.A.;
KeyBank N.A.;
and a Managing
Board,
which both consist of senior executives of the owner
banks.
4
TCH' s
owner banks
contribute
funds
to
TCH,
but they
do
not receive dividends.
TCH
proposes
to
introduce a new "payment rail" that
is
faster than current payment rails.
Payment rails
(also
called "payment systems") are the systems that depository institutions
use
to
transfer money
among
themselves. Existing payment rails include wire,
automated
clearing
house ("ACH"),
and
check clearing
houses.
TCH
and
the Federal Reserve
System
(the
"Federal
Reserve") are
the
only
operators of
the
U.S.
wire
and
ACH
rails, with TCH processing roughly
half of the
volume
of each rail.
Payment
rails
are
used by
banks,
thrifts,
and
credit unions (hereinafter referred
to
as
"banks"),
as
well
as
by "payment service providers," which
are
non-bank entities that provide
end users with
the
ability
to
send
or
receive
funds.
5
Banks and payment service providers offer
services that
allow
end
users to transfer usable
funds
between each other ("fund-transfer
services"). Both
banks
and payment service providers generally need
to
use payment
rails
to
facilitate their
end
user customers'
fund
transfers
to
or
from
accounts held
at
other
banks.
In 2015,
the
Federal Reserve announced an interest in the industry developing a
"ubiquitous, convenient
and
cost-effective
way
for
U.S.
consumers
and
businesses
to
make
(near) real-time
payments
from
any
bank account
to
any
other
bank account."
6
TCH's proposal
is, in part, a response
to
the encouragement of the Federal
Reserve.
A.
Description of RTP
RTP will
allow
banks
to
complete near-instantaneous
fund
transfers between
each
other,
from authorization
to
clearing
to
settlement,
at
any
time of the
day,
on any
day
of the week
(including
weekends
and
banking holidays).
As
such,
RTP
will facilitate real-time
fund
transfers
between end
users.
In
addition,
RTP
will provide banks
(and,
in tum,
end
users)
with
the
ability
to
send remittance-advice messages through
RTP.
This
will facilitate end users' linkage of
payments to remittance information.
Manufacturers
and
Traders
Trust
Co.;
MUFG
Union
Bank;
PNC
Bank,
N.A.;
Banco
Santander;
State
Street Bank &
Trust
Co.;
SunTrust;
The
Toronto-Dominion
Bank;
UBS
AG;
US
Bank
N.A.;
and
Wells
Fargo,
N.A.
4
In
addition,
City
National
Bank and First
Citizens
Bank share a
seat
on
TCH's Managing
Board.
5
According
to
TCH,
"[e]xamples
of
[payment
service
providers]
include
PayPal,
Apple (in
its
role
as
the
provider
of
ApplePay),
Venmo,
Dwolla,
and
Square."
Request
Letter,
supra
note
1,
at
4.
As
is
the
case
with
some
of
the
other terms used
in
this
letter,
industry participants
sometimes
apply
different meanings
to
the
phrase
"payment
service provider."
6
FED. RESERVE SYS., STRATEGIES
FOR IMPROVING THE U.S.
PAYMENT SYSTEM
8-9
(2016),
https://fedpaymentsimprovement.org/wp-content/uploads/strategies-improving-us-payment-system.pdf.
The
Federal
Reserve stated that
it
"would
not consider
an
operational role
in
providing
this
faster payments capability
unless
it
determines, not
only
that
the
new
service
would
be
expected
to
yield
clear
public benefits, but
also
that
other
providers alone
could
not
be
expected
to
provide
this
capability with reasonable effectiveness,
scope
and
equity
and
following public
comment."
Id
at
18.
2
End users will not have a direct relationship with RTP. TCH will not be involved
in
the
development or pricing
of
real-time fund-transfer services that banks offer to their end user
customers
that
use RTP. According to TCH, its antitrust policies "will guard against the use
of
the RTP system to facilitate competitor collaborations" on "the real time products and services
offered by a depository institution" and ''the pricing for those products and services."
7
TCH
plans that any end user with a bank account will be able to make payments through
RTP. RTP will be open to all federally-insured banks, including non-TCH banks. Any bank can
choose to connect
to
RTP directly. Alternatively, TCH agreements with third party technology
vendors will allow banks to connect indirectly to RTP. Banks will also be able to connect to
RTP through corporate credit unions and bankers' banks. Many banks already use these third
parties to connect to existing payment rails. Payment service providers will
be
able to connect
to
RTP
by
partnering with banks and complying with certain rules, such as a requirement
to
post a
surety bond.
