Two factions that have taken on the card networks on separate fronts are combining their might in the latest effort to pressure Visa and Mastercard.
With merchant associations and debit network providers agreeing to form the Secure Payments Partnership, the new group will turn its attention to convincing the major card networks that its members deserve a seat at the table in any decision that affects them. In the past, retailers and debit networks felt largely swept aside in decisions ranging from transaction fees to the routing of EMV debit card payments.
And if the SPP can make its own voice heard, perhaps it can advocate for others who feel similarly ignored.
“It’s not just the debit networks and merchants that don’t have a decision making role, it’s also consumer groups and smaller banks … and we just don’t think that’s right,” said Doug Kantor, a partner at Steptoe & Johnson LLP and the legal counsel for the Secure Payments Partnership.
The founding members of the Secure Payments Partnership are the Food Marketing Institute, National Retail Federation, National Association of Convenience Stores, National Grocers Association, First Data’s STAR Network and the Shazam debit network.
“To do standards right, and especially when talking about payments security, our view is that you really need to have everyone at the table when decisions are made,” Kantor said.
Is this the right approach?
To some, the formation of another group seeking more say in card network decisions carries some baggage over from the earlier efforts.
“The interesting twist with this announcement is that two groups that traditionally have separately been at odds with Visa and Mastercard are now teaming up,” said Julie Conroy, research director and fraud expert with Boston-based Aite Group. “The areas of dispute haven’t changed, it’s the same old story there, but the adage ‘the enemy of my enemy is my friend’ springs to mind.”
Even so, there is not a lot of reason for the credit card networks to change their methods, Conroy said.
“The networks have established feedback mechanisms and the fact that the 3DS 2.0 spec took so long to be released speaks to the fact that there are many voices in these specification processes,” Conroy added. “These firms are lobbying for more of an opportunity to have direct control over decisions, versus just making suggestions.”
Jeff Tassey, chairman of the board of the Electronic Payments Coalition, echoed those thoughts in a statement to the media.
“Here retailers go again, lobbying Washington for further regulation in the interest of cutting their own costs instead of protecting their customers from fraud,” Tassey said.
“Despite claims, all players in the payments ecosystem—including retailers—have the opportunity to provide feedback and participate in the process,” he added. “We must all be committed to providing consumers with security and innovation without impeding consumer choice.”
But Kantor and the SPP don’t quite see it that way.
Finding their voice
“We’re getting together because we think some things like PCI (Payment Card Industry security standards) need to change the way they are structured; that’s really the bottom line here,” Kantor said. “We are not coming together to set standards ourselves, rather we need to and want to participate with those groups, but those groups need to be open to participation from all of the stakeholders.”
Two years ago, many of these merchants stepped up their years-long struggle against the card networks when a three-judge panel in the U.S. appeals court rejected the networks’ $5.7 billion swipe-fee settlement in an antitrust case retailers had filed against them.
At about the same time, the debit networks were locking horns with the card brands over how EMV debit transactions would be routed in order to follow the spirit of the Durbin Amendment, which called for merchants to have two routing options available. As it was, no technology was initially in place to include the independent networks in that process.
Visa and Mastercard agreed on a common application identifier in mid 2013, hoping to end that squabble with independent debit networks that had formed the Secure Remote Payments Council at that time. In many ways, the SRPC was a forerunner of the new Secure Payments Partnership.
The Secure Remote Payments Council itself sprouted from the Debit Network Alliance, a group of PIN debit networks that had formed to take a stand — or at least make its feelings known — on various rules or processes it felt forced their member networks into a disadvantage.
That common AID debate stung enough to have some carry over, especially when merchants and PIN debit operators alike were upset with how the routing options were presented to consumers on the point-of-sale screen. The wording was such, they felt, that no one would choose an independent network option, which generally was a less expensive choice for merchants.
“It really shouldn’t be that one sector is making decisions, when it turns out that it clearly doesn’t work well for a number of other sectors,” Kantor said.
The SPP hasn’t established a chain of command structure or a formal process for submitting positions to payments standards groups, banks, networks and federal regulators.
The group’s questioning of the card networks’ controlling the industry’s security standards is likely to target Visa and Mastercard’s recent move to establish a single buy button for online purchases using their cards and networks.
“We are hoping that we would get pretty broad buy-in and that it shouldn’t be a controversial proposition to say everyone should have a seat at the table on this thing,” Kantor added. “And then we’ll figure out how to do it, and if there is not that broad buy-in, then we will figure out how to get there.”
As much as anything, the SPP is hoping it can present a new front, with a new face that gets a fair shake in shaping payments policy as it relates to user authentication, open standards adoption, security innovation and the network routing competition.
“We will see what the reactions are like, as this is very different from things we’ve done in the past,” Kantor said.