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Beat takes over the market.

Not everyone thinks it's good

Everyone seems to pay and get money in the beat, so why do factors that have struggled with centralization in the banking market believe that the payments app has become a threat to competition?

The workers: "There can be no comet that will become a victim of its success."

Halperin: "Finally see the buds of competition"

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• BIT

Hila Weisberg

Friday, January 15, 2021, 9:30 p.m.

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Since the outbreak of the corona crisis in Israel almost a year ago, Pilates instructor Shirley Makhtei, 32, has shifted most of her activities to classes done on Zoom.

The students transfer the payment to her at the end of each lesson through the Beat app, of Bank Hapoalim.

"I have dozens of students, and in the last year there may have been one student who did not have the app. Everyone pays per beat, both young and older students. I have a 70-year-old trainee who pays per beat."

Makhtei herself sometimes prefers to receive payment in the applications of the other banks, for example Leumi's Pay, because as a Leumi customer she can receive payment in the application without paying commissions.

"People do not know Faye, it's a problem," she says.

"Being without a beat today is like being without Wise. That's the scale we're talking about."

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"Beat is life" (Photo: ShutterStock)

Indeed, although it has competitors, Beat's dominance in the market today is unquestionable.

It seems to be on its way to becoming a generic word in the same way that Pelephone has appropriated the concept of a cell phone.

"Beat is life," A., a 24-year-old babysitter who recently receives money from both customers and friends only at Beat, told me recently.

And it's not just about feelings.

Here are some data: Levit currently has more than half a million users a month - almost 2.5 times more than the next in line in the category, Facebook, with about 217,000 monthly users.

Bank Leumi's pay shuffles with only about 60,000 users a month.

These data (monthly average between January and October 2020) were provided to G by Similar Web, and refer to Android users only.

And there is more: between January and October 2020, Beat recorded about 1.8 million downloads.

Twice as much as Facebook.

And what about market share?

According to estimates by the Forum of Generators of Competition (which also includes the non-bank credit card companies Isracard and Max) and is a counter to the Association of Banks, Beat controls 90% of payments from person to person on mobile.

The total market for these payments is estimated at NIS 12-14 billion a year (Bank Hapoalim, on the other hand, says: "Anyone who claims that Bit has a 90% market share is very wrong. The payments market in which we operate is a huge market and includes credit cards. To account, checks and cash ").

This development is very troubling to quite a few factors in the financial system and former regulators, as it threatens to undermine one of the achievements recorded here in recent years in the field of the struggle against bank centralization: the "Strum reform".

The reform succeeded in removing the credit card companies they owned from the two major banks (Hapoalim's Isracard, and Leumi's Leumi Card which became Max), but now Hapoalim may turn the wheel back by beat.

And in the end, all of these developments can of course roll into the pocket of each and every one of us.

"If Isracard and Max now announce that they will give us loans at 1% less than the bank - we will not see it again," warns Adv. Dror Strum, the man behind the reform and former antitrust commissioner, with passion mixed with rage, of the kind probably reserved only for those Who spent more than a year in discussions and struggles with bank lobbyists to pass the reform to reduce the cost of financial living.A reform that could now crash in front of his eyes.

Bypass the essence of the reform

To understand the fears of Strum and others, one must take a few steps back.

First, why were the two major credit card companies (ICC, which is controlled by Discount Bank, finally left in its hands) separated from the banks?

Bearing in mind that the more entities here can offer us credit - that is, loans - the more we will start to see prices go down and also get better and more advanced services.

But it is not just about loans, opening up the financial system also means introducing competition and advanced services that will make our lives like digital banks easier and cheaper.

Such a bank is planned to be established at the end of the year under the leadership of Prof. Amnon Shashua, one of the two founders of Mobilai.

The workers, it is estimated in the market, may face this arena, through Beat.

Second, one has to understand Shavit, the same tremendous success we have described, is now a loss-making app for the workers.

The bank has poured hundreds of millions of shekels on it over the past four years (mainly by financing clearing fees) just to put a foot in the door of the world of payments in businesses - the business of credit card companies, which as mentioned were taken from the bank.

