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The Federal Trade Commission is taking aim at what it calls illegal business practices by Mastercard surrounding debit card transactions on ecommerce orders.
The news: The FTC ordered Mastercard this month to share customer account data with competing payment networks so that they can process debit transactions on ecommerce orders. This is designed to give merchants more options in payment processing.
What did the FTC target? The ruling centers on a practice called tokenization, in which payments providers swap out account numbers with different numbers for fraud prevention and security purposes. The practice has gained more use with the growth of ecommerce, and the use of ewallets such as Apple Pay and Google Pay.
The FTC alleges that Mastercard was using tokenization to prevent other payment networks from processing transactions made with Mastercard debit cards. It did so by maintaining a policy that blocks access to its token vault containing original account numbers, which are needed to finalize transactions.
Now, the data will have to be made available to competing payment networks. Mastercard and Visa operate the top two payment networks. But debit cards are also issued by networks such as NYCE, Star and Shazam, which charge lower fees.
What’s the FTC saying? “This is a victory for consumers and the merchants who rely on debit card payments to operate their businesses,” said Holly Vedova, Director of the FTC Bureau of Competition, in a statement.
How is Mastercard responding?In a statement to Bloomberg, Mastercard indicated it would comply with the order, but maintained that tokenization was crucial to its operations.
“This focus on security guides our efforts in a highly competitive market and provides the incentive for us to continue investing in innovations that promote the peace of mind every person expects,” Mastercard spokesman Seth Eisen said to Bloomberg.
How did we get here? From a regulatory perspective, the ruling is being made in accordance with the Durbin Amendment, which was a provision of the 2010 banking reform legislation known as Dodd-Frank. This policy aimed to give merchants more choice in payment processing by requiring banks to enable at least two unaffiliated networks on every debit card. In turn, it provided an avenue for competition, and potential savings on fees.
Earlier this year, the Federal Reserve issued updated regulations which clarified that the Durbin Amendment applied to online transactions, just as it did to in-store transactions.
The FTC order builds on that action, according to the National Retail Federation.
“The card industry has been trying to do end runs around the rules on debit card routing for far too long, driving up prices for consumers in the process,” said NRF Vice President for Government Relations, Banking and Financial Services Leon Buck. “Congress said a dozen years ago that networks have to compete over debit card transactions, and this is another important step in making sure that finally happens.”
What does this mean for brands and retailers? The ruling is a reminder: There’s a choice when it comes to payments. While retailers are accepting more types of payment methods in response to consumer demand, there may also be benefits to examining the processing and swipe fees that apply to good old-fashioned debit card transactions. While Visa and Mastercard are the name brands and leaders, the FTC’s order is a reminder that competition is encouraged in this space, and all networks can be considered. There may even be savings that you can pass on to consumers.
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Still, plans to buy big-ticket items ticked up.
Those were a couple of the words used to describe consumer confidence in May. The Conference Board reported that the index fell to a six-month low amid debt ceiling anxiety and increasing concerns about employment.
“Consumer confidence declined in May as consumers’ view of current conditions became somewhat less upbeat while their expectations remained gloomy,” said Ataman Ozyildirim, senior director of economics at the Conference Board, in a statement. “...While consumer confidence has fallen across all age and income categories over the past three months, May’s decline reflects a particularly notable worsening in the outlook among consumers over 55 years of age.”
The dip among those over 55 came as Congress negotiated a deal over increasing the debt ceiling that included talk of cuts to programs such as social security and Medicare. While officials reached an agreement over Memorial Day weekend, the Conference Board’s survey was fielded prior to that date.
The job picture appears to be more anecdotally cloudy, as the number of consumers reporting jobs as “plentiful” fell to four percentage points to 43.5%. The job market has been consistently robust for nearly three years, as unemployment remains near historic lows. In April, the economy added 253,000 jobs, which remained a positive sign despite being below the gains of prior months. The confidence reading comes ahead of fresh data from the U.S. Bureau of Labor Statistics on Friday.
Despite the declines, there were signs that consumers are not completely pulling back on big-ticket items. Plans to buy big-ticket items such as cars and appliances ticked up on a monthly basis. It’s worth watching whether this extends to providing resilience in other discretionary categories, which have seen a pullback in early 2023.
Nevertheless, the index offered another sign that the consumer mood is getting more pessimistic. It was the fourth time in five months that confidence fell. On Friday, the University of Michigan offered another with a consumer sentiment report that showed a 7% dip.
Brands and retailers must work to reach consumers that are increasingly in less of a buying mood than the month before.