The US regulator has ordered Mastercard to open debit transactions to other payment networks — this will reduce fees
The US Federal Trade Commission has ordered Mastercard to begin providing rival payment networks with the information they need to process debit card payments. In the proposed enforcement actions, the FTC said Mastercard allegedly violated a provision of the Dodd-Frank Act, known as the Durbin Amendment, by prohibiting merchants from transferring transactions through alternative networks.
This prescription is focused on ‘tokenization’. It is the technology behind mobile payment services such as Apple Pay, Google Pay and Samsung Pay. When a user makes a purchase using a debit or credit card through their phone’s mobile wallet, the software replaces sensitive information with a separate set of one-time ‘tokens.’ Mastercard and Visa say this approach prevents fraud because the tokens do not contain information that could be used in data transmission. Only when the tokens hit the Mastercard or Visa servers and are compared to the original account holder do they point to someone.
According to the FTC, Mastercard restricted competing networks from accessing its token storage. So, whenever consumers chose to pay with a mobile wallet, merchants had to route the transaction through Mastercard (or Visa) and pay the company a transaction fee, which is typically higher than competitors. The Durbin amendment calls for banks to maintain two competing payment networks for all debit cards. This provision was enacted by Congress to encourage competition between networks. The FTC has not said whether it has reached a similar settlement with Visa.
The FTC plans to collect public feedback and comments before finalizing Mastercard’s rule.
