FTC Staff Comment to the Board of Governors of the Federal Reserve System, in Docket No. R-1748, RIN 7100-AG15, Debit Card Interchange Fees and Routing

UNITED STATES OF AMERICA
Federal Trade Commission
WASHINGTON, D.C. 20580
August 11, 2021
Ann E. Misback
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551
Re: 	Docket No. R-1748, RIN 7100-AG15, Debit Card Interchange Fees and Routing
Dear Ms. Misback:
The staffs of the Federal Trade Commission’s (“FTC”) Bureau of Competition, Bureau of
Economics, and Bureau of Consumer Protection1 (collectively, “FTC staff”) appreciate the
opportunity to provide comments to the Board of Governors of the Federal Reserve System
(“Board”) regarding the Board’s proposed clarification of Regulation II, which implements
section 920 of the Electronic Fund Transfer Act (“EFTA”). As part of the Dodd-Frank Wall
Street Reform Act of 2010, Congress amended EFTA to add section 920, which promotes
competition between debit card networks for merchant business by requiring debit card issuers to
enable at least two such networks for a merchant to choose between for electronic debit
transactions.2
The FTC is a bipartisan agency with a dual mission to protect consumers and promote
competition. The FTC promotes competition principally through enforcement of the antitrust
laws and advocacy. In addition to its enforcement of the antitrust laws and other statutes, the
1 This letter expresses the views of staff in the Federal Trade Commission’s Bureau of Competition, Bureau of
Economics, and Bureau of Consumer Protection. The letter does not necessarily represent the views of the Federal
Trade Commission or of any individual Commissioner. The Commission, however, has authorized us to submit
these comments.
2 See Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203 § 1075 (July 21, 2010)
(codified at 15 U.S.C. § 1693o-2(b)). Section 920 also directed the Board to regulate interchange collected by non-
exempt debit issuers, which is not addressed in this comment.

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FTC is responsible for enforcing section 920 and Regulation II with respect to certain entities,
including debit card networks.3
In the ten years since Regulation II was promulgated, the debit card industry has seen
significant growth in the volume of transactions, the prevalence of ecommerce, and the use of
new technologies. FTC staff applauds the Board’s proposed clarification, which addresses some
issuers’ failure to fully recognize that card-not-present (“CNP”) transactions are a “type of
transaction” under the existing Regulation II. FTC staff submits this comment both to endorse
the proposed clarification and to suggest additional revisions that will strengthen the rule.4 In
particular, the Board should adopt revisions that ensure that debit card networks do not create
incentives for issuers to evade Regulation II’s clear mandate that there be two unaffiliated
networks available for each type of debit transaction, with each network a commercially
reasonable alternative for merchants. We urge the Board to prohibit debit card networks from
paying incentives to an issuer based on how electronic debit transactions are routed by merchants
using that issuer’s debit cards.
I. 	BACKGROUND
A. 	The Requirements of EFTA § 920
Congress, through passage of EFTA § 920, sought to increase competition among debit
card networks for merchant business in two ways. First, it prohibited exclusivity arrangements
between debit card issuers and debit card networks, mandating that at least two unaffiliated
networks be available to merchants for debit transactions.5 Second, it prohibited both issuers and
networks from directly or indirectly “inhibit[ing]” a merchant’s ability to choose between the
issuer-enabled networks.6 Taken together, these provisions set out a regime in which issuers and
networks are required to provide merchants with uninhibited routing choice for debit
transactions.
3 See 15 U.S.C. § 1693o(c); 12 C.F.R. § 235.9(c).
4 The Department of Justice, which has experience enforcing the antitrust laws in debit markets, likewise suggests in
its comment that the Board consider additional ways of strengthening Regulation II to ensure the competitiveness of
those markets.
5 See 15 U.S.C. § 1693o-2(b)(1)(A).
6 15 U.S.C. § 1693o-2(b)(1)(B).