In other words, and as experts we spoke to describe it, Hapoalim wants to regain the credit card company it lost from 2017 when the law passed (Isracard finally parted ways with Hapoalim only in March 2020).

This is done by turning Beat into a kind of "credit club" called Beat Card, in a way that will allow it to circumvent the essence of the reform - a matter that we will expand on later.

Until the separation, Isracard operated as one of Hapoalim's divisions and was a very significant asset for the bank for several reasons, but mainly generated profits of hundreds of millions of shekels each year.

For example, in 2019, Isracard's net profit was almost NIS 300 million.

Do not work alone in this trouble.

As mentioned, Leumi also has a similar app, Pei, which is designed to help him deal with the separation from Leumi-Card, but while Beat is a dizzying success, Pei is faltering.

"If Isracard and Max now advertise that they will give us loans at 1% less than the bank - we will not see it again" (Photo: Creative Commons, David Shai)

"Hapoalim and Leumi saw that their nightmare - the separation of credit card companies - was about to come true," says Strum in a conversation with G, "so even before the end of the legislation, they began preparing to launch the payment apps, to be a substitute for credit card companies taken from them. In my opinion, from the beginning, the planning was probably Bank Hapoalim's. "

What's so dangerous about a lovable app like Beat?

"It started as something cool and nice, a complementary market of small charges between friends to pay the plumber and the parents' committee in kindergarten. Something that replaces the rummage in a wallet for cash, and that's fine, no one rebelled against it. But it's time to open our eyes: Beat is not a start- But Bank Hapoalim - the dominant banking giant. "

So why did you not alert in real time?

"When we worked on the law, in 2017, and the applications were just launched, I immediately said that the law should apply to them as well, because there is an attempt to circumvent here. But the Knesset said: 'No, do not worry, in parallel with your law there will be another law. "And ') to deal with it.'

The Payment Services Act was indeed enacted and went into effect last October, but it does not deal with the "bypass" made by the applications to the Strum Act.

Strum, currently president of the Israel Institute for Economic Planning, social organizations such as Lobby 99 and Financial Justice, and other economists and lawyers, are very afraid of the moves Shavit has been advancing in recent months, which they claim are in stark contrast to the spirit of reform, and Strum calls them "finger In the eye ".

But the truth is that it was Pre-Law itself that left the crack narrow, the one through which the workers are now trying to infiltrate the field from which it was thrown.

"Our intention was for the banks to greatly reduce their activity with credit cards in the five years after the separation. This is explicitly stated in the explanatory memorandum to the law," says Strum.

"But then the banks said they must at least be allowed to renew credit cards for their customers, if they want bank credit, and we agreed to that."

Therefore, even today the two big banks have their bank cards, which they can only offer to their customers.

Thus, as soon as Hapoalim tries to penetrate additional targets in the field of credit cards through Beat, it ostensibly violates the "spirit of the law," but not the dry law.

"It would have been good if the wording in the law of our intentions regarding credit cards had been clearer," says Prof. Avi Ben-Best, who was also a member of the committee.

Ben-Best also previously served as director general of the Ministry of Finance and as senior director of the Bank of Israel. "Therefore, in my opinion, legislation in the Knesset should be amended."

Strum is now pointing the finger at regulators - the Bank of Israel, the Competition Authority and the Ministry of Finance - who were supposed to defend the reform. In guarding and failing in their duty.

The workers do not think that their move is against the spirit of the law: "It was clear to us that this move is more supportive of the spirit of the Strum Committee, because it refers new customers to a credit card company that enjoys both income and new customers, information about customers and the ability to offer credit," says Golan Sherman. , Deputy CEO of Bank Hapoalim and Director of the Innovation and Strategy Division. "This was exactly the essence of the law.

Cal is the issuer, it gives the credit line, performs the underwriting and bears the risk.

We have no ambitions to take over the market, but only to address customers that the issuer will not allow them to use the card and will want to pay with a touch.

If all the issuers had given their consent, there would have been no need for a beat card. "

Strum:" What is happening now is that Shavit will become a gorilla that no one wants to get involved with.

What does Bank Hapoalim do through Beat?

He sells us for convenience, subsidizes Beat with a lot of money out of his own pocket, and he has the capital for that.

