When it comes to debit routing, retailers should have two choices of networks for processing the transaction. The Durbin Amendment, signed into law in 2010, ensured competition in the debit market by requiring issuing banks to enable two unaffiliated networks on debit cards. However, on card-not-present transactions (internet, mobile app, wallet and even contactless), banks have only been enabling the global network—Visa or Mastercard. NACS views this as a clear violation of the law and has met with the Federal Reserve Board, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) about the anti-competitive practices of the global networks and their issuing banks.
This spring, the Federal Reserve Board proposed a clarification to the debit rule stating that issuing banks must enable two networks on card-not-present transactions as technologies have evolved over time. NACS supported this clarification and filed comments on behalf of the industry urging the Fed to finalize it as swiftly as possible. NACS also called on the agency to ensure a retailers’ routing choice is protected regardless of the type of authentication method—PIN or PIN-less—as this has been another way that the smaller debit networks have been shut out of the market. From NACS’ perspective, a retailer’s routing rights should be preserved regardless of the type of transaction—with a physical card present or not—and regardless of the type of authentication, with or without a PIN.
While hundreds of comments were filed on the Fed’s proposal from all sides of the issue, two comment letters stood out. The DOJ and FTC, both enforcement agencies, filed comment letters in support of the Fed’s action and called on the agency to strengthen competition in the debit market. The fact that these agencies felt compelled to file formal comments on another agency’s rulemaking, an uncommon practice, demonstrates how serious DOJ and FTC consider the issue.
The DOJ’s letter encouraged the Fed to consider how the global networks have tried to circumvent the routing requirements since the Durbin Amendment’s enactment and to consider how they may seek to do so in the future. The FTC asked the Fed to make it clear that the global networks can’t offer incentives to the issuing banks for evading their routing requirements.
Before finalizing its proposal, the Fed will review the nearly 900 public comments it received. NACS hopes the Fed will heed the call from the retail community, DOJ and FTC to protect competition and ensure that the networks and banks stop circumventing the law.