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Congress entrusted rulemaking authority to the Board to implement these provisions. By
providing the Board with rulemaking authority, Congress intended that the anti-exclusivity rules
could be adapted to changes in the industry.7 Congress delegated enforcement of the Board’s rule
to several different agencies. For banks, the relevant enforcer is “the appropriate Federal banking
agency” under 12 U.S.C. § 1813(q), while for federal credit unions the enforcer is the
Administrator of the National Credit Union Administration.8 The FTC enforces EFTA
section 920 with respect to any entity not specified in 15 U.S.C. § 1693o(a), including debit card
networks.9 Violations of EFTA section 920 are treated as violations of the FTC Act. 10 The FTC
may use its existing investigative and law enforcement powers to address these violations.
B. 	The FTC’s Enforcement of EFTA § 920
Since the passage of EFTA section 920 and the promulgation of Regulation II, the FTC
has investigated potential violations of applicable rules and developed thereby significant
expertise relevant to the Board’s current rulemaking.
In 2016, for example, the FTC investigated potential violations of Regulation II relating
to restrictions on new terminals capable of reading debit cards with an EMV chip. 11 Visa
network rules required merchants to present a screen that asked consumers to select the network
to process the transaction, without explaining what the consumer was choosing or how the
consumer’s choice might make the transaction more expensive to process.12 In practice, these
consumer selection screens prevented merchants from routing transactions to the network of their
7 See, e.g., Brief of Amicus Curiae United States Senator Richard J. Durbin in Support of Plaintiffs-Appellees at
*26, NACS v. Board of Governors of the Federal Reserve System, 2013 WL 6115708 (D.C. Cir. Nov. 20, 2013) (No.
13-5270), (“Statutory language is limited in its ability to keep pace with potentially fast-moving technological
developments in the debit card system. It is for that reason that EFTA § 920(b)(1) confers rulemaking discretion
upon the Board on how best to guide us through a non-exclusive world.”); see also Food & Drug Admin. v. Brown
& Williamson Tobacco Corp., 529 U.S. 120, 157 (2000) (citing Motor Vehicle Mfrs. Ass’n of United States, Inc. v.
State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 103 (1983); Massachusetts v. EPA, 549 U.S. 497, 532 (2007) (in the
context of a different grant of rulemaking authority noting that “[t]he broad language of [the statute] reflects an
intentional effort to confer the flexibility necessary to forestall . . . obsolescence.”).
8 15 U.S.C. § 1693o; 12 C.F.R. § 235.9(a).
9 See 15 U.S.C. § 1693o(c); 12 C.F.R. § 235.9(c).
10 EFTA § 920 is enforced under previously-existing EFTA § 918, codified at 15 U.S.C. § 1693o.
11 See Letter from James W. Frost (FTC) to Julie B. Rottenberg (Visa) (Nov. 22, 2016),
https://www.ftc.gov/system/files/documents/closing_letters/nid/closing_letter_from_james_frost_to_visa_-_11-22-
16.pdf.
12 See CUToday, “Visa No Longer Steering Debit Transactions Its Way,” (Nov. 22, 2016),
https://www.cutoday.info/Fresh-Today/Visa-No-Longer-Steering-Debit-Transactions-Its-Way.

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choice.13 The FTC investigated this Visa rule as a potential inhibition of merchant routing choice
in violation of Regulation II.14 In response to the FTC’s investigation and concurrent guidance
issued by Board staff, Visa revised its rules so that merchants were no longer required to display
these selection screens to customers.15 Board staff’s guidance stated that a network rule
mandating that the merchant present the consumer with a selection screen violates Regulation II
“because it prevents the merchant from directing the routing of electronic debit transactions.”16
Although FTC and Board staff action led to a change in Visa’s rule, many merchants had
already purchased payment terminals programmed to transfer routing choice away from the
merchant. Merchants wishing to regain control over routing had to reprogram or replace these
terminals, entailing significant business disruption and expense.17 While some larger merchants
promptly reprogrammed their terminals, other merchants were unable to do so. 18 Smaller
merchants, in particular, were less likely to incur the cost associated with replacing the
terminals.19 This episode highlights the importance of clear rules that set in advance parameters
for acceptable and prohibited conduct.
