Digital Transactions Authoritative, insightful and timely information for payments professionals
Merchants and their various industry trade groups have spent quite a lot of time—not to mention money—on lobbying for regulations to control interchange costs. And not without success. In 2010, they got Congress to add the Durbin Amendment, which caps debit interchange for the biggest issuers, to the massive Dodd-Frank Act.
Lately, not a few of them have been griping about the huge settlement, reached in July with Visa Inc., MasterCard Inc., and a handful of major banks, that would put to rest 7-year-old antitrust litigation over credit card interchange. Among other things, these dissident merchants fear the settlement would compromise future efforts to get Congress or the courts to cap credit card costs.
But there’s another way to reduce these costs that could be a little less expensive in terms of time and money, and it could be done with a little creative rule revision at Visa and MasterCard. The change would involve revisiting the rules surrounding so-called card-present and card-not-present transactions. Time was, card-present referred to situations where a cashier could swipe a card, check its signature and expiration date, and get an authorization. But, as we reported in our October issue (“Just What Does Card-Present Mean These Days?”), the rules are decades-old and make less and less sense as mobile technology sweeps through the payments business.
You don’t have to look far to see how the old card-not-present definition is blurring into meaninglessness. For example, MasterCard announced last month a pilot in the Netherlands with ING Group in which e-commerce transactions (traditionally card-not-present) are authenticated by using a mobile device with an embedded EMV “card” to read a QR code that links the consumer’s credentials to his online shopping cart.
The savings to merchants from redefining at least some mobile transactions where card credentials are securely “present” could be substantial. Card-not-present transactions typically carry interchange that is about 50 basis points higher than card-present rates.
No wonder a recent Yankee Group poll found 60% of payments executives agreeing that mobile technology will compel the card networks to adjust card-not-present rules within two years (30% said it will happen within 12 months!). Such technology-driven change has happened before. In the mid-‘90s, the rapid installation of new card readers at gas pumps forced the networks to define cardholder-activated transactions at gas stations as card-present.
The networks will have to respond this time, too. That would be good news for interchange-weary merchants. It would also certainly be a more efficient way to chop interchange costs than litigation and lobbying.
John Stewart, Editor
john@digitaltransactions.net
