Page 18 - GS210901

View

payments migrate online and to other CNP environments.
Insider’sreport Last year, CNP debit payments jumped 23 percent, and now
account for one in three debit card payments, according to
on payments a new study out of the PULSE network.

To accommodate growing demand for online debit, regional
EFT networks, like PULSE, have developed PINless debit
technology. This technology, as the name implies, supports
debit card acceptance without PINs. Instead, the cardholder
Debit routing debate is typically authenticated using address verification service
(AVS) and/or Card Verification Value (CVV), much as they
portends more would in a CNP credit card scenario.

But for PINless debit to work, debit cards need to be
industry scrutiny programmed to support PINless debit, and most are not,
evoking the ire of merchants, regional EFT networks,
and even Sen. Dick Durbin, D-Ill., author of the Durbin
By Patti Murphy Amendment.
ProScribes Inc. The Fed said its data suggests that among card issuers

ebit routing may seem a mundane, even convo- covered by the Durbin Amendment (those with assets
luted, topic. But it's more likely than not that the exceeding $10 billion) about half saw no CNP transactions
Federal Reserve will change its rules on debit using debit cards they’d issued being processed through
D routing, requiring that merchants be allowed regional EFT networks in 2019. The DOJ said its analysis
to choose which network processes debit card payments shows that the Visa and Mastercard networks, combined,
they accept. And while the proposed rule change primarily process 75 percent of all debit card transactions and 90
affects debit card issuers and the card networks, it's grow- percent of all online debit card payments.
ing more evident that Washington has its sights set on the
payment processing industry. Even before the ramp up in online debit usage that came
with the pandemic, merchants were up in arms over the
This was my sense reviewing letters submitted to the lack of debit routing choice, since regional EFT network
Fed by the Department of Justice and the Federal Trade interchange is much lower than Visa and Mastercard
Commission. The letters were responses to a Fed request interchange. Merchants have had a powerful ally in Sen.
for comment on a proposal to change Regulation II to Durbin, who last year asked the Fed to investigate whether
ensure merchant debit routing choice for card-not-present the card brands and issuers were conspiring to hold PINless
transactions. (Reg II implements the Durbin Amendment debit at bay.
to the 2010 Dodd-Frank Act.)
It's important to note that the Durbin Amendment and Reg
Both agencies oversee the enforcement of federal antitrust II specifically state that merchants must be able to choose
laws. Additionally, the FTC has regulatory authority over between at least two unaffiliated networks to process debit
debit card networks under the Durbin Amendment. It card payments. However, when the Fed wrote Reg II, in
was the FTC, for example, that forced Visa in 2016 to 86 a 2011, it failed to foresee the rise of CNP and PINless options
requirement that merchant POS devices prompt customers for debit card payments, which left wiggle room for issuers.
to select a debit network, not merchants. Affirming merchant choice

A statement, included in a DOJ press release and attributed Back in May of this year, the Fed proposed changing its
to Acting Assistant Attorney General Richard A. Powers, official commentary on Reg II to clarify that the merchant
is telling. "There is limited competition to process online choice requirement applies to CNP as well as card-present
and other card-not-present debit transactions," he said. transactions, and that issuers must take steps to enable this
"Consistent with President Biden's Executive Order on on the debit cards they issue.
Promoting Competition in the American Economy, the
department looks forward to working with the [Fed] on this and Since then, the Fed has received an avalanche of comment
other efforts to foster competition." [Emphasis added.] letters, both supporting and opposing the proposed
change—over 1,000 as of the mid-August deadline for
A hot button issue public comments. As someone who has followed the
Fed's regulatory apparatus for nearly four decades, I can
Debit card routing has long been a hot button issue pitting say unequivocally that 1,000 comment letters on a single
merchants against card issuers and the card networks.
The debate has become more pronounced as more debit proposal is huge!

18