Why the FTC Isolated Mastercard With Its Pre-Christmas Consent Order

When the Federal Trade Commission announced two days before Christmas it had leveled a preliminary consent order against Mastercard Inc. to correct what the agency saw as roadblocks the card company had erected against routing online debit transactions to competing networks, the move may have surprised at least some observers. The surprise lay not in what the FTC had to say, but in what it omitted: the order left out Visa Inc., Mastercard’s main rival and a company the Commission had identified only two months earlier as a fellow actor in blocking debit routing to other networks.

Now it appears the FTC’s decision to issue an order against Mastercard alone may have stemmed from facts the Commission learned in the weeks following the news it was targeting both network giants. Like Mastercard, Visa protects transactions against fraud by using digital tokens in place of actual account numbers. But Visa in 2018 began detokenizing transactions on its network so they can be shipped to another network for processing if the alternative network was designated by an online merchant.

Many details about the process, known as a callout service, aren’t well-known, but the consequence is that Visa apparently escaped further action by the FTC. “Mastercard was refusing to do anything” about detokenizing its transactions, says one informed observer who spoke to Digital Transactions News on condition of anonymity. “Visa makes it difficult but not impossible. It made sense for the FTC to go after egregious violations first.”

Visa’s callout service does not levy fees and requires no separate agreement from users, according to sources, who add the FTC is aware of the service. Visa did not respond to a request for comment from Digital Transactions News.

The 2010 Durbin Amendment to the Dodd-Frank Act mandates that merchants have a choice of networks in routing their debit card transactions. That mandate became somewhat cloudy in the ensuing years as online activity, including transactions arising from mobile apps, became commonplace, leading merchants to object that the two global networks were effectively blocking their network choice. A rising volume of complaints to the Federal Reserve led the regulator last year to require that the Durbin rule be observed with online traffic.

An FTC spokesman refused to comment when queried about the Commission’s decision to isolate Mastercard. But observers say the regulator is now likely to pursue its order aggressively. “For the FTC to understand the issue at this level of granularity, it strikes me that they must be listening and following up on what they are being told by the lobbyists representing the merchant community,” says an observer who commented on condition of anonymity.

For its part, Mastercard defends its tokenization practices but insists it will abide by the FTC’s order. “We believe that our existing routing practices are lawful and have always provided choice to merchants. We will continue the work to update our processes to comply with the consent order and provide even greater choice,” says a spokesman in an official statement.

The FTC commissioners voted 4-0 to issue the order, which will be published for public comment. After that, the agency will decide whether to make the order final.