Merchants Comment on Proposed FTC Settlement With Mastercard

The agency ordered the company to cease anticompetitive practices, but the MPC believes more needs to be done.

February 15, 2023

ALEXANDRIA, Va.—The Merchants Payments Coalition (MPC) has filed comments on the Federal Trade Commission’s (FTC) recent proposed settlement with Mastercard, which ordered the credit-card company to cease practices the agency said illegally blocked merchants’ ability to route e-commerce debit card transactions over competing networks. NACS is a founding member of the MPC.

In late December, the FTC said an investigation found Mastercard’s tokenization of debit card data and refusal to de-tokenize that data for competitors has prevented e-commerce transactions from being routed over networks like Star, NYCE or Shazam that can offer lower swipe fees for processing. The agency said that this process violates the Durbin Amendment, which requires that at least two unaffiliated networks—Visa or Mastercard plus a competitor—be enabled on debit cards and that the merchant be allowed to choose which to use.

The FTC ordered that Mastercard make the primary account number and other data available to competing networks going forward even if has been tokenized. The agency specifically cited Mastercard’s treatment of data from transactions made with digital wallets like Apple Pay and Google Pay as having violated the Durbin Amendment, but the order applies to all e-commerce transactions, including digital wallets and online purchases.

The FTC launched an investigation to ensure that Mastercard finally complied with Regulation II and treated tokenized card not present (CNP) transactions the same way as tokenized card present (CP) transactions given that the regulation applies equally to both types of transactions.

In its comments, the MPC expressed it has “concerns about the proposed settlement and believe[s] more must be done to ensure that the debit market benefits from competition in a manner required by Regulation II.”

Regulation II (the implementing regulation for the Durbin Amendment) has two critical requirements for debit routing. First, each card issuer is required to enable at least two unaffiliated debit networks on each of its debit cards. Second, issuers and networks are precluded from inhibiting merchants from routing debit transactions over either of the networks for which a card is enabled.

“Unfortunately, Mastercard believes the agreement tentatively reached with Mastercard does not require it to [fully comply with Regulation II]. The tokenization policies Mastercard plans to enact if the settlement is finalized in its current form discriminate against CNP [card not present] transactions, and cynically directly contradict Mastercard’s own policies prohibiting other token service providers from engaging in the exact same conduct,” wrote MPC in the comments.

MPC believes the FTC should not permit Mastercard to continue to engage in tokenization practices that treat CNP transactions in a manner inferior to card present (CP) transactions.

“That not only flies in the face of the FTC’s goals in pursuing this investigation, but also the recent pronouncement of the Federal Reserve that the two types of transactions should be treated equally,” wrote MPC.

“We respectfully request that the FTC modify the terms of its proposed settlement to clearly require Mastercard to provide the merchants and acquirers originating a transaction, the network selected by those merchants or acquirers, and other persons authorized by these entities with the [primary account number] (or any substitute account identifier adopted by the issuer), along with confirmation as to whether the cryptogram is authentic, and the transaction complies with the domain restrictions in response to any request relating to an electronic debit transaction as defined in Regulation II.”

The FTC action follows regulations issued by the Federal Reserve in October clarifying that debit card routing choice applies to online transactions the same as in-store transactions and that Visa and Mastercard cannot take steps to block routing. Tokenization and other practices have kept all but about 6% of online debit transactions from being routed over competing networks, according to the Fed.

The Durbin Amendment has saved merchants billions of dollars a year in swipe fees, with 70% of the savings passed on to consumers, according to studies. Debit card swipe fees cost merchants and their customers $32.6 billion in 2021, with payments processed over Visa and Mastercard’s networks accounting for $28.1 billion of the total.

Last month, Visa announced that the antitrust division of the U.S. Department of Justice is investigating the company on its U.S. debit card practices and competition with other payment networks. The European Commission has also told Visa it has opened a preliminary investigation into its incentive agreements with clients. In 2019, Visa settled with the European Union over an antitrust probe into card fees.