As we’ve seen over the past few months, a law was legislated that requires the banks to sell their credit card companies. However, no one seems to be rushing – neither Israeli nor international companies – to purchase the credit card companies. This situation differs from other legislations following the Bachar Reform, after which demand was created for provident- and mutual- funds belonging to the banks.
The causes for this situation are complex, and in the following we will elaborate upon several of the central causes for the lack of demand for the purchase of credit card companies:
- Excessive Regulation in the Israeli Market – This situation of excessive regulation ‘scares’ international entities from entering the Israeli market and investing in the country. Potential buyers doubt their abilities to efficiently handle the Israeli market in the field of consumer credit, competing with the existing entities that provide consumer credit. Of course, at the end of the day, it all depends on the price – the banks wish to sell the credit card companies for the highest price, whereas the buyers, who are aware of the risks involved in the Israeli market, are seeking a lower price.
- Predicted Changes in the Composition of the Boards of Directors of the Credit Card Companies – The Bank of Israel is interested in making decisions that will lead to changes in the composition of the boards of directors of the credit card companies. Today, the boards are controlled by the shareholders, i.e. the banks: Usually a senior member of the board of management of the parent bank chairs the Board of Directors of the credit card company. The Bank of Israel strives to encourage more independence from credit card companies, in order to facilitate the sales process in terms of the economy, as well as to reduce the banks’ power in negotiations for sale. In other words, there is a desire to avoid conflicts of interest between the credit card companies and their owners.
- Clearing Fees do not Decrease for Small Businesses– It is important to note that in the meantime, clearing fees, which are a key factor in any decision of the sale and purchase of a credit card company, are not decreasing at all, even in cases of small businesses. This issue is also currently being addressed by the Knesset Economics Committee. As in the case of the Bachar Committee and the reform that followed, there is no certainty that a drastic reduction in clearance fees will occur even following the sale. The ratio between the clearing fees for small businesses and clearing fees for large businesses is nearly double. We also cannot be certain that the reform will solve this issue.
- Increase in Consumer Credit via Credit Cards – This is another trend worth noting. This increase is good for the credit card companies as well as for the banks, as it raises the price of the comanies. It is interesting to find whether this trend is by virtue of the law, or a natural process. In any case, it is still too early to assess this process and its implications.
The Minister of Finance is highly interested in simplifying accessibility to credit for the lower classes. This position has its advantages and disadvantages, on which we will not expand at this point in time. However, the trend of growth in consumer credit, as of today, is consistent with the position of the Ministry of Finance, with all the risk that comes with it. The processes listed here point to a number of trends, the effects of which remain unclear. In any event, it seems that at present, they lead to lack of interest from local and international sources to acquire the credit card companies.