Card Not Present Fraud

Why Merchants Object to Visa's EMV Debit Routing Rules

Exclusive Interview with MAG's Mark Horwedel on Retailers' Concerns
Why Merchants Object to Visa's EMV Debit Routing Rules
Mark Horwedel, CEO, Merchant Advisory Group

Last week, retail associations representing thousands of U.S. merchants asked Visa to clarify how the card brand planned to level the playing field for EMV adoption in the U.S. - especially for routing for EMV debit payments.

In a Nov. 16 letter to Visa, leaders from the Retail Industry Leaders Association and the Merchant Advisory Group claim that Visa has taken steps to "circumvent merchants' legal right" to choose the network over which a debit transaction will be routed. This, the retailers say, goes against a Nov. 2 "frequently asked questions" guide published by the Federal Reserve, which clarifies that no card network can inhibit merchant routing choices, even by requiring technical specifications that could inhibit merchant routing options.

Mark Horwedel, CEO of the Merchant Advisory Group, which represents 108 of the largest U.S. merchants, says a number of Visa's rules and practices are being called into question, with some being investigated by the Federal Trade Commission. He contends that Visa has unlawfully limited or eliminated merchants' ability to route debit transactions through other networks by forcing them to deploy a certain technology and/or adhere to certain technical specifications.

"We want it clarified by the card brands, Visa in particular, for all of the various constituents of the payment ecosystem, that debit routing is the merchant's choice and the merchant's choice alone," Horwedel says in this exclusive interview with Information Security Media Group. "The Fed has come out and said that. We've known it all along - that's always been our interpretation. ... And I think it needs to be very clear - and Visa, in particular, needs to say that it's the merchant's choice and nobody else's choice on how to route debit transactions."

Visa tells ISMG that it plans to respond to the Fed's FAQ and the letter from retailers later this week.

FTC Inquiry

In Visa's annual report, which was released Nov. 15, the card network notes that an inquiry launched by the Bureau of Competition, part of the FTC, into whether Visa's optional PIN Debit Gateway Service violates certain regulations is now closed.

"On July 28, 2016, the bureau notified Visa that the bureau is conducting an investigation into whether Visa's requirements for EMV chip inhibit merchant routing choice for debit card transactions," Visa states. "Visa is cooperating with the bureau."

MAG and other groups argue that Visa's dominant role in U.S. debit - Visa debit payments account for 52 percent of all U.S. debit transactions - has given it an unfair business advantage in the migration to EMV chip cards, which are designed to enhance security.

"The rollout of EMV technology has been woefully mismanaged by the card networks," retailers note in their Nov. 16 letter. "The Federal Reserve declaration is the latest in a long list of examples of that mismanagement."

In this interview (see audio link below photo), Horwedel discusses:

  • Why he contends the U.S. rollout of EMV is to blame for most of the routing concerns merchants face today;
  • Why the Fed's FAQ was published in response to widespread merchant demand; and
  • How the Fed's findings might help to level the debit routing playing field for PIN debit networks in competition with Visa and other card networks.

Horwedel has more than 30 years of experience in the payments industry. Before joining the Merchant Advisory Group, he was CEO of Money Network, a PIN debit network, and director of payments at Walmart. He pioneered shared ATM services, introducing PIN debit at the point of sale and successfully lobbied for the Durbin amendment to the Dodd-Frank Wall Street Reform Act.

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