A Battered Acquiring Industry Seeks New Political Survival Strategies

In the wake of the Durbin Amendment’s debit card price controls taking effect last fall and other new regulations, the payments industry is feeling politically battered and bruised and fearing that more fights with merchants are on the way.

“Our era of self-regulation of pricing has ended,” Mary Weaver Bennett, director of government and industry relations for the Electronic Transactions Association, said Thursday at the merchant-acquiring trade group’s annual conference in Las Vegas. “Government scrutiny will increase.”

Bennett and Tucker Foote, vice president and head U.S. government affairs for MasterCard Inc., said at a conference session that after their victory in convincing Congress to regulate debit interchange through the Durbin Amendment in 2010’s Dodd-Frank Act, merchant interests are pushing for lower credit card interchange. They’re unlikely to get a credit card equivalent of Durbin this year given that Republicans control the House of Representatives, but Foote believes they’ll try for smaller measures that could lower their payment card acceptance costs. “What I do think they’re going to do is nibble around the edges,” he said.

Those efforts, he said, will include support for measures that would force merchant-friendly changes in payment card network rules and disclosure of interchange costs, and antitrust challenges to card networks. (A major group of merchant lawsuits challenging credit card interchange is set for a federal trial in September in Brooklyn, N.Y., although merchants and the defendant networks and banks reportedly are discussing possible settlements.) Merchants also support efforts in some states to prevent interchange from being charged on the sales-tax portion of card transactions. “What merchants want [is] to get their acceptance costs as low as possible,” Foote said.

Foote, a former staff member of the House Financial Services Committee, said merchant groups did a politically deft job in getting the Durbin Amendment passed. Their first tactic, he said, was successfully linking the acquiring industry “to the big, bad financial-services industry,” whose popularity plunged in the recession. Retail groups also effectively conducted a grass-roots campaign to get their members to convey to legislators their concerns about payment card acceptance costs. “Merchants did a great job,” he said. Foote also faulted a “lack of understanding” about the value the payments industry brings to the economy.

The Washington, D.C.-based ETA opposed the Durbin Amendment on grounds that it didn’t want the government “to come in and tells us how to price our business,” Bennett said. That stance caused what she called “a split in our membership,” with some independent sales organizations supporting the amendment because it would lower costs for their merchant clients.

To effect a political turnaround, Bennett and Foote said the acquiring industry should embark on some grass-roots organizing of its own by better explaining the benefits of electronic payments to local merchants and politicians in hopes that they would get that message back to Washington. “We can’t win this inside the Beltway,” Bennett said.

Meanwhile, although a number of different federal agencies as well as Congress are looking into various payments-related issues, one of the hottest current topics is mobile payments. Committees in both the House and Senate have held fact-finding hearings on the subject in the past couple of months. The Federal Trade Commission has scheduled a full-day mobile-payments workshop for April 26 in Washington that’s free to the public. Topics will include market opportunities, fraud control and security, privacy, and dispute resolution. Speakers will include officials and executives from government, consumer groups and payments firms, including Google Inc. and Isis, the mobile-payments joint venture of AT&T Mobility, Verizon Wireless, and T-Mobile USA.

The FTC doesn’t regulate banks, but it does have authority over third-party payment entities such as ISOs. The commission has expressed concerns about lax underwriting and monitoring of risky merchants by payment processors.