• Case provides insight into merger assessment in two-sided markets
• Allowing two of the three major over-the-counter bill payments systems

On 19 October, the UK Competition and Markets Authority cleared the anticipated acquisition by Post Office Limited of the bill payments systems (BPS) business of Payzone UK Limited. The merging parties operate in the market for over-the-counter payment of bills, subscriptions and services. Both parties are also active in the market for pick-up and drop-off parcel services. The CMA found, in line with Oxera’s analysis, that the transaction did not give rise to a substantial lessening of competition in any of the markets considered. In particular, the CMA considered that the merger was likely to have pro-competitive effects in the market for BPS services.

A key aspect of the merger considered by the CMA was the declining competitive position of Payzone in the two-sided BPS market. While the CMA did not consider that Payzone would exit the market, the Authority recognised that Payzone’s declining retailer network meant that it could not be considered a full substitute for rival BPS services for clients looking to issue bills, such as utility companies and local authorities, on the other side of the market.

Oxera were instructed by Pinsent Masons, who were advising Post Office in this matter. The Oxera team was led by Partner Matthew Johnson, assisted by Joseph Bell and Bertram Neurohr.

Matthew Johnson said ‘Over-the-counter bill payments are an economically important service, particularly for consumers who rely on cash for settling their bills. Our analysis found that by bringing together two of the three major operators, each with complementary retailer networks, the merger is likely to generate benefits for these consumers by supporting sustainable competition between rival BPS networks.

In reaching this decision at phase one, the CMA has recognised the importance of the two-sided dynamics of the BPS market, and the case provides another important example of the competitive analysis of mergers in the presence of significant network effects.’