Merchants Argue Apple Pay Is Breaking Fed's Swipe Fee Rule

WASHINGTON, D.C. — Although the U.S. Supreme Court seemingly ended the debit card swipe-fee debate in January, a new battle between merchants and processors could be ready to heat up.

As CSNews Online reported on Jan. 20, the Supreme Court rejected a challenge from retailers who claimed the Federal Reserve allows banks to charge businesses too much for handling debit card transactions.

However, mobile payments like Apple Pay could be getting in the way of the general ideology of the Durbin amendment, which states merchants can choose routing options that offer lower fees as technology changes, reported American Banker.

In fact, the amendment — the brainchild of Sen. Richard Durbin (D-Ill.) and included in the 2010 Dodd-Frank Act — requires card issuers to give greater access to certain PIN networks and companies other than Visa Inc. and MasterCard Inc. But retailers argue this stipulation is being violated because they are unable to use other networks in many situations, including near field communication and other contactless transactions like Apple Pay.

"It's my view that Apple Pay is breaking the Fed's regulation," Douglas Kantor, a partner at Steptoe & Johnson LLP, who has represented merchants in the interchange fight, told the news outlet.

"Merchants, as a practical matter, don't have the options that Durbin affords them in all of these instances, including tokenized transactions with Apple Pay," added Mark Horwedel, chief executive of the Merchant Advisory Group.

Apple Pay is a particular concern because retailers say transactions carried out over a consumer's phone typically go straight to a major signature network without non-signature networks ever being a choice, reported American Banker. Hence, while some PIN networks can be accessed via Apple Pay, retailers allege Visa and MasterCard have not provided the technical information needed for them to utilize this function.

Not all agree with the retailers' point of view. Others argue that merchants have been slow to adopt new technologies that allow them to use additional card network options.

"The problem is the merchants do not yet have a mechanism to see that alternative network despite the fact that that alternative network is associated with the [card]," Tim Sloane, vice president of payments innovation at Mercator Advisory Group, said in the news report.