Wednesday, July 2, 2008

DOJ Intimidates Visa Into Changing Unfair PIN Debit Regulations

In a move to avoid additional anti-trust litigation, Visa, yesterday, announced the amendment of one of their long-standing PIN Debit Regulations. Here's the Press Release from the Department of Justice:

Department Was Investigating Whether Visas Rule Restricting Certain PIN Debit Transactions Adversely Affected Competition in the Debit Card Industry

WASHINGTON, /PRNewswire-USNewswire/ -- As the result of a Department of Justice antitrust investigation, Visa Inc. has rescinded a rule that required merchants to treat Visa-branded debit cards differently when used as a PIN-debit card (and processed via non-Visa networks) from the same cards when used as signature debit cards and processed on the Visa network.

The Department said that it had been investigating whether the rule adversely affected competition in the debit card industry by restricting certain PIN debit transactions, particularly small-value and Internet transactions, and by potentially interfering with the introduction of new types of PIN debit services.

The Departments Antitrust Division will close its investigation now that Visa has rescinded its operating regulation and adopted new regulations that should eliminate any potential for competitive harm.

The Department opened its investigation to examine whether Visas operating regulation had the potential to reduce competition between Visa and the PIN debit networks. The Department had not completed its investigation when Visa proposed eliminating the rules under investigation. The Department coordinated its investigation with the attorneys general of the District of Columbia, New York and Ohio, who conducted parallel investigations.

Visas amended operating regulations overcame the competitive concerns that prompted our investigation, said Thomas O. Barnett, Assistant Attorney General in charge of the Departments Antitrust Division. Visas amended rules allow banks issuing Visa-branded debit cards to enable their customers to use the PIN debit functionality of those cards without entering a PIN. In light of Visas changes, there was no need for the Department to continue its investigation.

However, the Department remains prepared to investigate allegations of anticompetitive conduct in this important industry.

A debit card enables a consumer to pay a merchant by debiting the consumers checking account. The payment is made directly to the merchants bank account over one of several competing payment telecommunications networks. There are two types of authenticated debit transactions: PIN and signature. In a PIN debit transaction, the cardholder enters a PIN to authorize the transaction. In a signature debit transaction, the cardholder instead signs a receipt.

Approximately 70 percent of all signature debit cards in the United States carry the Visa brand and virtually all Visa signature debit cards can be used to conduct PIN debit transactions.

Cardholders may choose to purchase goods and services using the cards PIN debit network(s) rather than Visas signature debit network. Cardholders typically indicate whether they want to pay with PIN or signature debit simply by either entering their PIN or signing the receipt. The merchant then routes the payment transaction to the cardholders bank using the network selected by the cardholder.

Visa has for some time allowed banks to permit some types of merchants to waive the signature requirement for certain signature debit transactions, including small ticket transactions of $25 or less and certain types of transactions initiated over the Internet. Both types of transactions have accounted for significant growth in debit card use in recent years. Waiving signature authentication for these transactions has benefited merchants and consumers by, for example, reducing transaction time at the point of sale, the Department said. Waiving signature authentication has also encouraged merchants to adopt contactless readers, a new technology that allows consumers to tap rather that swipe debit cards at the point of sale.

While permitting signature waiver, the Visa operating regulation prohibited banks from allowing merchants to waive entry of a PIN for most non-Visa debit transactions initiated from Visa-branded debit cards, including small ticket transactions and almost all Internet transactions.

Visas new regulations adopted in response to the Departments investigation allow banks to provide merchants the option of waiving the entry of a PIN. Visa has also amended its operating regulations to require that banks notify their cardholders that transactions not authenticated by a PIN or a signature might be processed via a PIN-debit network and not by Visa.

SOURCE U.S. Department of Justice

US Retail E-Commerce Report from e-Marketer Available

eMarketer has recently released their report forecasting their opinion on the future of e-Commerce in the wake of current market conditions. More information on how to obtain the eMarketer Report can be accessed by clicking this link. Here's a brief overview:

"Although consumers are reacting to the economic downturn by spending less, this will create more of a hardship for retail stores than for e-tailers. A drop in new online buyers—an inevitable sign of the maturation of the online retail channel—will contribute most to the decline of e-commerce sales growth.

The US Retail E-Commerce report charts and analyzes the factors that are contributing to the changing dynamics in online sales. Consumers are reacting to the economic slowdown by cutting back on discretionary spending.

However, store sales will be hit harder than Internet sales because affluent shoppers, who form the core of online buyers, tend to ride out economic downturns better than lower- and middle-income consumers.
Some consumers even plan to increase online spending to save gas money or find bargains.

eMarketer estimates that US retail e-commerce sales (excluding travel) will reach $146 billion in 2008, up 14.3% over 2007."
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