FTC Orders Mastercard to Halt Anticompetitive Business Tactics

According to a Federal Trade Commission (FTC) announcement made Friday, the agency is ordering Mastercard Inc. to end illegal business tactics that force merchants to route debit card payments through its payment network. The FTC claims that Mastercard’s refusal to provide competing payment networks with customer account information they need to process debit transactions violated provisions of the 2010 Dodd-Frank Act known as the Durbin Amendment and its implementing rule.

The FTC’s proposed agreement with Mastercard explained that it, alongside Visa, is one of the two leading payment card networks in the country. Reportedly, their processing fees total billions of dollars every year, affecting every purchase made with a debit card, most of which are paid by the merchants to the card-issuing banks and the payment card networks.

With the recent rise of debit ecommerce and e-wallet debit transactions, the FTC alleged that Mastercard flouted the Durbin Amendment by blocking merchants from routing ecommerce transactions using Mastercard-branded debit cards saved in e-wallets to alternative payment card networks, including those that may charge lower fees than Mastercard.

In particular, Mastercard purportedly used its control over a process called “tokenization” to block the use of competing payment card networks. “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,” the FTC explained.

By refusing to provide conversion services to competing networks for remote e-wallet debit transactions like online and in-app transactions, as opposed to in-person transactions, Mastercard allegedly made it impossible for merchants to route their e-wallet transactions on a network other than Mastercard.

With this week’s proposed order, Mastercard must start providing customer account information to competing networks so they can process debit payments. The FTC voted 4-0 to issue the administrative complaint and to accept the consent agreement. After a public comment period, the commissioners will vote to finalize the order.