The Competition Authority has objected to a plan by the State's largest banks to transfer their domestic bill payment business to An Post.
It is understood the authority wrote to An Post and the banks on June 29th informing them that the BillPay initiative could be in breach of the Competition Act.
The authority gave An Post and the Irish Payment Services Organisation, which represents the banks, 28 days to respond to its statement of objections.
Its intervention blocked the formal introduction of the service, planned for July 1st.
However, the statement of objection does not amount to formal rejection of the plan, endorsed in April by the Minister for Public Enterprise, Ms O'Rourke. But rejection would be likely if the banks and An Post failed to satisfy the authority.
Members of the authority are understood to have cited Section 4.1 of the 1991 Competition Act which outlawed any agreement to "share a market or sources of supply".
BillPay was designed to act as a conduit between An Post and the banks, some of which are scaling back their rural branch networks. The banks also want to withdraw from the bill payment business in general.
This was seen as an opportunity for An Post, whose post office network is technically insolvent and forecast to lose more than £13 million (#16.5 million) this year.
People familiar with the situation said the authority had expressed particular reservation about the transfer of the business to An Post. But a banking source claimed an apparent conflict of interest would always arise where competing entities co-operated to develop a "more efficient system".
The person denied a suggestion the banks were forcing their customers to migrate to An Post.
"In essence what we're saying is that there is a multiplicity of payment choices: by phone, on the Net or through BillPay."
The person said that rather than forcing customers to use An Post, the banks were offering "a multiplicity of payment choices".
A separate source linked to the plan said there was no obligation on bank customers to do their business with An Post.
Ms O'Rourke said in April that the "alliance" would "ensure" five-seven million transactions were secured by An Post. She described the initiative as a "Government-approved agreement" which would lead to the formation of a company "that will streamline bill payment facilities in the Irish market".
The banks and An Post have the option to make written or oral submissions to the authority. It is thought that additional time can be granted to them if required.