13 See Letter from James W. Frost (FTC) to Julie B. Rottenberg (Visa) (Nov. 22, 2016),
https://www.ftc.gov/system/files/documents/closing_letters/nid/closing_letter_from_james_frost_to_visa_-_11-22-
16.pdf.
14 See id.
15 See id.; Press Release, Visa, Visa Modifies Policies on Debit Routing (Nov. 22, 2016),
https://investor.visa.com/news/news-details/2016/Visa-Modifies-Policies-on-Debit-Routing/default.aspx.
16 Board of Governors of the Federal Reserve System, Frequently Asked Questions About Regulation II (Debit Card
Interchange Fees and Routing) (added Nov. 2, 2016), https://www.federalreserve.gov/paymentsystems/regii-
faqs.htm.
17 See Meeting Between Board and Representatives of PIN Debit Networks, Merchants, Merchant Trade Groups,
and Counsel (attaching June 3, 2019 letter from National Retail Federation to FTC) (June 11, 2019), (noting that
“replacing or reprogramming terminals is an expensive endeavor, assuming the merchant even knows or understands
the issues.”), https://www.federalreserve.gov/regreform/rr-commpublic/merchant-network-meeting-20190611.pdf;
Complaint ¶ 94, Kroger v. Visa, No. 1:16-cv-693-MRB (S.D. Ohio June 27, 2016), ECF No. 1 (describing the
“significant costs” associated with reprogramming Kroger’s “tens of thousands of POS terminals”).
18 See Meeting Between Federal Reserve Board Staff; Representatives of Merchants, Merchant Trade Associations,
Debit Networks, a Consumer Association; and their Counsel (attaching survey describing how 7 months after the
FTC investigation, many merchants still displayed the consumer choice screen) (Oct. 23, 2017),
https://www.federalreserve.gov/regreform/rr-commpublic/merchants-meeting-20171023.pdf; Letter from National
Retail Federation to FTC at p. 7 n.14 (June 3, 2019) (“[T]here remain [in 2019] a significant number of these
terminals [with the application choice screen] in use, particularly at smaller merchants’ locations”); First Data, A
Merchant’s Guide to Maximizing Consumer Experience and Network Routing at POS at p. 6 (2017),
https://www.firstdata.com/downloads/pdf/FD-Guide-to-Debit-Network-Routing-WP.pdf (urging merchants to
configure the POS terminal to allow for routing, noting that “[m]any large national retailers implemented this best
practice more than a year ago.” (emphasis added)).
19 See Sienna Kossman, EMV Debit Card Payment Prompts Create Confusion, Creditcards.com (Jan. 16, 2018)
(industry executive describing how “local retailers, such as dry cleaners and mom-and-pop shops . . . have virtually

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C. 	Market Developments After Regulation II
Since 2011, there have been significant changes affecting the debit card industry,
including changes in how consumers shop and the use of new technologies.
As the Board recognizes, over the past decade the use of debit cards in the United States
has expanded significantly, with the number of debit card payments increasing from 56.5 billion
in 2012 to 86.4 billion in 2018.20 CNP debit transactions have seen even higher levels of growth
as ecommerce has expanded.21 The number of non-prepaid CNP debit transactions nearly tripled
between 2012 and 2018: from 5.6 billion to 16.2 billion.22 The consumer shift toward CNP
transactions accelerated during the COVID-19 pandemic, as merchants and consumers preferred
touchless forms of payment.23 Even when the consumer is physically present in a store, many
transactions are now processed as CNP, such as when items are paid for via an application on a
mobile phone.24
Debit cards have also changed, with physical debit cards incorporating new technologies
such as chips and contactless features.25 Digital debit cards stored in virtual wallets like Apple
Pay and Samsung Pay are increasingly common.26 Many transactions (including those involving
virtual wallets) are now processed using “tokens” (encrypted versions of the debit card number)
no ability to change the scripting of the messaging and the way the point-of-sale works” without replacing the
terminal), https://www.creditcards.com/credit-card-news/emv-confusion-debit-card-payment-prompts/.
