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Completed acquisition by

Bottomline Technologies

(de), Inc. of Experian

Limited's Experian Payments

Gateway business and

related assets

Final report

17

March 2020

© Crown copyright 2020

You may reuse this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open-government- licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gsi.gov.uk.

Website: www.gov.uk/cma

Members of the Competition and Markets Authority

who conducted this inquiry

Kirstin Baker

(Chair of the Group)

Karthik Subramanya

Paul Hughes

Robin Cohen

Chief Executive of the Competition and Markets Authority

Andrea Coscelli

The Competition and Markets Authority has excluded from this published version of the report information which the Inquiry Group considers should be excluded having regard to the three considerations set out in section 244 of the Enterprise Act 2002 (specified information: considerations relevant to disclosure). The omissions are indicated by []. Some numbers have been replaced by a range.

These are shown in square brackets.

1

Contents

Page Contents ........................................................................ ............................................. 1 Summary ........................................................................ ............................................ 3

The parties and transaction .................................................................................. 3

The in

dustry ........................................................................ .................................. 4 Jurisdiction ........................................................................ .................................... 5 ............................... 5 Market definition........................................................................ ............................ 5

Competitive effects ............................................................................................... 6

Conclusion on

the substantial lessening of competition test ................................. 7 Findings ........................................................................ .............................................. 8

1. The reference ........................................................................

............................... 8

2. The parties ........................................................................

.................................... 8

Acquirer: Bottomline .............................................................................................. 8

Financial metrics: Bottomline ........................................................................... 9

Financial metrics: Bottomline UK ................................................................... 10

Financial metrics: Bottomline's payments business unit ................................ 10 Bottomline acquisitions ........................................................................ .......... 10

Target: EPG (business and assets) .................................................................... 11

Assets acquired ........................................................................ ..................... 11 The Experian Payments Gateway software ................................................... 12 Customer list ........................................................................ .......................... 12 Marketing of and investment in Experian Payments Gateway software ........ 13 Financial metrics: Experian Payments Gateway software ............................. 13 Seller: Experian........................................................................ ........................... 13 Financial metrics: Experian........................................................................ .... 14 Pre-merger areas of overlap ........................................................................ ....... 14 Payments software ........................................................................ ................ 14

3. The merger and merger rationale ....................................................................... 16

Key sales process milestones ........................................................................

..... 16 Consideration ........................................................................ .............................. 17 Valuation model ........................................................................ .......................... 17

Bottomline's rationale for acquiring EPG ............................................................ 18

Experian's rationale for selling EPG .................................................................... 19

4. The industry ........................................................................

................................ 20 Payment systems ........................................................................ ........................ 20 Bacs ........................................................................ ...................................... 21

Faster Payment Service

........ 23

Bacs and FPS payment channels ....................................................................... 25

Bacstel-IP and Secure-IP ........................................................................ ...... 26

Regulatory background

............... 29 Relevant bodies ........................................................................ ..................... 29

Recent industry developments ........................................................................

.... 31 Improving security ........................................................................ ................. 31

Hosted payment software

...... 32

Anticipated industry developments ................................................................ 32

5. Relevant merger situation ........................................................................

........... 35

Enterprises ceasing to be distinct ....................................................................... 35

2

Statutory period for reference ........................................................................

..... 36 Factual background ........................................................................ ............... 36 Bottomline's submissions ........................................................................ ...... 37 Assessment ........................................................................ ........................... 38

Turnover and share of supply test....................................................................... 40

Conclusion on the relevant merger situation ....................................................... 41

6. The counterfactual ........................................................................

...................... 41 Framework for assessment of the counterfactual ............................................... 41 Bottomline's submissions ........................................................................ ............ 42 Counterfactual situations ........................................................................ ............ 43 Ownership of EPG absent the merger ........................................................... 43 Competitive strategy of EPG absent the merger ........................................... 51

Conclusion on the counterfactual ........................................................................

55

7. Market definition........................................................................

.......................... 55 Introduction ........................................................................ ................................. 55 Product market........................................................................ ............................ 56 Market segmentation ........................................................................ ............. 57 Bureaux/FM DD providers, and banks which offer white -label software ........ 70 Alternative channels for accessing Bacs and FPS ........................................ 76 Conclusion on product market definition ........................................................ 81 Geographic market ........................................................................ ..................... 81

Conclusion on market definition ........................................................................

