Wednesday, July 9, 2008

Does Senior Assistant Attorney General Read This Blog?

Over the holiday weekend, I received a couple emails from Mr. Don Resnikoff, who must have stumbled, er googled, upon the HomeATM PIN Debit Blog as I have to sincerely doubt that a Senior Assistant Attorney General of the Department of Justice subscribes to this blog.

(Although I'm honored if you do Mr. Resnikoff as
I've got a couple bones to pick with you about my take on both Visa and MasterCard's antitrustworthy business practices!)

Anyway, he contacted me pertaining to Visa changing their PIN Debit rules which I blogged about under the title "DOJ Intimidates Visa Into Changing Unfair PIN Debit Practices

The emails were simplistic and general so I'm sure he wouldn't mind my sharing them. If so, I may not be heard from in a couple years :-) I'll leave his salutations and contact information out to help my chances...

Fyi The D.C. press release and the Visa public letter on the OAG website.
D.C.’s press person is Alan Heymann.

Hi Don: Thanks for passing that on. Do I or may I have permission to attach a copy of the letter and your response to the blog post from yesterday? Have a wonderful holiday weekend and I'll do the same.

John B. Frank
Executive Advisor
HomeATM ePayment Solutions

To which he replied on Saturday:

You should go to the DC OAG website and take the press release and Visa letter from there. Both are public documents. I intended to point them out to you. I do not wish to be a blogger myself.

Thanks Don Resnikoff

(doesn't wish to be a blogger himself? Ouch!!!)

Well, I followed his advice and found it to be more than interesting. Go ahead and take a look. I've included the first five pages as jpegs. As always the pictures enlarge when clicked upon.

Of course, Visa isn't stupid, and my belief is that this move is designed to get the DOJ off their back, and buy them more time, which to them is money. Anyone who believes that the Department of Justice and Visa won't be speaking again in the near future about some other monopolistic behavior is a shareholder.

Digital Transaction News has an interesting take on the subject. You may find the article at the conclusion of the DOJ Release/Visa Public Letter below whose link was provided by Mr. Resnikoff.

District Investigation Leads to Revised Rules for Visa Debit Cards

(Washington, DC)-- Interim Attorney General Peter J. Nickles announced today that Visa USA Inc. ("Visa") has revised its rules for payment cards branded both as Visa cards and non-Visa ATM debit cards, and clarified application of existing Visa rules. Visa’s action follows a District of Columbia-led investigation coordinated with the States of New York and Ohio, and a parallel investigation by the United States Department of Justice. The Attorney General explained that “Under Visa’s revised rules many merchants will have a new freedom to accept ATM debit payments through Visa's PIN-debit network competitors, including such ATM debit card competitors as Star, MAC, NYCE, and others, without requiring customers to provide PINs. Customers will have more payment options.” He added, “We hope that Visa’s revised practices will bring the benefits of enhanced competition to debit card transactions, including enhanced competition in the pricing of electronic payment processing fees.”

The Visa rule revisions are described in a public letter issued by Visa earlier today. The letter also clarifies how certain unchanged Visa rules, applicable to Visa-member banks, will continue to govern merchants' acceptance of Visa cards. The Visa letter explains, among other things, how under Visa's existing rules, a merchant offering any combination of Visa credit or debit payment options is permitted to steer customers to non-Visa payment options. The merchant may present the cardholder with a non-Visa payment choice as the default, so long as the cardholder is free to override that choice and pay through Visa. The merchant must clearly disclose both the default choice and the process for overriding that choice.

An illustrative application of the revised Visa rules is a customer with a card branded both as a Visa card and a Star ATM debit card who in the future may more easily buy a book offered on an internet web-site and pay for it through the Star ATM debit system. First, under existing rules the internet merchant may make Star the default debit payment option. Second, Visa no longer prohibits the merchant from processing the customer's debit payment through Star when the merchant has not obtained the customer's PIN.