20 See Board of Governors of the Federal Reserve System, 2019 Federal Reserve Payments Study, Table B.1 (Dec.
2019), https://www.federalreserve.gov/paymentsystems/2019-December-The-Federal-Reserve-Payments-Study.htm
[hereinafter 2019 Fed Payments Study].
21 See Proposed Rule, Debit Card Interchange Fees and Routing (“Proposed Rule, Debit Interchange and Routing”),
86 Fed. Reg. 26189, 26190 (May 13, 2021).
22 See 2019 Fed Payments Study, Detailed Data Release at tab “Non-Prepaid Debit Card Payments,”
https://www.federalreserve.gov/paymentsystems/fr-payments-study.htm. This comes in the context of overall
growth in the use of debit cards.
23 See Proposed Rule, Debit Interchange and Routing, 86 Fed. Reg. at 26190; see also Fumiko Hayashi, Federal
Reserve Board of Kansas City, Remote Card Payment Fraud: Trends and Measures Taken in Australia, France, and
the United Kingdom at p. 1. (Nov. 25, 2020), https://www.kansascityfed.org/research/payments-system-research-
briefings/remote-card-payment-fraud/.
24 See, e.g., National Retail Federation, “Coronavirus leads to more use of contactless credit cards and mobile
payments despite cost and security concerns,” (Aug. 6, 2020), https://nrf.com/media-center/press-
releases/coronavirus-leads-more-use-contactless-credit-cards-and-mobile-payments.
25 See 2019 Fed Payments Study at p. 7 and Figure 6 (showing that between 2015 and 2018, the number of chip-
authenticated in-person general-purpose card transactions increased from 1.4 billion to 48.8 billion, and chip
authentication now represents more than half of in-person general-purpose card payments).
26 See 2019 Fed Payments Study at p. 7 and Figure 6; Susan Pandy, Ph.D. & Marianne Crowe, Federal Reserve
Bank of Boston, Industry Perspectives on the Evolution of EMV Payment Tokenization, p. 3–4 (May 6, 2019),
https://www.bostonfed.org/publications/mobile-payments-industry-workgroup/industry-perspectives-on-the-
evolution-of-emv-payment-tokenization.aspx.

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for security. Tokens add an additional participant to the transaction process, as they require a
token service provider to decrypt and validate the token.27
Networks have developed new features, and many of the networks that in 2011 processed
only single-message PIN transactions now offer PINless and dual message features.28 With these
new features, these networks are now capable of processing CNP transactions.29 However, as the
Board has observed, the volume of CNP transactions processed over networks other than Visa
and Mastercard remains low, because “issuers have not consistently enabled” historically single
message networks (referred to below as “alternative networks”) for CNP transactions.30 The
practical result is “only one network…being available to process card-not-present
transactions.” 31 FTC staff agrees with the Board that this situation is “inconsistent” with the
provisions of EFTA § 920 and Regulation II.32
D. 	Payment Card Networks Compensate Issuers Based on the Share or Volume
of Debit Transactions that Merchants Route over their Network
Some debit card networks have used contract terms that incentivize an issuer to influence
how transactions are routed among the enabled networks.33 These terms can be structured as
incentive payments, rebates, or discounts provided to the issuer and tied to the number, dollar
volume, or percentage share of transactions routed to the network providing the incentive, which
we collectively refer to here as “routing-based incentives.” For example, a network might pay an
27 See Pandy & Crowe, supra note 26 at p. 11.
28 See Proposed Rule, Debit Interchange and Routing, 86 Fed. Reg. at 26191 and n.15 (“transactions over single-
message networks may no longer require PIN authentication” and “some traditionally single-message networks can
use two messages to authorize and clear some transactions.”).
29 See id. at 26191 (“Data on network activity collected by the Board confirm that nearly all single-message debit
card networks conducted card-not-present transactions in 2019.”).
