Competition and Coordination: The Card Network Balance Act
Security is one of the most pressing issues in the payments industry, and a crucial ingredient in achieving security is coordination among industry participants. However, efforts to coordinate this highly concentrated industry have led to claims of anti-competitive behavior in pricing and rules by the payments card industry. Following a variety of lawsuits filed in the last 40 years, new lawsuits that allege such behavior are being filed around payment card security. This PSR Briefing reviews these lawsuits, discusses why coordination among card networks raises concerns about anti-competitive behaviors, and considers future implications for payment system security.
Previous Card Network Litigation and Regulation
Payment card networks have been involved in antitrust litigation for nearly 40 years (Wildfang and Marth). For example, in the s, the Worthen suit litigated exclusivity rules._ In the s, what is known as the “Walmart suit” litigated “honor all cards” policies. And in the s, both a merchant-led class action suit and a U.S. Department of Justice (DOJ) suit litigated the setting of interchange fees and anti-steering rules. Litigation is a lengthy process, and the ongoing costs and piecemeal solutions have done little to curb allegations of anti-competitive behavior.
Legislation and accompanying regulation occasionally have been pursued as an alternative to litigation. In , the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Durbin Amendment sought to cap debit card interchange fees and provide merchants a choice in how transactions are routed. Nonetheless, payment card networks still are embroiled in antitrust litigation.
Current Payment Card Network Litigation
The impetus for recent payment card network litigation was the migration from magnetic stripe technology to the Europay, MasterCard, and Visa (EMV) chip standard._ The United States was the last major market in the world to implement EMV, which was adopted after payment card networks announced their own plans to encourage EMV acceptance. Visa, MasterCard, Discover and American Express selected Oct. 1, , as the date for shifting liability for payments fraud from issuers to merchants in situations where consumers were issued EMV cards but merchants were not accepting them. This shift in liability was intended to give merchants an incentive to upgrade their terminals. To address issues that require coordination across payments constituents, the industry formed the EMV Migration Forum, an association designed to facilitate EMV adoption in the United States._ The migration to EMV, however, still did not go smoothly, and many merchants were unable to upgrade their terminals by Oct. 1, Consequently, merchants have called the coordinated effort by card networks anti-competitive and have filed complaints in federal and state courts.
In a class action suit by B&R Supermarket Inc., Milam’s Market and Grove Liquors LLC, the litigants claim that “for their own benefit, the networks, the issuing banks through EMVCo conspired to shift billions of dollars in liability for fraudulent, faulty and otherwise rejected consumer credit card transactions from themselves to the Class, without consideration to, or meaningful recourse by, those merchants (the ‘Liability Shift’)” (B&R Supermarket Inc. et al. v. Visa Inc. et al. Complaint )._ Simply put, the liability shift is alleged to have been designed to make merchants liable for payments fraud in circumstances where issuing banks previously had been responsible. Furthermore, the ability to comply with the shift often was out of merchants’ control. Even merchants who upgraded terminals to avoid the liability shift still could be liable for fraud because of third-party delays in the mandated EMV certification process. Conversely, the card networks argue they had independent, reputational incentives to encourage the technological upgrade because EMV chips are better at preventing a certain type of payments fraud (B&R Supermarket Inc. et al. v. Visa Inc. et al. Memorandum of Law ). Coordinated schedules, the networks claim, simply made the migration less confusing for participants.
Large merchants have filed three additional suits against card networks. Wal-Mart Stores Inc. and The Kroger Co. each filed a complaint against Visa, and Home Depot Inc. filed a complaint against both Visa and MasterCard. These suits arose from card networks preventing merchants from promoting chip and PIN technology, thereby allegedly precluding merchants from exercising the debit card transaction-routing rights afforded to them by the Durbin Amendment._ Though different from concerns about the shift in liability, these claims also allege anti-competitive behavior by the payment card networks as a result of the EMV migration.
The migration to EMV also has piqued the interest of Congress. In March , U.S. Sen. Dick Durbin of Illinois sought information about EMVCo, including its governance structure and the effects its standards may have on competition (Sen. Durbin EMVCo Letter March ). He urged EMVCo to incorporate other stakeholders into its governance structure to ensure a meaningful vote by those outside the network in making decisions and setting standards (Sen. Durbin EMVCo Letter May ). In its response, EMVCo stressed that while it facilitates standards regarding security and interoperability, it does not establish rules for their implementation (EMVCo Sen. Durbin Letter April ). It explained the shift in liability was the result of assessments by independent networks rather than EMVCo’s decision.
Collaboration and Competition: A Delicate Balance
Federal antitrust agencies have tried to help navigate the delicate balance of industry cooperation and market competition. The Federal Trade Commission (FTC) and the DOJ have issued “Antitrust Guidelines for Collaboration Among Competitors” to provide a framework for how they will analyze antitrust issues to encourage pro-competitive collaboration and deter collaboration that may harm competition (Antitrust Guidelines ). The framework is meant to help organizations evaluate whether collaboration is likely to face a federal antitrust challenge. When assessing the overall effect of an agreement to collaborate, benefits may be weighed against harms. The pro-competitive benefits of collaboration can include cheaper, more valuable goods or services, better use of existing assets, incentives for new investments, and economies of scale beyond the reach of any single organization. In contrast, the anti-competitive harms of collaboration can include increased prices or reduced output, quality, service, or innovation below what likely would exist absent the collaboration. While following these guidelines may reduce the likelihood of federal antitrust enforcement, it may not dissuade private litigants from going to court.
