Dubai is set to become a smart city in the next three years, which would see a thousand government services going smart along with other changes that will make daily life of the residents smoother. There will be service booths in public places like malls equipped with video conferencing, document scanning and printing services so that people can complete almost all paperwork without visiting any of the government offices concerned.
In a smart city environment, online transactions and mobile payments are a given. No wonder, the six core areas of the Dubai smart city project do not include payments as a focus zone as it presupposes the existence of an efficient payment infrastructure.
In this context, one can only consider the recent announcement by a leading education group that its schools will no longer accept online transactions or payments using credit or debit cards as retrograde and running counter to the vision of a smart city for Dubai.
Not only are the arguments put forth illogical, these are also out of tune with the emirate’s business culture, which has always been forward-looking and open to innovation. Businesses here have never settled for the second best when it came to adopting modern approaches.
The spokesperson of the group has taken great pains to explain that the management loses millions of dirhams worth of tuition fees every year in the form of charges for the administration of credit card transactions. On the face of it, the claim would seem to have some merit, but what is more important is that there is no mention of the billions collected by way of various fees, including the transportation fees.
In comparison to the billions, the millions constitute only a fraction that can be easily absorbed, unless the management considers every opportunity loss as a real loss.
There are also an indefensible anti-competition angle in the arrangement proposed by the group for those who still want to do online transactions. The management has promised a separate payment facility for credit card payments, which will involve a bank administration fee. But for people transacting with a co-branded card, there is no additional charge.
It is doubtful whether such exclusive arrangements can stand scrutiny in any well-regulated jurisdiction for banking services and avoid action under anti-trust legislations. The arrangement entered into by the group clearly precludes competition and makes the bank concerned vulnerable to anti-competition measures.
If the bank does not invite action for this, it won’t be because what it has done is right, but because the jurisdiction it operates under lacks in the enforcement of anti-trust principles.
In more regulated US and European markets, credit card companies and franchises have paid billions of dollars for following practices that turned out to be unfair to competition as well as their customers. The Middle East, and the UAE in particular, have followed a soft approach towards competition in credit cards, although this may not be true for other economic activities, where the rules have been much more stringent and more comprehensive.
In well-regulated jurisdictions, the authorities have followed a straight-forward formula for determining the anti-trust characteristics of a partnership between two or more co-branding parties. That is whether the value or efficiency the partnership brings is positive to customers and the society at large.
It is not enough that the value is positive. Even when the partnership is generally beneficial, the next relevant question is whether such benefits are outweighed by the results of a reduction in competition brought about by the partnership.
In the present case, both answers are in the negative, which means that the arrangement entered into by the group and the bank clearly harms competition and cannot stand scrutiny from an anti-trust point of view. On both fronts, the move can only be considered ill-conceived.
(Originally published in Gulf News)
