Key Debit Provision Remains Unresolved

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WASHINGTON – For Visa Inc., MasterCard Inc. and competing payments networks, a more critical provision than interchange pricing remains unresolved in the Federal Reserve’s proposed debit rules.

In proposing a 12-cent cap on debit interchange fees last week, the Fed announced it was seeking comments on two options addressing exclusive arrangements between issuers and the networks. Under either suggested course, the provision is expected to be a boost to competing PIN debit network operators such as Fidelity National Information Services Inc., Fiserv Inc. and Discover Financial Services – at the expense of Visa and MasterCard. “The ironic thing here is going into [the Fed’s meeting], people thought we’d have more clarity on exclusivity than on interchange, and in fact it seems that the opposite has occurred,” said Jason Kupferberg, an analyst who follows Visa and MasterCard for UBS Securities LLC in New York, told American Banker, an affiliate of Credit Union Journal.

The provision, included in the Dodd-Frank Act, prohibits payments networks and issuers from limiting the number of transaction routing options on a debit card to a single payment brand’s network or to two or more affiliated networks. A separate provision says networks and issuers cannot prevent merchants from choosing which available network to route over, American Banker reported.

The issue is a bigger overhang for Visa and MasterCard, since they do not derive their revenue from interchange. Their revenue is more dependent on network fees that issuers pay them to carry their brands and process their transactions.

“The proposed routing and exclusivity alternatives put retailer profits ahead of consumer protection, choice and convenience,” Visa said in a statement last week. MasterCard said it is still reviewing the network routing issue.


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