Mastercard must provide competing debit networks with the keys needed to convert tokenized card account information — which has been encoded for security purposes — back to the original account number for online transactions, the Federal Trade Commission announced on Friday.
The FTC voted 4-0 to issue an administrative complaint and approve a proposed consent order alleging that Mastercard's practices for e-commerce transactions violate provisions of the 2010 Dodd-Frank Act known as the Durbin amendment, the agency said in a press release.
The FTC recently
That action came after the Federal Reserve in October
The Fed's move closed a loophole around the Durbin amendment, which originally focused on providing competition for routing in-store debit transactions.
Visa and Mastercard
In a digital wallet transaction, the merchant's bank receives a token that's sent to a payment card network, which must convert the token to the underlying account number. The card networks claim tokenization reduces fraud and speeds card-approval rates.
The FTC alleged in its consent order that Mastercard failed to provide easy access for rival networks to its "token vault" to complete this process, preventing merchants from routing online or in-app debit transactions to any network other than Mastercard.
Merchants cheered the FTC's action.
"Main Street businesses thank the Federal Trade Commission for its work to ensure that Mastercard stops blocking competition for e-commerce debit card payments," said Doug Kantor, general counsel for the National Association of Convenience Stores. "More than a decade after debit reform became law, it is well past time for Mastercard and also Visa and major banks to drop all of their efforts to undermine debit card competition. We look forward to additional enforcement actions to ensure that happens."
Mastercard confirmed it has entered into an agreement with the FTC but denied that it violated any rules.
"We believe that our existing routing practices are lawful and have always provided choice to merchants. We will continue the work to update our processes to comply with the consent order and provide even greater choice," Mastercard said in a Friday statement.
A spokesperson for the FTC declined to comment on any similar negotiations it's conducted with Visa.
The FTC's consent order requires Mastercard to provide competing debit card networks with information to convert the token to the customer's actual card number. The order also bans Mastercard from preventing rival debit networks from providing their own tokens, and requires Mastercard to comply with the provisions of Regulation II.
The consent order will be up for public comment when it appears shortly in the Federal Register, and after a period of 30 days the FTC will decide whether to make the proposed order final, according to the release.
"This is a victory for consumers and the merchants who rely on debit card payments to operate their businesses," said Holly Vedova, director of the FTC's Bureau of Competition, in the release.