In the end what is free stops being free.

This celebration will stop. "

As an example, he cites the two global Internet giants." Facebook and Google are monopolies in their field and we pay them for the service, only it is a payment that is not seen.

They trade information about us.

I'm afraid language will be the same.

The game also in the financial market is about information.

And so one day we find ourselves wandering around IKEA and hoops, popping up in a loan advertisement at exactly the price of the couch I was thinking of buying.

"" In the language of the street, "Strum continues," they call it: 'How to take down a competitor in two blows.'

In the first blow you hand out something for free, and people stick to it.

In the second blow you raise prices, but the customer is already trapped in the network.

One of the most suspicious things is the fact that Comet is free and loss-making, and it is assumed that this was done out of business expectation for a very large future profit. "

Barak Gonen, co-chairman of" Financial Justice ", an organization working to increase competition and transparency in the financial system, mentions the move This week it launched a WhatsApp app, which belongs to Facebook, and is now asking us to sign new terms of use that allow sharing information about us with Facebook if we want to continue using the app.

"Terms of use have changed to our detriment but we have no choice but to agree that we are addicted," he says.

"I do not have a crystal ball that predicts the future, but experience shows that free products always come at the end with some sort of price tag."

So what would you say to a friend who asks you whether or not to use a beat?

"I will explain to him that at the level of the individual consumer, it does not matter if he will be there or not, but from an economic point of view it is a mistake. If credit card companies do not end up having a real ability to compete with banks, then prices will go up."

"Regulators fell asleep on guard"

What's Beat's secret?

True, this is a good app, but its competitors are also good - Pei and Facebook are good - and do not differ significantly from it.

Facebook even reduces costs for small businesses (psychologist, fitness trainer, consultants of various kinds) because it allows you to accumulate the money in the app and withdraw it at once, instead of paying a line fee for each withdrawal to the bank account.

So how did Beat manage to achieve such a large dominance in the payment app market?

First of all, it was the first on the market that was launched in 2016.

Although Facebook existed before, but was acquired by Discount and promoted by it as a competitor only from 2017.

Bit's initial advantage was enhanced by the "network effect", also known as the "reciprocity effect".

After all, in order to transfer money to someone in a bit, you must install a bit yourself, and thus, even without wanting it in a special way, each user actually promotes the app among his acquaintances.

"Take down a beat, and that's how you will pay me," the mother of one of the children in kindergarten told me at the time.

That was in 2019, and the rest is history.

"That's why I'm so upset," Strum says.

"When a manipulation is created that is driven by the network effect, it is so hard to fight. It becomes an ingrained monopoly. Like a herd, everyone goes to one app, one channel, one search engine."

Was first, but Beat overtook her on the way to the summit.

Facebook (Photo: PR, Facebook)

Bank Hapoalim does not understand why their success becomes the focus of criticism: "We were not surprised by Beat's success because it was the exact product of significant customer research as the customers wanted it," says Sherman.

"The bank's management then made a decision to move forward with Beat after it was made clear to it that the app would significantly hurt the bank's revenue from transfers between accounts and cost a great deal of money, and at the same time the credit card companies' revenue increased significantly as a result of this new activity."

Former Knesset member Roi Folkman, who was heavily involved in the Strum reform, along with his initiator, his party's finance minister, Moshe Kahlon, argues in this context that the key to stopping Beat's excessive power must go through stopping the reciprocity effect.

"For example, if a person could transfer money looking at Faye, the whole story of the monopoly would stop. The regulators fell asleep on guard."

Folkman is currently the chairman of the "Generators of Competition Forum" (paid role), which brings together not only the non-bank credit card companies but also the three companies that provide "peer-to-peer loans": Trea, Blender and BTB. The reciprocity effect, he says, is parallel The connectivity fees that were in the cellular market at the time in the days before the reform from 2011, when calls from Cellcom to Partner, for example, involved an additional payment. "The canceled connectivity fees were one of the dramatic things that the reform did.

Until then, there were whole families who went with Cellcom, for example, to save this payment. "

"Beat could run over competitors"

The cries of Strum and his partners in the struggle, together with the steps that are currently being planned at Bank Hapoalim, come against the background of a critical development that is currently taking place in the field of credit cards.

