In the sanction announced Friday, the FTC alleged that Mastercard violated a provision by prohibiting merchants from routing transactions over alternative networks.
The action targets “tokenization,” the technology that underpins mobile payment apps like Apple Pay, Google Pay, and Samsung Pay. When you make a debit or credit card purchase with your phone’s mobile wallet, the software replaces sensitive information, including the primary number associated with your account, with a separate set of disposable “coins”. Mastercard and Visa say the app prevents fraud as the tokens don’t contain any exploitable information during transit.
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According to the FTC, Mastercard has stopped competing networks from accessing the token vault. This means that when consumers decide to pay with a mobile wallet, merchants must route transactions via Mastercard (or Visa) and pay the company’s transaction fees, which are often higher than their competitors. The allegedly violated provision requires banks to support two competing payment networks on all debit cards. This was a provision introduced to encourage competition between networks. The FTC did not say whether it had reached a similar agreement with Visa.
“As we take these steps to end this issue, there should be no question that tokenized transactions provide a higher level of protection for both consumers and merchants,” Mastercard spokesperson Seth Eisen told Bloomberg. Eisen also added that Mastercard will “continue to work on updating its processes to comply with the approval order and provide more options.”