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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.
Trending in Operations
The platforms are integrating as PayPal makes a push into the headless commerce market.
The news: Checkout provider Bold Commerce and fintech company PayPal announced an integration that will allow brands and retailers to adopt both companies’ services together. PayPal said it’s a move to expand in the headless commerce market, which describes solutions that allow merchants to operate stores without a front-end layer.
How will it work? The companies described the integration this way:
Brands and retailers can use Bold Commerce’s headless checkout suite with the PayPal Commerce platform.
This brings together payments and checkout in a “single pre-integrated solution.”
Merchants can launch sales beyond their own website by integrating checkout in places like blogs, social, and QR codes on packaging.
Through a single service, brands and retailers can accept payment options including PayPal, Venmo and PayPal Pay Later solutions, as well as credit and debit cards.
Key quote from PayPal VP and Global Head of Channel Partnership David Bruce: “Payment choice and flexibility have always been a critical part of a successful commerce experience – but it’s only one part of the equation. Retailers today need to also offer a tailored checkout experience to help drive increased conversion. It’s a powerful combination for a composable checkout to plug into any tech stack.
What it means for ecommerce: The partnership highlights several key trends playing out in the market today:
Headless commerce: In a past generation, retailers built monolithic ecommerce systems with a host of interconnected parts. The cloud and API-driven architecture is ushering in a new paradigm where brands and retailers can separate out different components, and select what best fits their needs. The market is moving toward this, especially in the enterprise segment that long required custom-built systems for scale and category needs. The entrance of PayPal signals that longtime ecommerce platforms are building for this shift. Meanwhile, Bold Commerce itself has 9,000 brands and retailers on its platform, including Vera Bradley, Staples Canada, Pepsi, and Mars. This follows a move by Shopify to launch composable product suite Commerce Components with a focus on checkout earlier in January.
Checkout anywhere: Content brought commerce to platforms beyond ecommerce stores, enabling ads on social platforms and brand placement in posts. More recently, more of that content has become shoppable, allowing users to browse and start a purchase right within a piece of media. A solution like the Bold Commerce and PayPal integration takes another step, embedding the ability to finish a purchase by checking out right inside that content. It shows how ecommerce is becoming more embedded in the experience of the internet, as opposed to existing on specific stores and marketplaces.Fighting cart abandonment: The ability to check out through media is enticing to ecommerce leaders because they want to reduce the touchpoints and time between a person showing interest in an item and completing a sale. Bold Commerce found over half (53%) of consumers abandon checkout before making a buy. This is a long-standing issue, but signals that perhaps there is another technical step being taken. It’s one thing to make checkout easier; It’s another to bring it directly to the point of discovery.