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Education

No more blocking Merchants pay interchange fees to card issuers for trans-
action processing. These are contentious, mainly due to
competing networks their lack of transparency and high costs. Initially, a cap
was set for debit cards at a maximum of 21 cents per trans-
action, plus an additional percentage of transaction value.
for Mastercard – the Banks and credit unions with assets less than $10 billion
are exempt from this cap.
legal implications Within the Durbin Amendment and Regulation II, two

sets of prohibitions command the floor. Both are designed
to promote merchant and consumer savings associated
with processing debit transactions. The first is aimed at
prohibiting network exclusivity.

Congress addresses this with a three-pronged approach:
prohibiting a card issuer or payment card network from
directly or indirectly restricting the number of networks
on which a debit transaction can be processed to less than
two unaffiliated networks; requiring that a debit card is-
suer enable payment card networks that satisfy certain
minimum standards; and prohibiting a payment card net-
work from limiting an issuer's ability to contract with any
other network.

The second prohibition is more revolutionary. It forbids an
By Adam Bucci and Bill M. Petti issuer or payment card network from directly or indirectly
Global Legal inhibiting a merchant's ability to choose which of the net-
works enabled for the debit card is used to process a given
n a groundbreaking decision, the Federal Trade transaction.
Commission approved a final consent order and Mastercard's conduct
agreement to enjoin certain practices and to pro-
I vide for other relief to resolve the allegations in Enter our main character, Mastercard. Mastercard's rules
the FTC's draft complaint against leading payment net- require a Mastercard-branded debit card be loaded into an
work Mastercard. Specifically, the final order requires ewallet and tokenized. Tokenization replaces a card's pri-
Mastercard to cease blocking the use of competing debit mary account number (PAN) with a unique alternate card
payment networks. number, or "token." Mastercard is also the token service
provider (TSP) for nearly all Mastercard-branded debit
This final order was finalized following a 30-day public- cards used in ewallets.
comment period regarding the proposed order to resolve
allegations that Mastercard's practice violated provisions When an ewallet transaction using a Mastercard-branded
of the Durbin Amendment to the Dodd-Frank Act and its debit card is routed to Mastercard, Mastercard thus can
implementing rule, Regulation II. perform the detokenization and process the transaction.
Competing payment card networks, however, do not have
While this ruling primarily focuses on Mastercard, its le- access to Mastercard's token vault. To route a Mastercard-
gal implications extend beyond the network itself. So, why branded tokenized transaction to a competing network, a
should you care? How does this affect the everyday busi- merchant's acquirer or the competing network therefore
ness owner? As with anything in our ever-evolving world, must ask Mastercard to detokenize the token.
we must look back before we can look forward.

Legal framework Thus, merchants are dependent on Mastercard's deto-
kenization to route ewallet transactions using Master-
In the wake of the 2007–2008 financial crisis, Congress en- card-branded debit cards to competing networks. Picture
acted the 2010 Dodd-Frank Wall Street Reform and Con- Charles Dickens's Oliver Twist asking the headmaster for
sumer Protection Act to address the causes of the crisis and more soup.
enhance financial regulation. Among the 2,300 pages and
400 new rules and mandates, the Durbin Amendment— FTC's proposed order and agreement
named after its author, Senator Richard Durbin—and Reg- In the FTC's view, Mastercard's ewallet token policy
ulation II, promulgated by the Federal Reserve, brought doesn't allow card-not-present (CNP) debit transactions
significant changes to the debit card industry, aiming to using ewallet tokens (i.e., debit cards) to be routed to com-
promote fairness and transparency in interchange fees. peting debit networks. That is an impactful statement.
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