At the end of December, all the large businesses in Israel, with a turnover of more than NIS 100 million a year, were required to connect to EMV technology, which makes it possible to make "smart transactions" by credit card.

As of this summer, almost every business in Israel will be required to connect to this technology, which will allow, for example, payment with the mobile phone at the checkout in the store, as part of what is supposed to become a "digital wallet."

Each of the credit card companies now allows payment with the mobile through its app.

But who is left out?

Anyone who still holds a Hapoalim or Leumi bank credit card.

In other words, if you have an Isracard card issued by Bank Hapoalim, you will not be able to use the Isracard "any pay" application.

And Poalim and Leumi have their digital wallets, and they allow payment through them, but here the creators turn around, and if they want to expand their use beyond the bank's customer base, they are the ones who need the credit card companies.

Beat wants all of its users to be able to use the app as a digital wallet in the store.

So she turned to the credit card companies and banks and offered to allow their customers to put the credit cards that they had, and that they issued to them, into Beat's wallet.

In the meantime, negotiations are underway for cooperation with Mizrahi-Tefahot Bank. According to estimates, it will allow their customers to issue a bank credit card to recharge it in Bit's wallet, and will pay Bit for this "right".

What if there are no other entities like Mizrahi Tefahot that agree? Here, market sources claim, Beat is actually trying to create superiority in the market using the same beat card we mentioned. It is true that according to the "spirit of the reform" there are problems with Bank Hapoalim issuing credit cards to non-customers, but the bank has found a solution: "customer club" , Like Super Pharm's Lifestyle, or Shufersal's credit cards, which work on a model of sharing commissions between the card issuer and the club owner. Beat, apparently, also found a credit company to go with this move: ICL, the same company left in the reform by Discount Bank .

according to sources, after Slbit be a credit card "own", she can tell anyone who wants to pay through the digital wallet in her: your credit card company does not allow you to load the card our wallet? Take our credit card, since working in. In other words, will be created A situation where anyone who does not want to give permission for their card to operate inside Beat's wallet may simply discover one bright day that

A customer was lost, after receiving a new credit card look.

In such a case, the other players in the system - the credit card companies and possibly other banks as well - may find themselves succumbing to Beat's enormous power.

"The first step is to pay Beat for the ability to allow the customer to pay with her wallet, because that is what he will demand, and there will be no choice but to agree. It may be another business model for her. Then Beat may just run over the competition," the sources claim.

Do you have an iPhone?

You can only pay with Apple Pay (Photo: Reuters)

Bank Hapoalim rejects the criticism: "Payment by touch requires, for the first time, the approval of the card issuer and we began to negotiate with all the issuers in the market.

This is how it is done in the world, and this is what Apple did when it began preparing for the launch of Apple Pay in Israel.

We contacted all the issuers, some of them immediately understood where the market was going and what was right for the customers and gave their consent and some did not yet.

"The unreasonable refusal of some banks and credit card companies to allow Bit customers to continue using Bit for payment at points of sale has created a new reality for us, where a significant proportion of customers will not be able to use Bit for payment in stores. This is a serious injury to customers and their experience. "Since a bank credit card was not relevant due to the account limitation, we contacted the three credit card companies in order to formulate a solution and chose ICC."

"Workers do with a bit a kind of 'triple finger,'" Shtrum shouts.

"You asked me to reduce credit card attendance and I am expanding it. But as far as I understand he is also doing more than that. He comes to other banks and credit card companies and says to them: I want your customers, and I also want you to pay me for it. It's more or less like "Go into someone's house and tell them, 'If I don't get a room here with a shower and a kitchen now, we'll take your apartment.'"

Moreover, if such an arrangement materializes, as will probably happen with Mizrahi-Tefahot, which, as stated, may cooperate with Beat's digital wallet, then it may be considered a restrictive arrangement.

"Beat turns to another bank and says to him: 'Let's divide your customers, what do you say? I will offer them the Beat service, you will give me money and give me the information about your customers too because it also exists here, and tomorrow I can also contact them with more offers and now We are a partner, "explains Strum.

