The Federal Trade Commission is ordering an end to illegal business tactics that Mastercard has been using to force merchants to route debit card payments through its payment network, and is requiring Mastercard to stop blocking the use of competing debit payment networks.
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Under a proposed FTC order, Mastercard will have to start providing competing networks with customer account information they need to process debit payments, reversing a practice the company allegedly had been using to keep them out of the ecommerce debit payment business and, according to the FTC, that violated provisions of the 2010 Dodd-Frank Act known as the Durbin Amendment and its implementing rule, Regulation II.
With more than 80 percent of American adults carrying at least one debit card and over $4 trillion in debit card purchases made every year, debit cards occupy a significant place in the current payment landscape.
The popularity of debit cards has been growing especially quickly for purchases consumers make using their personal devices equipped with ewallet applications such as Apple Pay, Google Pay, and Samsung Wallet.
Mastercard, along with Visa, is one of the two leading payment card networks in the United States. The processing fees charged by networks total billions of dollars every year, affecting every purchase made with a debit card, according to the FTC. Most of these fees are paid by the merchants to the card-issuing banks and the payment card networks.
With the post-Durbin rise of debit ecommerce and ewallet debit transactions, Mastercard was flouting the law by setting policies to block merchants from routing ecommerce transactions using Mastercard-branded debit cards saved in ewallets to alternative payment card networks, including networks that may charge lower fees than Mastercard, the FTC alleged.
Specifically, Mastercard used its control over a process called “tokenization†to block the use of competing payment card networks, the agency alleged. Transactions commonly are “tokenized†by replacing the cardholder’s primary account number with a different number to protect the account number during some stages of a debit transaction.
Tokens are stored in ewallets such as Apple Pay, Google Pay, and Samsung Wallet and serve as a substitute credential to provide additional protection for a cardholder’s account number.
When a debit cardholder makes a debit purchase using an ewallet, the merchant receives a token from the cardholder’s device and sends it to the merchant’s bank, which in turn sends the token to a payment card network for processing.
For the transaction to proceed, however, the network must be able to convert the token to its associated account number.
Mastercard’s policy requires use of a token when a cardholder loads a Mastercard-branded debit card into an ewallet, while banks issuing Mastercard-branded debit cards nearly universally use Mastercard to generate the tokens and store the corresponding primary account numbers in its Mastercard “token vault,†the FTC alleged.
Since competing networks do not have access to Mastercard’s token vault, merchants are dependent on Mastercard’s converting the token to process ewallet transactions using Mastercard-branded debit cards.
According to the FTC, Mastercard refuses to provide conversion services to competing networks for remote ewallet debit transactions (i.e., online and in-app transactions, as opposed to in-person transactions made by the customer in a store), thereby making it impossible for merchants to route their ewallet transactions on a network other than Mastercard.
Under the FTC consent order, when a competing network receives a token to process a debit card payment, Mastercard is required to provide them with the customer’s personal account number that corresponds to the token.
The order also bans Mastercard from taking any action to prevent competitors from providing their own payment token service or offer tokens on Mastercard-branded debit cards and requires Mastercard to comply with provisions of Regulation II.
The Commission vote to issue the administrative complaint and to accept the consent agreement was 4-0. The FTC will publish a description of the consent agreement package in the Federal Register soon. The agreement will be subject to public comment, after which the Commission will decide whether to make the proposed consent order final. ■