30 Id.
31 Id.
32 Id. at 26191–92.
33 See Final Rule, Debit Card Interchange Fees and Routing (“Final Rule, Debit Interchange and Routing”) 76 Fed.
Reg. 43394, 43441 (July 20, 2011) (“[I]ssuers may receive incentive payments upon reaching or exceeding debit
card transaction, percentage share, or dollar volume threshold amounts.”); see also See Complaint at ¶ 49, United
States v. Visa Inc., 3:20-cv-07810 (N.D. Cal. Nov. 5, 2020), https://www.justice.gov/opa/press-
release/file/1334726/download (“Visa has inhibited the adoption of alternative lower-cost networks for online debit
by disincentivizing banks from enabling the use of alternative debit networks.”); National Retail Federation, Visa’s
and Mastercard’s Continuing Violations of the Durbin Amendment, p. 16 (June 3, 2019),
https://www.federalreserve.gov/regreform/rr-commpublic/merchant-network-meeting-20190611.pdf (“Visa and
Mastercard each offer financial incentives to issuers that agree to process a pre-set volume of the issuer’s debit
transactions through their networks.”).

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issuer if a specified dollar volume or percentage share of transactions has been routed to the
network. Or, the network might pay an issuer if the issuer increases the dollar volume of
transactions routed to the network from year to year.
Issuers that wish to receive these network-provided incentive payments have limited
means to ensure that they meet the percentage share or volume thresholds set out in their
contracts, as the merchant is supposed to control the routing decision. The principal action an
issuer can take to increase the likelihood that it meets percentage share or volume thresholds set
by a particular network is not to enable (or instead to disable) features offered by its other
network(s). For example, an issuer can improve its ability to reach volume targets set by the
incentive-paying network by disabling CNP transactions for the disfavored network. Such
actions eviscerate merchant routing choice.
II. 	THE BOARD’S PROPOSED CLARIFICATION SHOULD BE ADOPTED
Section 920 expressly provides that a merchant must be able to choose between at least
two networks when routing an electronic debit transaction.34 The current Regulation II directs
issuers to enable at least two networks for each “type of transaction” (among other requirements)
so that no group of transactions will be left outside its coverage.35 The Board’s proposal clarifies
that CNP transactions are a “type of transaction” that must be supported and enabled for at least
two networks to comply with Regulation II.36
“Type of transaction” is not defined in the regulation. Still, the Board’s proposed
clarification should surprise no one. In the supplemental information accompanying the
publication of the final rule, the Board cited “card-present and card-not-present” transactions as
examples of “transaction types.”37
Although FTC staff believes that CNP transactions are a type of transaction under the
existing version of Regulation II, as the Board has observed, issuers have not “consistently
34 See 15 U.S.C. § 1693o-2(b)(1)(A).
35 12 C.F.R. § 235.7(a)(2).
36 Proposed Rule, Debit Interchange and Routing, 86 Fed. Reg. at 26192, 26194 (amending § 235.7 Comment 2.iii).
37 Final Rule, Debit Interchange and Routing, 76 Fed. Reg. at 43435 (discussing the possibility of setting different
interchange caps for different types of transactions); see also id. at 43434 (noting that network chargeback rules
“vary by type of transaction (e.g., card-present and PIN-based).”).

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enabled” both networks on their debit cards for CNP transactions.38 Accordingly, the Board’s
proposed clarification should help ensure that merchants have at least two viable, unaffiliated
networks at their disposal when processing a CNP transaction, consistent with EFTA § 920. FTC
staff therefore supports adoption of the Board’s proposal.
III. 	THE BOARD SHOULD ALSO PROHIBIT ROUTING-BASED INCENTIVES
In its proposal, the Board clarifies an issuer’s obligation to enable at least two
unaffiliated networks for each type of debit transaction. FTC staff advises that it would also be
useful to address debit card network practices that have contributed to issuers’ failure to
consistently enable two networks for every type of transaction and that could contribute to
similar problems in the future. FTC staff recommends that the Board revise 12 C.F.R.