"When competitors make partnerships, it always ends up with consumers suffering. Because the first thing that comes to mind is how to raise prices and how to reduce service and that's what we're seeing here."

By the way, all this is true for Android users.

Those who have an iPhone will be able to pay with their mobile only through Apple Pay, which is expected to enter the country soon.

But Apple Pay - although it will charge credit card companies a high fee - wants them to succeed, so that the cooperation between them continues.

Beat, on the other hand, produces commercial collaborations with competitors.

"Ten years in the civil service," says Strum, "I was taught that either you survive and compete, or you are killed. It's a jungle. We'll still look from a few years away at 'Beat Years' and laugh at ourselves how we did not understand the plan. Hapoalim has one and a half million customers, after all, Beat has many more customers (it is estimated that 70% of Beat users are not Hapoalim customers, and in combination with the BeatCard this is a potential pool of customers for the bank as well. Beat reported 4.7 million downloads so far and more than two Million users, e).

"The beat-card is perhaps the most beautiful means of distraction seen here in recent years, for something that looks like a new competitor, but in fact its main function is to send a soldier to paralyze the attackers. The workers want to paralyze Isracard and Max before they reach the market in which the banks live in Israel. The household credit market. "

What is meant by sending a soldier to paralyze the attackers?

"One has to understand how a monopoly that is about to be attacked by a new player behaves. He sees the new competitor organizing for the attack and says: 'Instead of me waiting for him in my market and then defending myself there - I will attack him in his market.' With credit cards in Israel, it rolls in NIS 350 billion a year. "

If you were in charge of the competition today, what would you do differently?

"I would come to Bank Hapoalim and say to him: Nice three guys. Here is a 'stop' card, and if not - we will go to court. That is not what the legislature intended and it is clear that this is not why we reformed the Knesset by a majority of 64: 0. The moves of the 'beat-card' and continues to operate the regular beat. Is Beat's current move a brilliant business move? Only if you think that driving without an entrance when there is no policeman is a brilliant move. In my eyes, thwarting law and reform that came to create competition is not 'brilliant'. But trickery and the failure of the public will. "

My friends asked me not to write anything critical about Beat, because "Beat is life."

"If Beat is life, let's leave life as it is, and let it not take over the credit card market because that's the next step."

"Bank Hapoalim is making a triple finger."

Dror Strum (Photo: Creative Commons)

"There will be even more concentration here"

In the past week, critics have decided to gear up.

In Lobby 99, they sent a letter to the Supervisor of Banks at the Bank of Israel, Yair Avidan, according to which the beat card "constitutes a complete contradiction to the main purpose of the banking reform, with the largest bank in the country, which in our opinion is a monopoly in the banking system, expanding its credit card activity."

"For about two and a half years, we have been pushing the Competition Authority to declare Poalim and Leumi as monopolies or at least as a concentration group. But the Authority mistakenly believes that this is entering the territory of the Bank of Israel and that is one of the results," said Adv. Linor Deutsch, the organization's CEO.

"Bank Hapoalim is taking advantage of the current situation, where the corona and the ongoing elections are diverting the attention of the public and regulators, to move the move under the radar."

Prof. Avi Ben-Best is afraid of a situation in which - if Beat succeeds in advancing its plans - the financial market in Israel will be even more centralized than it was here before the reform.

But he identifies another problem, and that lies precisely in the Al-Discount-Hapoalim sector.

In the Beat-Card, after all, a combination of hands is formed between ICC, which belongs to Discount and International, and a Beat of Bank Hapoalim.

This is proof that he had to separate ICC from the banks at the time, as he proposed in the Strum Committee, but was in a minority position.

"This move proves that separating ICC from Discount is an urgent matter. Everything that is happening here is in stark contrast to what we wanted to achieve, it is a setback," says Ben Best, "instead of competition, there is cooperation between the workers and ICC, ie Discount. Then we get company. "Credit cards connected to two banks, not one. Instead of increasing competition, we only increased centralization. So what did we do here?"

So where did the regulators go in this story?

The Bank of Israel says that they know the issue, examine it and do not take it lightly (see extension in the comments).

Michal Halperin, in charge of the competition, presents a more complex picture.