.. 81

8. Competitive assessment ........................................................................

............. 81 Theories of harm ........................................................................ ......................... 82 Theory of harm 1: horizontal unilateral effects ............................................... 82

Theory of harm 2: loss of potential competition

............................................. 83 Nature of competition ........................................................................ .................. 84 Overview of competitive processes ............................................................... 84 Competitive process in the Bacs Approved Software market ........................ 86 Ongoing competition and 'look-up' moments ................................................. 87

Conclusion o

n the nature of competition ....................................................... 94 Competitive effects ........................................................................ ..................... 95 Market shares ........................................................................ ........................ 95 Closeness of competition between the parties ............................................ 100 Competition from other Bacs Approved Software suppliers ........................ 110 Assessment of out of market constraints ..................................................... 118

9. Conclusion on the substantial lessening of competition test ............................. 124

Appendices

A: Terms of reference

B: Analysis of customer switching

C: Conduct of the inquiry

Glossary

3

Summary

1. The Competition and Markets Authority (CMA) has found that the completed

acquisition by Bottomline Technologies (de), Inc. of Experian Limited's (Experian) Experian Payments Gateway business and related assets (EPG) (the Merger) has not resulted, and may not be expected to result, in a substantial lessening of competition within a market or markets in the United

Kingdom for goods or services as a result of:

(a)

horizontal unilateral effects in the supply of payment software for submissions to Bacs via Bacstel-IP and Faster Payments Direct

Corporate Access (FPS DCA) via Secure

-IP in the United Kingdom; or (b)

a loss of potential competition in the supply of a wider range of payment software and solutions in the United Kingdom.

2. On 21 October 2019, in exercise of its duty under section 22(1) of the Enterprise Act 2002 (the Act) the CMA referred the Merger to a group of CMA Panel Members (the Inquiry Group) for further investigation and report to decide the following questions in accordance with section 35(1) of the Act:

(a) whether a relevant merger situation has been created; and (b)

if so, whether the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.

The parties and transaction

3. The direct acquirer is Bottomline Technologies Limited (Bottomline UK), a company incorporated in England. Bottomline UK's ultimate parent is Bottomline Technologies (de), Inc., a NASDAQ-listed company incorporated

in the United States.

4. Bottomline Technologies (de), Inc. and its subsidiaries (including Bottomline UK), hereinafter collectively referred to as 'Bottomline', provide software for banking, payments and document automation solutions.

5. Bottomline supplies payment software that allows customers to make

submissions to the UK's Bacs and FPS DCA payments systems (such software is hereinafter referred to as 'Bacs Approved Software'). In addition to supplying end users directly, Bottomline also supplies its payment software products to banks on a 'white label' basis. 4

6. The target, EPG, comprises the Experian Payments Gateway software

business and related assets. EPG also supplies Bacs Approved Software.

7. Throughout this document we refer to Bottomline and EPG collectively as the

Parties and, as applicable, the Merged Entity.

8. The Merger was implemented by way of an asset purchase agreement between Bottomline and Experian pursuant to which Bottomline agreed to acquire EPG. EPG does not comprise a standalone business and so is now

trading under Bottomline (subject to the terms of an Interim Enforcement

Order made by the CMA on 22 May 2019).

The industry

9. Bacs Approved Software is payment software that allows the submission of batch payments to Bacs via Bacstel-IP and/or FPS DCA via Secure-IP. There

are currently 18 Bacs Approved Software providers, six of whom (including the Parties) are approved to also supply software to connect to FPS DCA.

10. Bacs and FPS are the two most widely used systems for making electronic transfers in the UK (although FPS DCA payments specifically are a small

subset of all FPS payments).

11. In order to make Bacs and FPS DCA payments directly to the inter-bank

payments scheme via Bacstel-IP (for Bacs) or Secure-IP (for FPS DCA), businesses can purchase (or subscribe to) a software license and submit payments directly. Alternatively, businesses may use a 'bureau' or 'facilitiesquotesdbs_dbs5.pdfusesText_9