Implications for Payment Card Security
Determining whether behavior in the payments industry is collaborative or anti-competitive is not always easy. The economics of payment networks is conducive to a concentrated market structure, which may indeed be necessary for the success of the payment method. Moreover, in some cases, allegations of anti-competitive intent could hinder industry progress. In the EMV implementation example, although consumers and merchants raised concerns about the coordinated shift of fraud liability on Oct. 1, , a fractured alternative with uncoordinated timing would have carried its own significant challenges. If each card network had a different standard and timeframe for implementing EMV, it would confuse both merchants and consumers. In this regard, it’s practical for networks to agree to a standard and choose a single date for the shift in liability.
But in the context of antitrust law, is standards-setting by joint ventures an attempt to improve U.S. payment card security or, as merchants allege, a means by which to conspire?_ This is a critical issue to examine as more industry collaborations may be necessary to improve security and counter fraudsters as they develop more innovative techniques. Moreover, network participation in these industry groups has been viewed by some as an attempt to reduce potential anticompetitive harms. If these efforts are cited as an opportunity for anti-competitive behavior, card networks may have little or no incentive to continue in existing or new joint efforts (B&R Supermarket Inc. et al. v. Visa Inc. et al. Order ).
Though not a surprise, exclusivity of joint ventures may be the spur for alleged anti-competitive behavior. While including a variety of stakeholders in the governance of a joint venture may not be a panacea, it could prevent the perception of improper conduct. At the same time, it is unclear whether certain behaviors themselves are deemed to be collaborative or anti-competitive. In the case of implementing chip cards, EMVCo and the EMV Migration Forum served vastly different roles in the migration process. Whereas EMVCo developed and managed EMV specifications, the EMV Migration Forum guided EMV’s migration in the United States. This distinction was blurred somewhat in the current antitrust suit’s complaint, which named EMVCo as a defendant and identifies the liability shift—a decision determined by the networks—as the trigger for anti-competitive behavior._
Outlook for Payments Security
The concern that coordination by payments networks inherently is anti-competitive can have adverse effects on future upgrades in payments security. The shift from magnetic stripe technology to EMV chips was the first of what is expected to be a series of security improvements. Tokenization is on the horizon, potentially setting up another battleground for litigation._ EMVCo’s tokenization specifications, published in , elicited strong reactions from groups like the Merchant Advisory Group and the Secure Remote Payment Council, which prefer open standards to proprietary ones (Woodward). Failure to resolve their differences prior to putting the standards into practice could lead to further accusations of anticompetitive behavior and potentially to litigation or legislation and regulation that would delay security improvements.
As continuous litigation suggests, there is a delicate balance between the benefits of the concentrated structure of payment card networks and the threat of anti-competitive behavior. Joint ventures, including EMVCo and the EMV Migration Forum, along with active participation from a range of other stakeholders, may be crucial to ensuring that payment security in the United States does not fall behind the rest of the world. At the same time, it is important to recognize that if coordinated efforts always are met with litigation, networks may have an incentive not to act, potentially undermining industry progress. Antitrust law exists to defend consumers. The constant threat of legal action, however, may result in antiquated security that is a detriment to the consumers the law seeks to protect.
U.S. Payments Forum address slow chip card transaction times
The biggest complaint regarding the switch to EMV card transactions is the wait time for consumers.
My year-old stepdaughter says the same thing every time I talk about my job.
“I hate using that stupid chip thing,” she snarls. “It takes sooooooo long.”
On average, it really only takes about 15 seconds — “it feels like 5 minutes!” — to complete a EMV or chip card transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account in person at a retailer. But for those of us accustomed to swiping our cards and jamming them right back into our wallets, those extra 15 seconds can seem like an eternity.
With more merchants becoming EMV compliant every day and thousands clerks just starting to understand their new equipment, that second average can turn into 20 or 30, just like that.
It is those inconsistencies that were focused upon by U.S. Payments Forum in a recently-released white paper titled “Optimizing TransactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account Speed at the POSThe time and place a sale takes place. Also refers to the devices used to transmit the credit card transaction..”
The paper talked about the issue and offered analysis in three main categories: Faster EMV Solutions, Near Field Communication Transactions and EMV Checkout Optimization Practices.
The first discussed recent announcements by American ExpressAn organization that issues cards and acquires transactions, unlike Visa and MasterCard, which are bank associations., Discover, MasterCard and Visa — AmexAn organization that issues cards and acquires transactions, unlike Visa and MasterCard, which are bank associations. Quick Chip, Discover Quick Chip, M/Chip Fast, and Visa Quick Chip respectively — that keep the security features of EMV but speed up the transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account time.
