The Federal Trade Commission has directed Mastercard to begin providing competing payment networks with the information they need to process debit card payments. In a proposed enforcement action, the FTC said Mastercard allegedly violated a provision of the Dodd-Frank Act known as the Durbin Amendment by prohibiting merchants from routing transactions through alternative networks.
The promotion targets the “tokenization” underlying mobile payment applications such as Apple Pay, Google Pay and Samsung Pay. When you make a debit or credit card purchase using your phone’s mobile wallet, the software replaces sensitive information, including the main number associated with your account, with a separate set of disposable “tokens”. Mastercard and Visa say the practice prevents fraud because tokens contain no actionable information during transit. It’s only when they arrive at Mastercard or Visa’s servers and are matched to their original account holder that they point to someone.
According to the FTC, Mastercard has blocked competing networks from accessing its token vault in the past. That means whenever consumers decided to pay with a mobile wallet, merchants had to route transactions through Mastercard (or Visa) and pay the company’s transaction fees, which are typically higher than those of its competitors. The Durbin Amendment will require banks to support two competing payment networks on all debit cards. It was a provision introduced by Congress to encourage competition between networks. The FTC hasn’t said if it has a similar arrangement with Visa.
“As we take these steps to end this matter, there should be no question that tokenized transactions provide an increased level of protection for both consumers and merchants,” said Seth Eisen, spokesman for Mastercard . “This focus on security guides our efforts in a highly competitive marketplace and spurs us on to continue investing in innovations that foster the peace of mind that every person expects.” Eisen added that Mastercard will “continue to work to improve our processes.” update to comply with consent mandate and provide even greater choice.”
The FTC plans to gather comments from the public before voting on finalizing the order against Mastercard.
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