Mastercard has been ordered by the Federal Trade Commission to begin giving rival payment networks the data they require to process debit card payments. The FTC claimed in a proposed enforcement action made public on Friday that Mastercard had allegedly violated the Durbin Amendment of the Dodd-Frank Act by forbidding merchants from routing transactions over alternative networks.
The “tokenization” technology that powers mobile payment services like Apple Pay, Google Pay, and Samsung Pay is the target of the action. When you use the mobile wallet on your phone to purchase with a debit or credit card, the software replaces sensitive data, such as the primary number linked to your account, with a different set of one-time use “tokens.” Since tokens don’t contain any information that could be used for fraud while in transit, MasterCard and Visa claim that the practice prevents it. They only point to people once they reach Mastercard or Visa’s servers and are mapped back to the original account holder.
The FTC claims that Mastercard has historically prevented rival networks from accessing their token vault. This means that whenever customers pay with a mobile wallet, retailers must route the transactions through Mastercard (or Visa) and pay the company’s transaction fees, which are frequently higher than those of their competitors. According to the Durbin Amendment, banks must support two rival payment networks for all debit cards. It was a clause Congress added to encourage network competition. If a similar agreement was reached with Visa, the FTC did not specify.
There should be no doubt that tokenized transactions offer increased protection to both consumers and merchants, said Mastercard spokesperson Seth Eisen to Bloomberg. “We are taking these steps to bring this matter to a close. This emphasis on security directs our efforts in a highly competitive market and motivates us to keep investing in innovations supporting the level of security everyone expects. To comply with the consent order and give customers even more options, Eisen said Mastercard would “continue to work on updating our processes.”
Before deciding to impose the order against Mastercard, the FTC intends to gather public feedback.