WASHINGTON — Just months after the Supreme Court appeared to end the legal fight over swipe-fee rules, a new battle is brewing over the interplay between mobile payments like Apple Pay and the Durbin amendment, according to an in-depth analysis by Joe Adler of American Banker. At issue is the ease with which merchants can choose routing options that promise lower fees, against the backdrop of rapidly changing technology.

As American Banker explains, the Durbin Amendment (part of the 2010 Dodd-Frank Act), requires issuers to give greater access to certain PIN networks and not just Visa and MasterCard. But merchants and some payments experts say that requirement is being violated because retailers have not been able to use the other networks in a variety of situations, including Near Field Communication (NFC) and other contactless transactions like Apple Pay and online commerce.

"It's my view that Apple Pay is breaking the Fed's regulation," NACS Legal Counsel Douglas Kantor told the publication.

This view was further clarified by Mark Horwedel, chief executive of the Merchant Advisory Group (of which NACS is a member), who told American Banker that "merchants, as a practical matter, don't have the options that Durbin affords them in all of these instances, including tokenized transactions with Apple Pay."

Issues with how banks participating in Apple Pay comply with the Durbin provision add a new layer to the fight over swipe fee limits. The Dodd-Frank provision was a significant victory for merchants, but they later objected to the Federal Reserve Board's final rule implementing it, saying it did not go far enough. An ensuing legal battle ceased in January when the high court declined to hear the case.

The Durbin amendment essentially made two huge changes to how merchants pay processing fees. The centerpiece was requiring the Fed to cap debit interchange fees for issuers with more than $10 billion in assets. But the other main provision responded to concerns that major networks like Visa and MasterCard had a stranglehold on merchants' routing choices.

Under the law, as implemented by the Fed, issuers must enable cards so merchants can route a transaction through at least two unaffiliated networks. The typical scenario is through either one of the major signature networks or at least one of the PIN debit networks. Requiring the availability of the other networks was meant to foster competition in the setting of network fees.

But merchant advocates claim that the emergence of Apple Pay and other new technologies is allowing issuers to avoid offering the multiple routing choices. They assert that transactions carried out over a consumer's phone typically go straight to one of the major signature networks without the non-signature networks ever being a choice. While some PIN networks can be accessed via Apple Pay, retailers say Visa and MasterCard have not provided the technical information needed for merchants to utilize that function.

"When the transaction occurs over NFC, and the technical specifications that are needed to have the terminal be able to recognize the other networks that are available for that transaction … [have] not been made available, what happens is the merchant doesn't have a choice," said Kantor. "It goes over Visa or MasterCard."

Merchant advocates argued the Fed's rule specified that issuers provide options for at least two unaffiliated networks across multiple forms of technology. The rule said that requirement "applies to any supplemental device, such as a fob or token, or chip or application in a mobile phone, that is issued in connection with a plastic card, even if that plastic card fully complies with the rule."

The full article is available from American Banker, here, and to learn more about the pros and cons of Apple Pay for our industry, read “Apple Pay, At Its Core,” in the January issue of NACS Magazine.