She said, "After decades of stagnation in the banking industry and the Poalim-Leumi duopoly, we are finally seeing the buds of competition. We are seeing things start to move. For years we have seen banks not make an effort to compete and take customers. Now Bank Hapoalim comes and uses its app to provide services "For those who are not its regular customers. That's what we wanted banks to do. It's called competition, and we would not want to suppress such a move just to keep credit card companies in check."

Halperin also mentions what is now hovering in the background, the entry into Israel of the two giants Apple and Google.

"We would not like to see Apple Pay, Google Pay and the like take over the means of payment market and digital wallets, and Bank Hapoalim is preparing to compete with these entities. The purpose of the Strum Committee and the laws enacted was to separate credit card companies to compete with banks for consumer credit. "(For this purpose) the credit card companies were given protection, but on the other hand no one wanted to prevent Bank Hapoalim from competing. What's more, so far, both consumers benefit from Beat's free services and credit card companies benefit from the clearing fee paid by Bit including payment applications." .

And what about the seemingly restrictive arrangements?

"We are reviewing the agreements these days right following the complaints that have come to us," she says.

"Regarding Al-Poalim, there may be cooperation from competing entities in the market for granting credit and we will examine this carefully. In any case, we examine all claims raised against the requirements of the law to make sure there is no harm to competition, and if we identify harm, we will not hesitate to act.

" Regarding the field of payment applications, the Competition Authority undertook to examine whether the payment applications have the power to create a monopolistic market power for themselves.

Among other things, we will examine whether in this market we are talking about an event of The winner takes it all, as happens with the social network Facebook, or is there a multi-homing situation where one person uses several apps and it is easy for him to choose between them.

" No anti-competitive step taken by the bank "

In addition to Golan Sherman's remarks in the body of the article, Bank Hapoalim stated:" It is impossible for the Beat app to become a victim of its success and popularity in the general public.

Beat's success bounces all competitors and instead of encouraging them to develop competing products, it causes them to devote all their energy to undermining its success.

In practice, it is not possible to indicate any anti-competitive or illegitimate step taken by the Bank, on the contrary, we increase the use of credit cards at the expense of checks and cash and credit card companies benefit from this.

"The Bank of Israel regularly reports market developments. And the payment services offered by entities overseen by it.

The same is done with regard to the above issue, seriously and with all relevant parties, including examining the compliance of these services with the provisions of law and regulation.

"The Bank of Israel works to promote the payments market in Israel to ensure high-level payment services, remove barriers to entry. Will take part in the local payments market, and create the infrastructure on which innovation in this field can develop. "The

Ministry of Finance stated in response that" the issue is under examination. "

This credit card is just the beginning: banks are building on Paster Payment

The future of the world of payments poses a threat to credit companies that is even bigger than what is happening now, when the big banks are trying to invade their territory.

While today the payment apps are credit card based, in the future we are likely to see transfers made from account to account, without a credit card involved in the middle.

This will be done using a technology known as Faster Payment.

It is equivalent to the bank transfers that can be made today, only that a bank transfer does not occur immediately.

The five largest banks have been developing this technology in recent years through Masab - a banking clearing center - a private company owned by them. Masab is responsible for almost all bank transfers made in the system, such as the transfer of salary from your employer's bank account to your account.

How will it work?

Think of it this way: the next time you want to pay your child's babysitter or English teacher, you will no longer need to enter a credit card, but you can transfer the money directly from your account to the teacher's account, through an app, and securely and instantly.

This technology also neutralizes the clearing fees charged by credit card companies and currently burdens banks' expenses.

And when the technology materializes, and certainly if it allows for fast transfers even in paid businesses with e-wallets, credit card companies may be in trouble.

Strum reform: Why was it established, was it successful and where has the committee gone to implement it?

Four years after leading the successful cellular reform, Moshe Kahlon took over as finance minister with much higher aspirations: to do it again, this time in the banking sector.

"The three largest banks in Israel hold a market share of 73%. Is this competition?" .

The interest rate on household loans, for example, was quite high in 2013, according to the Ministry of Finance's review from the beginning of the reform discussions, and stood at 7.5%.

