Mercado Libre counterattack: it denounces banks for cartelization with MODO

The complaint comes in the midst of a dispute between the banks and Mercado Libre, since as Ámbito reported at the beginning of May, the banks, through the virtual wallet MODEreported MELI to the National Commission for the Defense of Competition (CNDC) for abusing its dominant position to the detriment of multiple market players, including similar companies, retailers and consumers. Basically, accuses Marcos Galperín’s company of putting “a barrier” to the entry of other wallets into the market.

In the complaint filed with the CNDC, MODO claims that it provided evidence and documents that demonstrate the “abusive and exclusionary” behavior carried out by Mercado Libre SRL, Mercado Pago Servicios de Procesamiento SRL and MercadoLibre Inc. Now, MELI is fighting back.

The details of the complaint

In the words of Jacob Cohen Imach, Senior Vice President of Legal at Mercado Libre, what they are denouncing is that MODO, “platform made up of the 36 main banks in Argentina“, should have been notified to the National Commission for the Defense of Competition (CNDC). If it had been done so, he says, it is likely that the CNDC would not have authorized its operation.

He mentions some precedents of anti-competitive practices. For example, in 2018, the CNDC investigated the main Argentine banks for anti-competitive practices through Prisma, a company that had the exclusive license to operate Visa in the country and concentrated more than 75% of card payments.As a result of that investigation, the banks were forced to divest from Prisma, selling 51% in 2019 and the rest later.“.

Cohen Imach regrets that “What is worrying is that the same banks that divested from Prisma in 2019 met again in 2020 to create MODO, with the aim of competing against Mercado Pago and other fintechs.“.

For its part, the official statement from the company Marcos Galperinpoints out: “Banks are illegally concentrating on MODO.” He maintains that the digital wallet “never notified or requested authorization from the CNDC to operate jointly,” as Cohen Imach claims. In this way, banks are violating the competition defense law that requires notification of company agreements that affect competition.

Cartelization is harmful to consumers

According to the Argentine unicorn, a cartel is an agreement between competing companies to stop competing with each other. The 36 banks that are part of the MODO wallet form a cartel to avoid competing with each other with their own digital wallets.

For the company, “instead of developing technology and generating better products, they decided to concentrate on MODO, which allows them to agree on their commercial strategies and avoid competition for the stores that affiliate with their promotions, and for the amounts of discounts or refunds they offer to consumers.”

And he exemplifies, “it is as if all the supermarkets agreed to have a single supermarket brand to market products and set their promotions together so as not to compete with each other.”

Thus, for Cohen Imach, banks have implemented obstacles that arbitrarily limit transfers from bank accounts to digital wallet accounts, “which is against the Central Bank’s regulations. In addition, MODO has exclusive access to the information on the balances of all bank accounts, which is not open to the rest of the market.“, he complains.

He also assures that “lBanks offer promotions that are only available through MODO, discriminating against other platforms such as Mercado Pago“These 36 banks dominate the financial market, with 96% of savings account balances, 81% of total deposits, and the majority of assets and current accounts. “This concentration of power allows them to coordinate to limit competition, harming both consumers and the fintech industry“, he mentions again during the presentation of the complaint to the media.

Practices to avoid competition from fintechs

In response to the query Scope Asked what action they expect the CNDC to take following the filing of the complaint and what expectations there are in this regard, Mercado Libre representatives responded: “We filed the complaint with a series of requests. What we want, in principle, is for the commission to investigate this situation. For us it is very obvious that this should have been notified and that if it had been notified it would not have been authorized.”

And the legal representative adds that: “The Prisma case cannot be ignored, since it was the same players who did the same thing again just a few months later.“And he adds: “So I would say that, in a word, what we are looking for is for you to investigate the cartel and we are asking for some precautionary measure that has to do with preventing this cartel from continuing to operate as such.”

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MODO is made up of the 36 main banks in Argentina and for MELI, that prevents competition between banks.

According to the complaint, “in violation of BCRA regulations, banks systematically block and set low and arbitrary limits on transfers from bank accounts (CBU) to fintech payment accounts (CVU), limiting the freedom of people who choose to manage their money and generate returns through a digital account,” the text reads.

Finally, they point out that in other countries there are closed systems of instant transfers in which several banks participate, such as Zelle in the United States. “These systems are beneficial for users, because they allow them to do something they couldn’t do before.” But they only serve to allow people to send and receive money immediately, something that in Argentina has been possible for years due to regulation by the BCRA. And they warn: “MODO does not do the same, it is not necessary to have MODO to make transfers in Argentina. MODO has another objective: to coordinate a commercial distribution channel to avoid competition between its participating banks.“.