Debit routing rule tables turned on regulators


In requesting a year-and-a-half reprieve from complying with a debit card routing rule, bank card issuers told the Federal Reserve Board there aren’t enough networks available for signing a reasonable contract by July.

If that sounds familiar it’s because that’s the whole reason for the rule: to inject more competition into a debit card routing ecosystem long dominated by Visa and Mastercard. The regulation was rolled out under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, requiring bank card issuers to make networks other than the two titans available to merchants. The government has argued the move will reduce costs for merchants, and ultimately consumers.

The law was passed more than a decade ago, but apparently Visa and Mastercard are still the go-to networks for the card issuers because the five bank trade groups argued in a letter to the Fed Friday that a lack of networks is why they need an 18-month extension. Otherwise, they’ll have no selection and will be forced to sign less favorable contracts to abide by the rule, they said.

Indeed, the banks suggested their payment processors vendors are taking advantage of the situation, dictating terms with limited network options.

“Since the rule was issued (last October), processors have expressed to issuers that the only way the processor can operationalize the required change prior to the (July) Effective Date is by requiring issuers to enable the processors’ affiliated debit networks,” the letter said.

It’s an eyebrow-raising argument from a group of card issuers who have been content to work mainly with Visa, the largest U.S. card network company, and No. 2 Mastercard for decades. Now, they decry a limited pool of networks to choose from, including Fiserv’s Star and Accel or Fidelity National Information Service’s NYCE.

Spokespeople for Fiserv and FIS didn’t immediately offer a comment.

While card issuers have largely instituted the debit routing rule in stores, the Fed said that hasn’t been the case for online purchases and last year underscored it’s required there too. It also set the July date for full compliance.

The card issuer banks complained in their letter that being subject to the processors’ network options contradicts the Fed’s mission in trying to spur competition.

“These types of requirements, which would leave many issuers with just one choice of debit network, run counter to the spirit of the Final Rule, which is intended to encourage competition,” the letter said.

And the bank groups don’t see this problem disappearing anytime soon. They say it’s not even clear that another year-and-a-half will offer sufficient time to resolve the problem.

“More time would by no means eliminate the competition problems posed by consolidation among bank software companies, processors, and debit networks,” the letter said.

It’s an argument that should ring true with regulators. Indeed, the Consumer Financial Protection Bureau, which tries to rein in antitrust practices detrimental to consumers, has put the big processors on notice that it’s concerned.

CFPB Director Rohit Chopra reminded processors last year that the agency has spotted a concentration of power among “core service providers,” including FIS, Fiserv, Jack Henry and Finastra. He noted those four payments processors collectively service 78% of the nation’s banks. 

For its part, a spokesperson for the Fed declined to comment on any response to the trade groups’ request for delayed implementation.

Nonetheless, the bank trade groups’ arguments for a delay until 2025 may ultimately fall flat with the central bank and here’s why.

There are other debit network options outside the processor possibilities, albeit limited in number and perhaps not prepared today for scaling up. Some of them listed on the Fed’s website include Discover Financial Service’s Pulse network, the Chinese-owned UnionPay and SHAZAM, among others.


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