§ 235.7(a)(3) or its associated commentary to expressly prohibit payment card networks from
using routing-based incentives. Such incentives encourage (a) exclusivity for certain types of
transactions and (b) inhibition of the merchant’s routing choice. Eliminating routing-based
incentive programs will make it less likely that issuers will search for ways to circumvent
Regulation II, whether by violating the rule (necessitating an enforcement action) or by finding a
loophole (necessitating future revisions to Regulation II).
Incentives tied to the share or volume of transactions actually routed to a network are
inconsistent with the statutory scheme. First, the statute expressly prohibits exclusivity.39
Routing-based incentives can lead to de facto exclusivity. For example, suppose that all
unaffiliated debit networks on an issuer’s card offer the features necessary to permit routing
choice for a given type of transaction. When the issuer refuses to enable those features on all but
one network—in order to earn routing-based incentives from the favored network—the issuer is
granting the favored network exclusivity over a type of transaction. Indeed, as the Board’s
current proposal reflects, many issuers have created exclusivity—contrary to the purpose of the
statute and Regulation II—over CNP transactions by not enabling a second network for these
38 Proposed Rule, Debit Interchange and Routing, 86 Fed. Reg. at 26191. Some issuers have enabled a subset of
their cards to process card-not-present transaction over single-message networks, while others preclude this option
entirely. See id.
39 See 15 U.S.C. § 1693o-2(b)(1)(A) (“(1) Prohibitions against exclusivity arrangements[:] (A) No exclusive
network”).

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transactions. Second, the statute prohibits networks and issuers from directly or indirectly
inhibiting merchant routing choice.40 Even where routing-based incentives do not result in
exclusivity, they reward the issuer for a choice that should be made by the merchant, which the
issuer can only influence through some form of inhibition. Because both possible outcomes—
exclusivity and routing inhibitions—are barred by the statute, the routing-based incentives that
create them should be expressly prohibited.
A prohibition on routing-based incentives would be valuable even assuming that the
Board adopts its proposed clarification to issuers’ enablement obligations. Certainly, it is
desirable for the Board to identify and prohibit specific mechanisms that are used to circumvent
Regulation II. But it is more effective to eliminate or substantially reduce issuers’ incentives to
interfere with merchants’ ability to route transactions to alternative networks. When Regulation
II was adopted, the Board chose not to specifically address routing-based incentives because it
believed issuers would have “limited ability to control” how transactions would be routed once
mandatory “issuer or payment card network priorities” were prohibited.41 Since then, however,
these incentives have remained in use and many issuers have retained exclusivity for certain
types of transactions, such as CNP. Permitting routing-based incentives to continue enables
networks to encourage issuers to circumvent the statute and Regulation II using novel
approaches in the future. As the experience with CNP transactions has demonstrated, it is
difficult to predict in advance all the ways that issuers and networks might devise to inhibit
merchant routing choice.
While the Board’s current proposal focuses on CNP functionality, there are other network
features that similarly impact a merchant’s ability to route certain types of transactions. These
features, like CNP, have been inconsistently enabled by issuers even where available from each
network on a card. If routing-based incentives are permitted to continue, issuers will have a
financial incentive to restrict disfavored networks going forward, even when those networks
have or develop the necessary routing features. For example, a network needs the ability to
40 See 15 U.S.C. § 1693o-2(b)(1)(B) (“(1) Prohibitions against exclusivity arrangements: … (B) No routing
restrictions”).
41 Final Rule, Debit Interchange and Routing, 76 Fed. Reg. at 43450.

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process dual message transactions where the value of the transaction cannot be known at the time
of authorization, such as in dine-in restaurants, hotels, and rental car agencies.42 Dual message
features are also necessary when a customer buys multiple products from an online merchant that
might ship at different times, or when shipment is delayed.43 For transactions that need these
features, a network that does not have dual message functionality enabled is not a commercially
reasonable routing option as required by Regulation II. Similarly, when a network is enabled to
process PIN-authenticated transactions only, that network is not a commercially reasonable
option for ecommerce, an environment in which the Board has recognized that PIN
authentication is not in commercial use.44 Networks should not be able to use routing-based
incentives to secure exclusive enablement of these features and the associated types of
transactions.