8
B. Request for Payment Function
TCH
will implement a request for payment ("RFP") function
as
part
of
its RTP rail,
which will allow banks to develop enhanced electronic messaging services for their end users.
Through the enhanced messaging services, the RFP function will enable end users to send
in
real
time a request for payment along with information, such
as
an invoice, through the rail itself.
Effectively, this will enable a biller to send a bill to a payer through their respective banks. The
RFP function complements RTP's enhanced messaging capabilities
by
allowing a bank
to
build a
service that lets a biller automatically link an RFP invoice to an RTP payment and any
remittance advice message accompanying the payment, which may reduce businesses' costs
of
reconciling invoices with remittance information. TCH represents that its goal for RFP is for
banks to establish easy-to-use mechanisms that allow payers to respond to RFPs using RTP,
creating a seamless e-billing and e-payment experience for end users.
C.
Fees
RTP will charge banks two kinds
of
usage fees. First, banks will pay "network fees" to
TCH
each
time
the bank uses RTP to send a payment, an RFP, or a remittance message. These
network fees will be determined
on
a cost-plus basis and will not include any volume discounts.
'"[N]etwork fees' will be incurred only.based on actual usage
of
the RTP system, so no financial
penalty will attach
if
a transaction is cleared and settled over another payment system."
9
TCH's
owner banks will not be paid any portion
of
the network fees. According to TCH, the network
7
Request Letter, supra note
1,
at
13.
8
TCH represents that the surety bond imposed
will
cover "claims only that
(i)
relate directly
to
the
RTP
system,
and
(ii) are
for
losses that exceed coverage under state bond obligations." Further Submission, supra note
1,
at
3.
9
Request Letter, supra note
1,
at
14.
3
fees will be used "to reimburse TCH for its costs of operating the RTP system, and to support
TCH's
continuing innovation
of
new functions and features for the system."
10
Second, TCH plans to implement an interbank
fee
for using RFP, called the "RFP
Incentive Fee."
11
The RFP Incentive Fee will
be
paid by the biller's bank to the payer's bank,
but
only
if
the payment requested via
the
RFP message is completed using RTP. This RFP
Incentive Fee will reward banks whose payers respond to RFPs by making RTP payments. TCH
contends that payers currently
do
not have an adequate incentive to use e-billing, even though
doing
so
would
be
economically efficient, and the RFP Incentive Fee could help correct this
problem. Thus, for example, a bank
may
be incentivized by
the
incentive fee
to
build an
interface that makes it easy for end-user payers to respond to RFPs
by
making payments through
RTP. TCH asserts that the RFP Incentive Fee is necessary to achieve sufficient scale.
The RFP Incentive Fee will be a flat per-transaction fee that will be set by a panel
of
two
or three outside economists. TCH' s CEO will have the authority to reject the panel's
recommendation and refer the matter back to
the
panel for further consideration, while stating
specific grounds for doing
so.
After considering the CEO's position, the panel may, but will not
be required to, change its recommendation. The panel members will be selected
by
members
of
TCH's
senior management and counsel, not by TCH's Supervisory Board or Managing Board.
The economists selected for the panel will be compensated at their standard rates, will be given
renewable five-year contracts, can be terminated only for nonfeasance or malfeasance, and will
meet at least annually to determine whether to change the fee. According to TCH, the panel's
goal will be "ensuring that [the RFP Incentive Fee] properly balances biller and payer interests
and remains
in
equilibrium."
12
For both
of
these kinds
of
fees,
TCH
has represented that
it
will not impose anti-steering
rules. That is,
RTP's
rules will preserve bank customers' ability to steer usage away from the
RTP payment rail.
For
example, the rules will allow a biller to include surcharges in bills to
cover the fees the biller must pay and allow a biller to provide its customers with incentives
(either monetary or in-kind) to use another method
of
payment, including particular brands
of
payment. Also,
TCH
will not be involved in the pricing
ofRTP
or RFP services that banks
provide to their end user customers.
H. Analysis of the Proposed RTP System
The Department analyzes the operation
of
this joint venture under the rule
of
reason.
Because RTP may create significant procompetitive benefits, and we
do
not
believe that
10
Id.
at
22.
