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Education

CNP purchases are dominating the business world for Lamenting that, in the United States, the payment card
both merchants and consumers. The invoices you pay on- system is "broken and lacks the fundamentals of a com-
line, recurring payments you set up for your credit card petitive market," Walmart pointed out two components of
or insurance policy, retail therapy you engage in while the proposed order that allow Mastercard to continue to
sitting at your desk at work, literally any purchase where use network tokenization to circumvent Regulation II.
both the card and human being aren't present are CNPs.
Until now, a merchant had only one option: Mastercard's First, the proposed order requires translating the token
network. back into a PAN but doesn't require Mastercard to provide
the results of the critical cryptogram and domain control
If we harken back to the Durbin/Regulation II prohibitions validations when detokenization is requested by a com-
mentioned earlier in this article, the FTC has voiced its be- peting network or third party.
lief that Mastercard's policy strikes against prohibition
number one. Accordingly, the FTC's proposed consent or- Second, Walmart commented that, as written, the pro-
der and agreement was drafted to effectuate the remedial posed order requires Mastercard to provide the FTC with
purposes of these laws. 60-days' notice if it planned to launch a new debit product
that "requires Merchants to Route Electronic Debit Trans-
The proposed consent order, and as approved in the final actions only to Mastercard." Walmart's advice to the FTC
order, prevents Mastercard from prohibiting or inhibiting was to include the word "may" in this provision.
any person's efforts to serve as a TSP or provision pay-
ment tokens for Mastercard-branded debit cards. Not only FMI commented that the "FTC is correct to take enforce-
that, it prevents Mastercard from taking other actions that ment actions against Mastercard to require the immediate
would inhibit merchant routing choice in the context of change of its operating rules to allow merchants access to
tokenized transactions. a second network for ecommerce tokenized transactions."

The final order also prohibits Mastercard from stopping FMI put the spotlight on Mastercard's co-star, Visa, and
a merchant who accepts debit cards to choose their own its practice of not sending the full payment card informa-
network which processes such transactions through le- tion out for authorization. FMI reasoned this could result
gal means (that is, contracts, penalties, conditions, etc.) in a greater likelihood that the bank will reject the trans-
as doing so is in violation of Regulation II. The final or- action as suspicious or high risk. Ultimately, FMI, along
der throws in a "catch all" that prevents Mastercard from with Fiserv and Walmart, is loudly pushing the FTC to
taking other actions that would inhibit merchant routing continue investigating the global card network rules and
choice. Remember that whole "fair market" thing? business practices.
Public comments The challenge of anti-competitive practices

Out of eleven comment letters, several industry giants, For as long as the payment processing industry has ex-
like Fiserv, Walmart and the Food Industry Association, isted, the sheer lack of regulation dictating such a heavily
weighed in on the FTC's proposed order. While some may used form of commerce is remarkable. Anti-competitive
roll their eyes at their opinions, there is no denying the im- practices have long ruled the day (for example, network-
portance of their stances on this. Both Fiserv and Walmart blocking, exclusivity rules). However, the FTC's final or-
identified what they believe to be issues surrounding the der signifies a shift toward dismantling such practices
cryptogram, an authentication to ensure that the device and fostering a more competitive landscape.
used for the purchase is the same as the device onto which
the token was originally provisioned. The FTC's final order against Mastercard sets a precedent
for increased scrutiny of anti-competitive behavior within
Fiserv believes this order is not enough to encourage the the industry. Other major players may now face height-
competitive network away from Mastercard's grip. Fiserv ened regulatory scrutiny and potential legal action if they
reasoned in its comment letter that the proposed order engage in similar practices that restrict competition and
failed to remedy Mastercard's conduct in that it didn't re- consumer choice.
quire Mastercard to verify the cryptogram or to inform
the competitive network whether the transaction com- Legal challenges to the FTC's authority and specific pro-
plied with the token domain restrictions established by vision of the order could shape future interpretations of
the issuer. antitrust and competition laws within the payment pro-
cessing sector and beyond. These challenges could come
Fiserv also commented that competing networks will be from payment networks, industry associations or even
left with a Hobson's choice: either reject all CNP trans- merchants organized as a class action. We won't say Pan-
actions and send them back to the merchant or send the dora's box, but maybe Pandora's wallet.
CNP transactions to the issuer solely with the PAN to see
whether the transactions are ultimately authorized.

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