“Counterfeit protection is central to the Faster EMV transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account and is accomplished through the generation of a unique one-time cryptogram,” the paper said. “Once this cryptogram has been generated by the card and delivered to the terminalThe device by which a transaction is transmitted to the acquiring bank., Faster EMV allows completion of EMV processing to be initiated, and the card can be removed from the reader.”
The paper also promoted the adoption of contactless transactions, saying they can enhance the cardholder experience. (It is also the solution that I suggest to the frustrated teen in my household.) Easily the fastest processing speed of all three, the Near Field Communication process is a clear choice for the impatient consumer, but not currently as available as EMV chip card readers. Services like Apple Pay and Samsung Pay are options.
“The interaction between the EMV contactless-enabled payment device and contactless reader is targeted to take place in less than half a second,” the paper said.
The paper went on to offer different techniques and tactics that can help speed up the process — or at least make consumers feel like the transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account is happening more quickly.
Slow transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account times can be equated to human error, lack of merchantA business that accepts credit cards for goods or services. training, inefficient equipment or faulty software installation.
With the holiday season upon us, it might be a good idea for merchants to bone up and find new ways to be efficient.For more information, read the entire white paper here or visit www.emv-connection.com.
If your business isnt compliant yet, contact us at National Merchants Association.
US Payments Forum to Explore EMV Chargeback Best Practices in September Webinar
PRINCETON JUNCTION, N.J., Aug. 17, (GLOBE NEWSWIRE) -- Issuers, acquirers and merchants looking to fully understand new types of EMV-related chargeback reason codes that have been established for both counterfeit and lost/stolen fraud can get answers to their questions at a U.S. Payments Forum webinar being held this September. The webinar, “EMV Chargeback Best Practices,” will provide guidelines on how to ensure proper authorization of transactions and how to avoid and/or mitigate invalid chargebacks.
The one-hour webinar, “EMV Chargeback Best Practices,” was developed by a cross-industry team of U.S. Payments Forum members to reflect input from all payments industry stakeholders, and will be held on September 7, at pm EDT ( am PDT).
To register, visit https://attendee.gotowebinar.com/register/
Webinar speakers are: Steven Cole, Vantiv; Brandon Cranford, Woodforest National Bank; Simon Hurry, Visa Inc.; Randy Vanderhoof, U.S. Payments Forum; and Doug Whiteside, MasterCard.
“The fact that the U.S. is not percent chip-enabled has brought up many questions about new chargeback reason codes, when to charge back, if a chargeback is valid, and how to mitigate invalid chargebacks,” said Randy Vanderhoof, director of the U.S. Payments Forum. “This webinar will provide education and guidance on best practices on how to best handle chargebacks in an EMV environment.”
The webinar will focus on the appropriate treatment and mitigation of both counterfeit and lost/stolen chip liability shift chargebacks occurring after the fraud liability shift dates for contact chip cards used in attended transactions, and will discuss:
- Issuer best practices for authorization and managing disputes
- Merchant best practices for obtaining an authorization response and avoiding chargebacks – both for merchants who are chip-enabled and those who are not yet chip-enabled
- Merchant and acquirer best practices for disputing and mitigating chargebacks
This webinar is based on the U.S. Payments Forum’s recently published white paper, “EMV Chargeback Best Practices,” which can be downloaded at http://www.emv-connection.com/emv-chargeback-best-practices/.
About the U.S. Payments Forum
The U.S. Payments Forum, formerly the EMV Migration Forum, is a cross-industry body focused on supporting the introduction and implementation of new and emerging technologies that protect the security of, and enhance opportunities for payment transactions within the U.S. The Forum is the only non-profit organization whose membership includes the whole payments ecosystem, ensuring that all stakeholders have the opportunity to coordinate, cooperate on, and have a voice in the future of the U.S. payments industry.
Payment - verified by visa
- Sorry I'm not sure if this is right forum, but I wanted to buy access to this game last night, went to pay with my visa card and something I had never seen before in all my years of debit card payments, Verified by Visa popped up. I didn't follow through with it because I'd never seen it. Has anybody had any problems with this through the albion site? Or anybody who can say for sure they haven't had any troubles? Just being wary. Look forward to be a part of this process if it's all good.
On another note, how is the population as of late? I haven't seen too many posts on here I was wondering how that was. Thanks
- I used paypal here.
But I have seen the Verified by Visa thing before. I have it setup on my card. It's an extra layer of security to ensure YOU are making the transaction.
- thanks for the input. I was just curious because I have never seen that before and I've ordered a decent amount of things with my visa debit over the years, and from what I read, the verify visa thing has been around nearly 15 years, and I would very much dislike having my bank call me because someone has my card information haha. I shall see you in albion fairly soon, just got off work!
Do you guys know of anyone personally who has run into the verify visa tryin to get this game? I was hoping a forum mod or someone associated with the game could give me some insight
- Mine did the same thingthen my CC refused payment LOL. Still on the fence here not liking alot of what I am reading on the forums
- Yep I knew that, took it as a sign maybe I should hold off and see where things are headinglooks like this last update was a bomb
Payments 2016 visa forum
.Visa Payment Options: Push Payments and Visa Direct
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