Attorney General Nickles added: "We in the District of Columbia appreciate the collaborative work of attorneys in the offices of the Ohio and New York Attorneys General, and at the United States Department of Justice, as well as the cooperation of counsel for Visa USA."
Following the issuance of Visa's letter, the District remains free to bring whatever action or proceeding it subsequently concludes is required by the public interest if Visa's future practices prove to be anticompetitive.

Select the link to view a copy of Visa’s public letter.
Visa Public Letter*
Here's Digital Transaction News take on the subject:

Visa Inc.’s rule change regarding PIN-based debit card transactions, which antitrust authorities disclosed last week, raised hopes that PINless debit would soon be making headway in Internet payments, but on second glance that’s not likely to be the case, analysts say. That’s because the electronic funds transfer networks, not Visa, still largely control PIN debit’s fate on the Web.
“The EFT networks need to get involved,” says Jennifer Roth, research director of global payments at Needham, Mass.-based TowerGroup Inc., an independent research unit of MasterCard Inc. “They’re not involved in it today.”

The U.S. Department of Justice announced July 1 that Visa had changed its rules to allow PINless debit card transactions when the signature requirement on signature-based debit card purchases is waived. The change came in the wake of a DoJ probe and parallel investigations by the attorneys general of New York, Ohio, and the District of Columbia (Digital Transactions News, July 2). Under its old rules, Visa had 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 (under $25) transactions in certain merchant categories, and almost all Internet transactions, even if the signature requirement had been waived, according to the DoJ.

A Visa spokesperson says Visa implemented the rule to address questions about what was and was not a Visa transaction, but the DoJ and the attorneys general saw it as giving Visa an unfair leg up on rival debit networks.

The DoJ’s reference to the Web, where PIN-based debit cards are virtually absent as a payment option for one-time purchases, triggered speculation that an online door might be opening for PIN-based debit cards. But the Visa change will have its most immediate effect on point-of-sale debit transactions. Visa check cards, like their MasterCard equivalents, typically carry the logos of one or more EFT networks, often the Visa-owned Interlink network but also First Data Corp.’s Star, Discover Financial Services’ Pulse, Metavante Corp.’s NYCE, or Fiserv Inc.’s Accel/Exchange. Some merchants program their POS terminals for “PIN prompting” to initiate a PIN-based debit transaction, which costs merchants less than a signature-based one, when a dual-function debit card is swiped. In cases where the signature requirement would be waived, Visa debit card holders can now swipe their cards without having to take the extra step of entering a PIN. Issuers will need to inform their cardholders about how such options work, according to the Visa spokesperson, and merchants that make non-Visa networks their default debit card choice will need to give cardholders the option of using Visa if they want, according to a release from the D.C. attorney general’s office.

Roth sees few consumers caring about the issue. So while a legal impediment to PIN-debit has been removed—something of concern to competition authorities—the practical effect will be small, she predicts.

But PINless debit is evolving quickly, adds Roth’s colleague, Brian Riley, TowerGroup’s director of bank card research. “It’s a very new area,” he says, noting that Interac, Canada’s national PIN-debit network, is upping its threshold for PIN entry to $50. While Interac doesn’t operate directly in the U.S., its change shows how a network can make POS PIN-debit more attractive to consumers and merchants.

Regarding PIN debit on the Web, however, the EFT networks still have the same operational concerns they had before the Visa rule change, issues that have largely prevented PIN-based debit cards from gaining any measurable share of e-commerce transaction volume. They include complicated connection issues and risk controls that would be employed should PIN authentication be waived for one-time retail purchases. With PIN entry on computers presenting high operational and marketing hurdles, those kinds of concerns have largely confined online PINless debit to bill payments, a low-risk category because of the pre-established relationship between biller and customer. “The EFT networks have been very conservative,” says Roth. She adds that the Visa rule change “is a good thing, but as far as opening up all kinds of doors, I don’t think so.”

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