11
TCH
does
not
plan
to
implement
an
interbank
fee
for
making
an
RTP
payment without
using
the
RFP
function.
12
Further
Submission,
supra
note
1,
at
10.
4
significant anticompetitive effects are likely, the Department has no present intention to
challenge R TP.
The development
of
the RTP system
may
yield procompetitive benefits. Many other
countries already have such a system, and the Federal Reserve has encouraged its development
in
the
United States. The need for
a:
faster payment rail is predicated on the value that end users
get from real-time fund-transfer services, and the risks currently undertaken by banks and
payment
service providers that provide these services using existing payment rails. Currently, a
bank
that immediately releases funds to an end user payee assumes settlement risk because the
payer's
bank could fail to complete the promised fund transfer. This risk could be eliminated
with
the real-time settlement mechanism that RTP offers. The lack
of
a real-time payment rail
may
cause banks and payment service providers to impose limitations on the real-time fund-
transfer services they provide to end users. For example, TCH claims thatthe existing real-time
fund-transfer services that payment service providers offer to their end user customers "do not
provide for real-time transfers between bank accounts, have other limitations
(e.g., only enrolled
users
of
a service may send and receive funds), and generally utilize existing payment rails to
settle transactions."
13
Thus, TCH's development
of
RTP could create a payment rail that
facilitates real-time fund-transfer services for end users and reduces banks' and payment service
providers' risks.in providing those services.
By
creating a new payment rail, RTP also may increase the variety
of
payment rails
available to banks, payment service providers, and ultimately their end user customers.
TCH
represents that
it
will allow banks and payment service providers to use other payment rails
in
addition
to
RTP, and TCH will not steer banks toward using RTP. Also, TCH asserts that
it
will
continue to offer ACH and wire services, and that RTP will "creat[e] no barriers to the continued
use
of
existing payment systems."
14
TCH also asserts that RTP will offer other advantages to its customers (the banks) and
end
users. For example, banks may be able to offer services that implement RTP's enhanced
messaging capabilities such
as
its RFP function, which may reduce end users' payment
reconciliation and billing costs.
Many collaborations
of
significant competitors, such
as
TCH, have some potential to
harm
competition.
15
None
of
TCH's currently-proposed rules seem to limit rivals' ability
to
access RTP
in
a way that appears to be anticompetitive, although we note that TCH retains the
right
to change its rules at any time, and it has complete discretion over enforcement and
implementation decisions. The Department has no current reason to believe, however, that TCH
will use RTP to harm the rivals
of
the TCH owner banks.
In
light
of
the lack
of
current evidence
13
Request
Letter,
supra
note
I,
at
6;
see
also
id
at
6-7
(discussing limitations ofbanks'
existing
real-time fund-
transfer
services
offered
to
end
users),
14
Id
at2.
15
The Department
also
considered
whether
TCH'
s
RTP
may
be
an
over-inclusive joint
venture
- i.e., whether
some
subset
of TCH
owner
banks
could
create
an
RTP-like product. Based
on
TCH's
representations
and
the
Department's investigation, that
does
not
appear
to
be
likely.
5
of
likely anticompetitive effects and the likelihood
of
pro competitive benefits, the Department
has no present intention to challenge RTP. To the extent any anticompetitive effects arise
in
the
future,
they
would
be
balanced against
RTP's
procompetitive benefits under the rule
of
reason.
III. Conclusion
Based
on
TCH's
representations regarding its proposed
new
RTP system, which has the
potential to offer improved services to banks, businesses, and consumers, the Department has
no
present intention to take antitrust enforcement action against
TCH'
s proposed conduct.
This letter expresses the Department's current enforcement intention and is predicated
on
the accuracy
of
the information
and
assertions that you
have
presented to us, as well
as
the
additional qualifications set forth
in
this letter.
In
accordance
with
our normal practices, the
Department reserves the right to bring an enforcement action
in
the
future
if
the actual operation
of
the
proposed
conduct proves to be anticompetitive
in
purpose or effect.
This statement is made
in
accordance with the
Department's
Business Review Procedure,
28 C.F.R. ยง 50.6. Pursuant to its terms, your business review request and this letter will
be
made
publicly available immediately, and any supporting data
you
submitted
will
be
made
publicly
available
within
30 days
of
the date
of
this letter, unless
you
request that
part
of
the
material be
withheld
in
accordance with paragraph 10( c)
of
the Business Review Procedure.
Sincerely,
Andrew
C.
Finch
6
