Apple Pay
Is Apple Pay breaking the Fed’s Regulation

WASHINGTON – Just months after the Supreme Court appeared to end the legal fight over swipe-fee rules, a new battle is brewing over the interplay between mobile payments like Apple Pay and the Durbin amendment.

At issue is the ease with which merchants can choose routing options that promise lower fees against the backdrop of rapidly changing technology.

The amendment, inserted by Sen. Richard Durbin, D-Ill., into the 2010 Dodd-Frank Act, requires issuers to give greater access to certain PIN networks and not just Visa and MasterCard. But merchants and some payments experts say that requirement is being violated because retailers have not been able to use the other networks in a variety of situations, including Near Field Communication and other contactless transactions like Apple Pay and online commerce.

“It’s my view that Apple Pay is breaking the Fed’s regulation,” said Douglas Kantor, a partner at Steptoe & Johnson LLP who has represented merchants in the interchange fight.

Mark Horwedel, chief executive of the Merchant Advisory Group, said that “merchants, as a practical matter, don’t have the options that Durbin affords them in all of these instances, including tokenized transactions with Apple Pay.”

While the retailers blame banks, card networks and Apple for developing a system behind closed doors and refusing to provide certain details about it, others say merchants have been slow to adapt their technology to use additional card network options. Some PIN networks, including STAR and Fiserv’s Accel, have already touted their capability to facilitate Apple Pay transactions.

“The problem is the merchants do not yet have a mechanism to see that alternative network despite the fact that that alternative network is associated with the” card, said Tim Sloane, vice president of payments innovation at Mercator Advisory Group.

Issues with how banks participating in Apple Pay comply with the Durbin provision add a new layer to the fight over swipe fee limits. The Dodd-Frank provision was a significant victory for merchants, but they later objected to the Federal Reserve Board’s final rule implementing it, saying it did not go far enough. An ensuing legal battle ceased in January when the high court declined to hear the case.

The Durbin amendment essentially made two huge changes to how merchants pay processing fees. The centerpiece was requiring the Fed to cap debit interchange fees. But the other main provision responded to concerns that major networks like Visa and MasterCard had a stranglehold on merchants’ routing choices.



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