FTC orders Mastercard to open debit transactions to competing payment networks

The order targets the "tokenization" critical to mobile payments.

Dado Ruvic / reuters

The Federal Trade Commission has ordered Mastercard to start providing competing payment networks with the information they need to process debit card payments. In a proposed enforcement action announced on Friday, the FTC said Mastercard had allegedly violated a provision of the Dodd-Frank act known as the Durbin Amendment by prohibiting merchants from routing transactions over alternative networks.

The action targets “tokenization,” the technology that underpins mobile payment applications like Apple Pay, Google Pay and Samsung Pay. When you go to make a debit or credit card purchase with your phone’s mobile wallet, the software substitutes sensitive information, including the primary number associated with your account, with a separate set of single-use “tokens.” Mastercard and Visa say the practice prevents fraud since tokens contain no exploitable information when they’re in transit. It’s only when they arrive at Mastercard or Visa’s servers, and they’re mapped back to their original account holder, that they point to someone.

According to the FTC, Mastercard has historically stopped competing networks from accessing its token vault. That means whenever consumers decided to pay with a mobile wallet, merchants had to route the transactions over Mastercard (or Visa) and pay the company's transactions fees, which are typically higher than that of its competitors. The Durbin Amendment calls for banks to support two competing payment networks on all debit cards. It was a provision Congress introduced to promote competition among networks. The FTC didn’t say if it reached a similar agreement with Visa.

“While we are taking these steps to bring this matter to a close, there should be no question that tokenized transactions provide an increased level of protection to both consumers and merchants,” Mastercard spokesperson Seth Eisen told Bloomberg. “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.” Eisen added Mastercard would “continue to work to update our processes to comply with the consent order and provide even greater choice.”

The FTC plans to collect comments from the public before voting to finalize the order against Mastercard.