The Federal Trade Commission (FTC) recently launched an inquiry into Visa and Mastercard’s debit transaction routing processes, likely stemming from the effect that contactless and mobile payments have had on Durbin amendment compliance. This is the first time the FTC has raised questions about PIN debit routing since 2016 when Visa addressed how EMV debit network routing was set up on merchant point-of-sale terminals. Merchants and independent debit networks like Star, Pulse, NYCE and Shazam felt Visa’s approach was designed to move most transactions to the established networks (i.e. Visa, Mastercard). NGA and other merchant groups see the latest FTC activity as an indication that issues remain with EMV debit routing and Durbin amendment compliance, which establishes that merchants should have two or more transaction routing options. The FTC’s preliminary inquiry is focused on seeking to determine if problems exist at the POS with routing transactions initiated through mobile wallets, contactless cards or use of new authorization technology.
A growing problem that smaller debit networks have noticed is that as technologies like biometrics have become commonplace as an authorization option, the major networks have enabled their global application to carry the biometric indicator but have not updated the common application they share with independent debit networks. As a result, when independent networks process debit transactions authorized with biometrics (a thumbprint or face scan to access Apple wallet, for example), it appears as if the transaction has no authentication and increases the likelihood that the issuing bank will reject the purchase.
Merchants have a similar problem with tokenization in that transactions must be sent to the global brand that tokenized it in order to obtain the true account number and route the transaction to an alternative network. “This again inhibits the ability to route a transaction and puts the global networks in the position of seeing their competitors’ transactions, and potentially charging a fee or otherwise getting in the way of those transactions being completed as intended,” Merchant Advisory Group’s CEO John Drechny said. PIN debit networks and merchant groups have expressed their concerns and the need for reforms via the Secured Payments Partnership – which NGA is a founding member.
While there is hope that the FTC will identify these issues and implement stronger rules to protect merchants’ debit routing options, the major card networks continue to increase their transaction fees on credit cards in order to offset any potential loses due to decreased debit routing volume. The Secure Payments Partnership recently released a report highlighting these and other issues which stem from the closed approach to standard setting in the card payments industry by EMVCo – a private organization run by the six largest global card brands (Visa, Mastercard, AMEX, Discover, JCB, and China UnionPay). To view the report, please click here. For a summary of the report’s findings, please click here.
For more information on the card payment reforms that the Secure Payments Partnership and NGA are working towards, please contact Robert Yeakel, Director of Government Relations at ryeakel@nationalgrocers.org.
