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Antitrust

CADE suspends the partnership between Facebook and Cielo to create a new payment method through WhatsApp

Cescon Barrieu Informa — June 25, 2020

A few days after Facebook and Cielo announced they would launch a new payment method through WhatsApp, the Administrative Council for Economic Defense (CADE), on a proactive and innovative approach, imposed a precautionary measure to suspend the operation of such partnership in Brazil.

The announcement occurred on June 15 and the transaction basically consists of the integration between Cielo and Facebook to offer accredited businesses payment through the WhatsApp platform. On June 18, CADE issued official letters to the parties requesting clarification about the partnership and the parties’ plans on submitting the transaction to CADE’s approval.

On June 23, CADE started a formal investigation about the transaction, after apparently not receiving any indication that the parties were planning to submit the partnership to CADE’s approval. At the same time, CADE imposed for the first time a precautionary measure in a merger review using the provisions of the Brazilian Civil Procedure Code combined with the Antitrust Law and applicable rules to act in this direction.

The imposition of a precautionary measure is based on a twofold analysis: the fumus boni iuris argument (i.e., the plausible existence of a legitimate interest) on the one side and the periculum in mora argument (i.e., the risk that a delayed decision may not be effective) on the other side. According to CADE’s decision, not only Cielo has a high share of the transactions capture and processing market, but also WhatsApp has millions of users in Brazil, which can lead to significant market power upon its entry and may raise antitrust concerns especially if the agreement under investigation sets forth exclusivity provisions between them.
According to the General Superintendence of CADE:

“Despite the initial stage of this partnership, there are potentially considerable risks to competition that deserve to be mitigated or avoided by the intervention of this authority, considering that the effects may derive from the transaction and cause irreparable or difficult to reverse damage in the affected markets. Although there is no certainty about the effects, due to the duty of caution, it is necessary to take action to protect the community from possible negative effects”.
In case the parties do not abide by CADE’s decision, they will be subject to a daily fine in the amount of BRL 500,000.

In the same direction, the Brazilian Central Bank (Bacen), the regulator and supervisor of payment arrangements in Brazil, ordered Visa and Mastercard to suspend the start of activities or immediately stop using the WhatsApp payment method within the scope of arrangements in place by these supervised entities.

Bacen has indicated it will assess possible risks for the proper functioning of the Brazilian Payment System (SPB) and verify compliance with the principles and rules provided for in Law 12.865 of 2013.
It is important to note that the authorities did not analyze the merits of this new payment method yet and in the end it may be authorized by both regulators following the applicable formal procedures. In the antitrust case, if CADE concludes that the transaction is subject to its merger review process, the parties may be required to submit a merger filing that may take some time (up to one year depending on the complexity of the case) to be reviewed, which could be similar for the financial authority.

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