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The Federal Trade Commission Sniffs Around a Visa Debit Gateway
November 16, 2012

Already under investigation by the U.S. Department of Justice for its competitive response to the Durbin Amendment debit card regulations in 2010’s Dodd-Frank Act, Visa Inc. is now getting scrutiny from the Federal Trade Commission about a gateway service that routes transactions to PIN-debit networks.

Visa disclosed on Friday in its annual report for fiscal 2012 that the FTC’s Bureau of Competition on Sept. 21 asked it to voluntarily provide information about what Visa calls its optional “PIN Debit Gateway Service.” According to Visa, the FTC wants “documents and information regarding potential violations of certain regulations associated with the Dodd-Frank Act,” in particular the Durbin Amendment. The report doesn’t provide much detail about what the FTC is looking for, other than the “purposes, implementation, and impact” of the service.

The annual report, filed with the Securities and Exchange Commission, said Visa is cooperating with the FTC and responding to its information requests. A Visa spokesperson tells Digital Transactions News that he can’t comment about the matter or about the earlier DoJ probe. An FTC spokesperson did not return a Digital Transactions News call for comment.

Visa has offered the debit gateway since 1994. The service doesn’t carry transactions from Visa cards or cards with the Visa-owned Interlink PIN-debit network mark. Instead, it routes PIN-debit transactions from merchants or merchant acquirers to electronic funds transfer networks for merchants that don’t have a direct connection to a particular debit network. Visa’s annual report says the gateway service’s revenues are not material to its financial results.

The FTC thus is very likely looking at how the Visa gateway complies with the Durbin Amendment’s transaction-routing and related network-exclusivity provisions, which took effect April 1 under a Federal Reserve rule. Those provisions gave merchants new freedom to send transactions to the debit networks of their choice. Before Durbin, card issuers largely controlled routing, and they were motivated to direct transactions to debit networks with the highest interchange rates. Merchants, who ultimately pay interchange, have the opposite motivation.

The DoJ’s Antitrust Division in March asked Visa for information about new Visa services and fees that the No. 1 payment network implemented to protect its debit business in the Durbin era. They include the Fixed Acquirer Network Fee, which rewards acquirers and merchants for sending transactions Visa’s way, and the PIN-Authenticated Visa Debit program that enables Visa to process a PIN-debit transaction even if the sale is on a card that doesn’t carry the Interlink mark. Visa said it is cooperating with the DoJ in the probe, which centers on possible violations of the Sherman Act.

Interlink has lost about half its pre-Durbin volume since the routing and exclusivity rules took effect. Durbin bans exclusive deals between issuers and networks in which an issuer would allow a transaction to go only to affiliated networks, such as Visa for signature debit and Interlink for PIN debit. Some issuers had exclusive arrangements with MasterCard Inc., which owns the Maestro PIN-debit network, but many more had exclusive Visa-Interlink deals.

The other major part of the Durbin Amendment, the price controls on debit interchange for card issuers with more than $10 billion in assets, took effect in October 2011 and cut big banks’ debit revenues in half.

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