Ofgem consults on commitments offered by PayPoint Plc following Competition Act investigation

11 Aug 2021 10:27 AM

Ofgem, the energy regulator, is consulting on commitments offered by PayPoint Plc and a number of its subsidiaries (PayPoint) in an investigation into whether PayPoint has infringed Chapter II of the Competition Act 1998 (the Competition Act).

PayPoint provides services to its energy supplier clients which enable their energy prepayment meter customers to top up their credit, either in person at one of 28,000 PayPoint retail outlets in Great Britain, or remotely, for example using a website or mobile phone. The retailers are paid a commission for these top up payment transactions made using a PayPoint terminal. PayPoint then transfers these payments to the relevant energy supplier, in exchange for a transaction fee.

Ofgem launched its investigation in August 2017. It considered whether PayPoint had abused a dominant position by using exclusivity clauses in its contracts with energy suppliers and retailers in a way that was likely to restrict or distort competition in the market for the provision of over-the-counter (OTC) energy prepayment services in Great Britain. 

Ofgem suspected that PayPoint’s actions distorted competition and consumer choice in this market to the detriment of prepayment energy customers, many of them in vulnerable situations, which may have constituted an abuse of a dominant position and a breach of Chapter II of the Competition Act.

As a result of the investigation, PayPoint offered commitments to remove these exclusivity provisions concerning energy pre-payment services from current contracts and any future contracts entered into during the next five years with its energy supplier clients and retailers. PayPoint has also agreed to offer separate contracts to its energy supplier clients for the provision of OTC and non-OTC energy prepayment services. This would mean that energy suppliers and retailers will be free to contract with other payment service providers and to use other providers’ equipment for processing OTC and non-OTC payments for their prepayment energy customers. PayPoint has offered to make a £12.5 million donation to Ofgem’s Energy Industry Voluntary Redress Scheme (currently administered on Ofgem’s behalf by the Energy Saving Trust). 

Ofgem’s provisional view is that the commitments offered by PayPoint address Ofgem’s concerns and, if implemented, they should ensure that competition is no longer distorted. Ofgem will now consider any comments raised in the public consultation before determining whether to accept the commitments. At this stage, Ofgem is minded to close the investigation with the acceptance of these commitments.

Notes to editors

  1. Ofgem’s is consulting on the commitments.
  2. Ofgem has the power to investigate potential infringements of UK competition law in Great Britain. These powers are held concurrently with the Competition and Markets Authority and other regulators.
  3. Where Ofgem has begun an investigation under section 25 of the Competition Act 1998, it may accept commitments to take such action as it considers appropriate for the purposes of addressing the competition concerns it has identified. When Ofgem has formally accepted commitments, it must close its investigation into the conduct that was the subject of the investigation.
  4. The offer of commitments by PayPoint does not constitute an admission that there has been an infringement of Chapter II of the Competition Act.
  5. The consultation will be open until 15 September 2021 for responses. 
  6. Ofgem’s investigation concerns PayPoint’s conduct in relation to the provision of over-the-counter (“OTC”) payment services to prepayment energy suppliers. These services facilitate OTC payments to energy suppliers, whereby customers that pay for their energy in advance (“prepayment” customers) can add credit to their gas and electricity accounts in cash, in person in a local shop. For the purposes of collecting OTC payments, PayPoint operates a network of around 28,000 retail outlets in Great Britain, typically newsagents or local supermarket chains. These retailers are paid a commission for top up payment transactions made using a PayPoint terminal, as well as benefitting from increased footfall. PayPoint then manages the transfer of payments to energy suppliers, in exchange for a transaction fee.
  7. Ofgem considered that there were reasonable grounds for suspecting that PayPoint may have held a dominant position in the market for OTC payment services for prepayment energy customers for at least the period running from April 2009 to October 2018; this would have meant that PayPoint had a special responsibility not to act in a way that would distort competition in this market. 
  8. PayPoint’s exclusivity clauses took the form of contractual provisions, often applying for several years at a time, which either directly restricted its customers (energy suppliers and retailers) from using rival OTC payment services providers, or imposed discounts (rebates) that were conditional on whether those customers used rival providers in addition to PayPoint (with the same effect in practice).
  9. The Voluntary Redress Scheme provides money to charities to deliver energy related projects that support energy consumers in vulnerable situations. It also helps to deliver benefits to consumers, who were negatively impacted by the specific issue that triggered the redress payment. For more information about Ofgem’s Voluntary Redress Scheme, see: Ofgem appoints Energy Saving Trust to distribute payments from rule-breaking energy companies to charities

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