Thus was born the "Strum reform" whose goal was to introduce competition in the financial market and lower the cost of living financially for households and small businesses.

One axis of the reform was the introduction of more players into the credit market, so that loan prices would fall, which is why it was decided to separate the credit card companies Isracard and Leumi-Card (today Max) from Hapoalim and Leumi.

In the other axis, the reform worked so that a "financial zap" could develop in Israel through which we could very easily compare the prices of financial products.

The committee sat for discussions in 2015-2016 and the law was passed in early 2017 by a majority of 64 MKs and zero opponents.

But this did not happen without a strong struggle waged by the banks against some of its branches, through lobbyists who flooded the Knesset reform committee.

The committee was headed by the Minister of Intelligence today and then MK from the All of Us party, Eli Cohen. "Processes, to impose reservations on everything. Eli Cohen was recruited. At one point he said: I call on the Knesset members to vote in favor, and that is what happened."

At the end of the committee's discussions, Cohen said: "This is a historic reform, because for 47 years no new bank has been opened in Israel. The direct beneficiaries of the move will be the customers of the banks who will turn from a captive customer into a returning customer."

Was the reform successful?

It succeeded in that, according to the Bank of Israel, as of 2019, 23% of total consumer credit is already provided by non-banking entities, compared with only 16% in 2015.

But interest rates on household loans at banks are still lower on average than those given at credit card companies.

Why is this so?

"Because we are still at the beginning of the road," explains Moshe Kashi, head of finance at Lobby 99. "Banks have access to cheap sources of financing for capital - deposits from the public, loans from the Bank of Israel, and the issuance of bonds in the capital market.

Credit card companies cannot finance through public deposits and they also do not receive loans from the Bank of Israel.

In order for them to compete better they need to increase their credit portfolio.

Therefore, the law limits the banks to a period of several years, to allow credit card companies to accumulate market share and increase their credit portfolio. "

Shtrum Law also stipulated that the law be accompanied by an implementation committee headed by the director general of the Ministry of Finance Half a year for the government and the Knesset to be accountable for its work and recommendations.

To date, only two reports have been submitted, one in May 2018 and the other two years later, in March 2020.

"We pushed the reform with a lot of energy. The one who pushes the reform.

This fact, combined with the political crisis and the corona crisis, allowed the banks to act to undermine it.

Competitive reform is not at the forefront of the Bank of Israel's agenda, and the budget department in the Treasury has been very weak in the past two years.

Neither the Capital Market Authority nor the Competition Authority were sufficient in the matter.

So the banks took advantage of this vacuum. "The

Ministry of Finance stated that" work on writing the report is in progress and is expected to be submitted to the Knesset in the near future. "

"We hit the banks, we did not get along well enough with consumers"

How does Prof. Natan Sussman, former head of the Research Division at the Bank of Israel and a member of the Strum Committee, view the processes currently taking place in the Beat sector, four years after the reform?

Sussman, now a professor of economics at the Institute of Advanced Studies in Geneva, Switzerland, did not believe at the time that separating credit card companies from banks was the right move to encourage competition.

He believes so even today, and he says the result of that move are the bypass attempts of the reform we are seeing now.

Israel, he says, is one of the only cases in the world where banks do not hold credit card companies.

"It's hard to put competition in such a small economy and into an industry like banking that has an advantage in size," Sussman says in an interview with Zoom from Geneva.

"In industries where this advantage exists, in the end only the strong survive. We also saw this in the context of the cellular reform, when players were added and prices fell, but now the market is starting to contract again with the Cellcom-Golan Telecom deal. These are not unexpected things."

So how do you encourage competition?

"The wisdom is how you oversee and how you make sure the big players - because of the network's advantage, as in Beat's case - do not abuse their power over consumers. Other important steps we took as part of the law and contributed to the consumer were allowing easy switching between banks and lowering barriers to the financial market. So that we can see more players in it.

"However, to this day I believe we were able to invest the resources and time we devoted to committee deliberations dealing with more burning issues in the Israeli economy, such as income inequality and low labor productivity.

It is not so simple to copy the cellular reform to the banks.

True, we hurt banks, but did we get along well with consumers?

In the meantime, we don't see it enough. "

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