FTC orders Mastercard to stop blocking competing networks via “tokenization”

Rick Steves

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.

Mastercard

The Federal Trade Commission, an independent agency of the United States government whose principal mission is the enforcement of civil antitrust law and the promotion of consumer protection, is prosecuting Mastercard to put an end to its “illegal business tactics”.

Mastercard has allegedly been forcing  merchants to route debit card payments through its payment network. The FTC demands Mastercard to stop blocking the use of competing debit payment networks.

Dodd-Frank Act prevents this kind of illegal behavior

The FTC requires Mastercard 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.

Holly Vedova, Director of the FTC’s Bureau of Competition, said: “This is a victory for consumers and the merchants who rely on debit card payments to operate their businesses. Congress directed the FTC to enforce this part of the Dodd-Frank Act and prevent precisely this kind of illegal behavior. We take this responsibility seriously, as demonstrated by our action today.”

More than 80 percent of American adults carry 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 and its popularity keeps growing as consumers now also use ewallet applications such as Apple Pay, Google Pay, and Samsung Wallet to make their purchases.

Payment card networks compete for the business of banks that issue cards and for the business of merchants that accept card payments.

The processing fees charged by networks total billions of dollars every year, affecting every purchase made with a debit card, and most of these fees are paid by the merchants to the card-issuing banks and the payment card networks.

The Durbin Amendment in the 2010 Dodd-Frank Act requires banks to enable at least two unaffiliated networks on every debit card, thereby giving merchants a choice of which network to use for a given debit transaction. The provision also bars payment card networks from inhibiting merchants from using other networks.

Mastercard uses “tokenization” to block merchants from using competing payment card networks

According to the FTC, 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. Instructions for filing comments appear in the published notice. Comments must be received 30 days after publication in the Federal Register. Once processed, comments will be posted on Regulations.gov.

he Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $46,517.

Read this next

Digital Assets

Masa and LayerZero: Bridging Blockchains for Data Sovereignty

Masa Network is poised to revolutionize the personal data landscape with its upcoming launch as a cross-chain platform, making it accessible on a variety of blockchains right from the start.

Digital Assets

Big Time Generates over $100M in Revenue since Preseason

Innovative game developer Big Time Studios announces that its highly anticipated free-to-play multiplayer action/MMO RPG Big Time, has generated $100M in revenue. According to the team, players transacted a total volume of over $230M, without selling a single token.

Digital Assets

Centralized exchanges are 10 times more popular than DEXs in Western Europe

Western European traders are found to prefer centralized exchanges over decentralized ones as CEX traffic outpaces DEXs by a factor of ten.

Market News

Stock Market Analysis: Is NVDA Losing Its Leadership?

Since the beginning of the week, the S&P 500 Index (US500) has seen a modest increase of about 0.58%, whereas NVDA’s share price has experienced a decline of approximately 3.8%. This recent divergence raises concerns among Nvidia stock investors — could it signify a loss of NVDA’s market leadership?

Industry News

ESG: Australian regulator wins first greenwashing court case against Vanguard

Vanguard admitted that a notable portion of the securities within both the Index and the Fund did not undergo the promised ESG scrutiny.

Fintech, Uncategorized

BitMEX integrates HALO from Solidus Labs for cross-market surveillance

“The recent approval of the Spot Bitcoin ETF has piqued the market’s interest. As a result of price volatility, the trading volumes for crypto derivatives have gone up substantially. HALO, with its advanced technology and crypto-native detection architecture, will enable BitMEX to smoothly and safely scale trade surveillance across its increased trading volumes and provide the necessary safeguards for new product launches.”

Reviews

IUX Broker Review

IUX, recently rebranded from IUX Markets, stands as a multi-asset Forex broker recognized for its regulatory compliance across various jurisdictions.

Industry News

Horizon Software rebrands to Horizon Trading Solutions

“Horizon Trading Solutions has seen accelerated global growth over the past year to meet the rising demand for our trading solutions and built-for-purpose technology offering. The choice to rebrand represents a key part of this development, while maintaining our heritage and history in the industry.”

Market News

USDJPY has surged to levels last witnessed in 2022. Should we consider opening a short position?

The recent resurgence of the US dollar has propelled USD/JPY to new heights, touching levels not seen since 2022. This surge comes against the backdrop of stable short-term yields and ongoing economic data that fails to signal a significant slowdown, prompting questions about the extent of current monetary easing measures.

<