Features necessary to process debit transactions in varied environments continue to
evolve, and the introduction of each new type of transaction creates another opportunity for
networks to incentivize issuers to inhibit merchant routing choice through selective enablement
of features for the disfavored network. For example, debit transactions are increasingly likely to
involve features such as out-of-band authentication, tokens, and other technologies designed to
reduce fraud. If an issuer supports these features for only one network, even when multiple
networks have developed such features, the issuer has degraded the quality of the unaffiliated
network(s) enabled on its debit cards. This type of degradation in quality has significant potential
to inhibit merchant routing choice. For example, an issuer’s antifraud systems may be more
likely to decline transactions that do not use a particular feature, such as out-of-band
authentication. If such a feature from an alternative network is available but not enabled on an
issuer’s debit card because of incentive payments from a primary network, merchants effectively
cannot use the alternative network, inhibiting merchant routing choice.
42 See Bob Woodbury (FIS), “U.S. Card Networks Set Their Sights on Their Larger Competitors” (Oct. 16, 2018),
https://www.fisglobal.com/en/insights/what-we-think/2018/october/card-payment-network-authentication.
43 See id.
44 See Proposed Rule, Debit Interchange and Routing, 86 Fed. Reg. at 26191 n.17 (“[T]he industry has not widely
adopted those technologies for PIN entry” for online purchases.).

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Issuers are more likely to support and adopt new technologies on both networks if the
primary network cannot incentivize them to reduce or halt their development efforts with an
alternative network. Moreover, alternative networks will have greater incentives to develop new
features if they know issuers are not being paid routing-based incentives to avoid enabling those
new features. Restricting enablement of new technologies to only a single network means that
merchants will only have one network available for a new type of transaction, and thus networks
will not face the competition envisioned by the statute. These problems can be hard to fix after
the technology is deployed because systems have already been built and installed. It is far
preferable for new technologies that impact debit routing to be designed to enable routing, and
issuers should not be rewarded by networks for supporting designs and systems that make
routing difficult.
Of course, the proposed ban on routing-based incentives should be crafted to permit debit
networks to compete for issuer business within the statutory scheme, which assures merchants
routing choice. As the Board correctly noted in 2011, incentives may be part of that competition.
Accordingly, incentives that reward the issuer for enabling the paying network rather than for
inhibiting merchant routing choice are unobjectionable.45 For example, a debit network could
pay incentives that reward an issuer for enabling that network on a larger number of debit cards
or on more valuable debit cards (e.g., cards with higher account balances). A debit network could
likewise provide incentives to defray the cost of card issuance (encouraging an issuer to switch
from a competitor) or to reward issuer marketing efforts (encouraging growth of the issuer’s
business). These incentives would allow networks to compete for an issuer’s business without
rewarding that issuer for inhibiting merchant routing choice.
IV. 	CONCLUSION
The Board’s proposed clarification to Regulation II importantly reaffirms the requirement
that issuers support the features necessary for their second unaffiliated network to be a viable
option in all types of transactions, including card-not-present transactions. Going further and also
45 See Final Rule, Debit Interchange and Routing, 76 Fed. Reg. at 43441.

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addressing a practice—routing-based incentives—whereby networks reward issuers for creating
exclusivity or inhibiting merchant routing choice will reduce the emergence of similar routing
hurdles in the future and help ensure new technologies are not selectively supported by issuers to
inhibit merchant routing choice.
Respectfully submitted,
/s/ Holly Vedova
Holly Vedova
Acting Director
Bureau of Competition
/s/ Marta Wosińska
Marta Wosińska
Director
Bureau of Economics
/s/ Samuel Levine
Samuel Levine
Acting Director
Bureau of Consumer Protection