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What's Up in Washington: The Biggest Barrier to Mobile Commerce Innovation - Government Regulation or Network Policies? (MAG Quarterly- Volume Four, Issue One)

By Liz Garner, Merchant Advisory Group 

March 3, 2016

It has been over two years now since I sat in a courtroom in Brooklyn listening to arguments in the Fairness Hearing for “In Re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation.”  While that litigation continues to be unresolved, there is one exchange from the hearing that sticks with me to this day more than anything else from that fall morning in New York. One particular exchange gave tremendous insight into how global card brands think about their own Honor All Cards rules.

Honor All Cards is a network brand (i.e. Visa, MasterCard) acceptance rule, which states that if a merchant accepts one type of that brands’ credit card, they have to accept them all.  Merchants have long opposed the Honor All Cards rule as it effectively pigeonholes merchants into accepting any different variation of a network-branded card that comes to market regardless of pricing, security features or other characteristics critical to the merchant value proposition of those products.  International authorities in Australia, Europe, and other countries have found the Honor All Cards rule to be anticompetitive, and have prohibited or altered it. 

In the Brooklyn courtroom that day, the Judge questioned Visa’s lawyer as to whether or not the Honor All Cards rule in place at the time of the proposed settlement agreement (July 2012) in the pending litigation was applicable to mobile. Visa’s lawyer responded:

It’s absolutely clear in this record that right now . . . the Master Card and Visa Honor-all-Cards Rules apply to both cards but also to other devices including contactless devices.

There's a lot of transactions done today without cards. There's transactions done with the little the gray fobs that open doors, you do it, that is applied to the Honor-all-Cards Rule. Mobile phone transactions are done today, they are governed by the Honor-all-Cards Rule.”

Not to say that the legal interpretation there was correct, but two years later, we are starting to see the practical application of Honor All Cards to mobile commerce. In October 2014 Visa issued a business notice saying the following in regard to NFC/contactless merchant acceptance:

“Merchants continue to retain options as to whether to employ these new technologies and whether to extend contactless functionality for Visa payments, but must do so consistently.  Requiring that all Visa NFC payment cards and devices have equal access to the point of sale ensures that consumers not be forced to expend effort to determine if a merchant will accept the consumer’s particular Visa-branded payment card of device. 

Therefore, acquirers must ensure that their merchants currently accepting Visa contactless payments accept all forms of Visa NFC contactless form factors, including cards, mobile devices or any approved device containing a valid Visa account credential.”

Effectively what this policy is trying to enforce is Honor All Wallets for any merchant who turns on a specific acceptance technology (e.g. NFC according this business notice). With the absence of electronic indicators to tell merchants which wallet the card is stored in there is no way for the merchant to control the business terms of that mobile wallet being used in their store, ensure transaction security, control costs, understand what data management policies are utilized, and most importantly, manage the customer experience.

Late last year, the House Energy and Commerce Subcommittee on Commerce, Trade, and Manufacturing held a hearing titled: “The Disruptor Series: Mobile Payment,” [] that featured testimony from emerging technology providers PayPal, Samsung Pay, and MCX. In my view, the hearing acknowledged the important role disruptors can play in fostering innovation in the mobile commerce space. Committee leaders and other policymakers could always have a change of heart, but for now it seems most are open to letting the mobile commerce market take shape on it’s own without trying to over-regulate it.

With that context in mind, it is my view that in 2016 network policies are likely to raise far greater challenges for mobile commerce innovation and competition than government regulation.

Forced wallet acceptance under the Honor All Cards rule is bad for competition, bad for innovation, and bad for our customers. MAG is hopeful our business partners will recognize the pitfalls of tying plastic card acceptance rules to mobile commerce and work constructively with us to foster a better, more efficient environment to help us best serve our collective customer – the cardholder, or in this case perhaps the mobile device user. 

MAG Position on Mobile Competition and Honor All Cards.Final