Fed Proposes giving merchants more choices when processing online payments

May 10, 2021 at 9:08 am Leave a comment

Good morning folks, last week the Federal Reserve board proposed regulations that would interpret the Durbin amendment as mandating the type of technology your credit union uses to access debit card networks.

There are two basic types of technologies used to process debit card payments: Single-Message systems send a single message to facilitate a payment transaction while a Dual-Message system uses– you guessed it– two messages. When the Durbin amendment was passed more than ten years ago, either of these approaches could easily accommodate in-store transactions, but SMS technology was not able to accommodate card-not-present technology.  Fast forward to the present day and, according to merchants, some of the largest issuers still don’t accommodate online transactions even though technology now makes it possible to do so. This distinction has grown in importance as online transactions have grown on average 17 percent a year not including the dreaded 2020.

Not surprisingly, the merchants are complaining. They argue, and the Federal Reserve agrees, that since many issuers do not offer the use of SMS to process online transactions they often find themselves unable to choose a competing network. In response to these concerns, the Fed has proposed adding commentary to Regulation II specifying that card-not-present transactions are a specific type of transaction for which a merchant must have access to at least two unaffiliated networks.

After reading the preamble, I’m curious if this will have any impact, particularly on smaller credit unions, or if the Federal Reserve’s new mandate can be accomplished with a touch of a button. If it is the former situation, then get the word out to you association ASAP; if it is the latter, well it was only a matter of time before regulators caught up to the huge shift towards online shopping.

Entry filed under: Regulatory, technology. Tags: , , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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