Dual-Network Cards and Mobile Wallet Technology 2. Dual-Network Debit Cards

Consultation Paper
December 2016

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Dual-network debit cards are debit/ATM cards that allow transactions to be routed through two different networks. They incorporate the functionality of two networks in one physical card. For example, dual-network debit cards can route domestic point-of-sale transactions either via the eftpos network (if the cardholder pushes the ‘cheque’ or ‘savings’ button) or via the networks of MasterCard or Visa (the ‘credit’ button). These cards typically have logos of both schemes; often one network on the front of the card and an alternate network or networks on the back.

Traditionally, eftpos transactions accounted for the vast majority of debit transactions in Australia. ‘Scheme debit’ had a relatively small share of the debit transactions until the early to mid 2000s – Visa Debit was traditionally issued primarily by smaller financial institutions and Debit MasterCard was introduced only in 2005. Scheme debit then experienced strong growth as the four major banks added ‘scheme’ functionality to their debit cards. This involved switching their standard debit card products from ‘proprietary’ eftpos/ATM cards (which domestically can access only the eftpos point-of-sale network[3]) to dual-network debit cards (which add access to a scheme debit network for domestic point-of-sale and card-not-present transactions). As part of the migration, the issuer (or bank) identification numbers (IINs or BINs – typically the first six digits in a card number) of the eftpos cards were changed from IINs allocated directly to the issuing bank to IINs issued to the relevant international scheme and then assigned by the scheme to the issuing bank. As of mid-2015, of the 32 million debit-only cards on issue In Australia, 20 million were dual-network and 12 million were proprietary eftpos cards.[4]

While the existence of two networks on the one card is convenient for cardholders and merchants, it raises the possibility of issues involving competition between the competing networks. Such issues first arose in 2010 over data-reporting rules, branding rules, and branding and transaction fees imposed by the international schemes with respect to eftpos. This followed the formation of eftpos as a formal payment scheme in 2009 (prior to this, the eftpos system comprised a series of bilateral arrangements between parties). New disputes arose in 2012, when eftpos was seeking to pilot debit cards with an EMV chip and contactless functionality but reported that it was encountering hurdles from the international schemes regarding its plans for this new functionality.

In August 2012, the Bank's Payments System Board considered a range of issues relating to dual-network cards. It noted that the issues that had arisen between networks had the potential to inhibit competition, limit consumer choice and increase costs. The Board noted that authorities in other jurisdictions had taken measures to address similar issues, and authorised a consultation on the case for regulatory action on dual-network cards. However, rather than proceed immediately to a consultation, the Board encouraged the parties involved to see if voluntary undertakings could be reached that were acceptable to all parties and also in the public interest.

In August 2013, the Bank issued a media release announcing that the three debit card networks (eftpos, MasterCard and Visa) had agreed to address the Board's concerns. The outcome was intended to safeguard the rights of Australian card-issuing banks and institutions to maintain existing dual-network arrangements in the contactless environment. The three networks made voluntary undertakings to the Bank and committed:

  • to work constructively to allow issuers to include applications from two networks on the same card and chip, where issuers wished to do this;
  • not to prevent merchants from exercising choice in the networks they accept, in both the contact and contactless environments; and
  • not to prevent merchants from exercising their own transaction routing priorities when there are two contactless debit applications on one card.

The Board considered that these voluntary agreements on principles relating to dual-network debit cards were a positive development and, as a consequence, a consultation on a possible regulatory intervention appeared to be unnecessary at that time. However, the Board asked the Bank to maintain liaison with the industry on dual-network card issues and to monitor market developments and technological changes in the industry.

Since the 2013 agreements, eftpos has implemented the eHub, a centralised switch for clearing eftpos transactions, which facilitates technology upgrades in the eftpos system (since participants no longer need to manage multiple bilateral connections). It has also developed chip and contactless functionality (the latter being possible as a result of the undertakings referred to above), and a majority of eftpos issuers are now well advanced in their programs of issuing cards – both proprietary and dual-network – with this functionality. eftpos has added contactless transaction capability to parts of its acquiring network and expects to expand this over the coming months, when the last of its major bank members completes the required development work. It is also working on an ‘eftpos online’ product, as well as the mobile wallet functionality described in this paper, which it hopes to launch in early 2017 for proprietary and then dual-network cards. However, as outlined in Section 4, eftpos and some issuing banks are reporting obstacles in provisioning dual-network cards for use in mobile wallets.

Box B: Dual-network cards and mobile wallets: experience in other jurisdictions

Dual-network (or ‘co-badged’) cards have attracted the attention of policymakers in a number of other jurisdictions – most notably the United States, Canada and the European Union, with different policy responses. In each case, however, the response has tended to focus on reducing costs to payments system end-users.

In the United States, Section 1075 of the 2010 Dodd-Frank Act, known as the Durbin Amendment, provided for a number of reforms to the debit card market with the intention of providing more competition in the market. One aspect, which came into effect in April 2012, has the effect of requiring that all debit cards be enabled on at least two unaffiliated networks. Networks must also not restrict or limit an issuer's ability to contract with other networks.

In the European Union, the 2015 regulation on interchange fees makes specific reference to co-badged cards and their role in reducing the cost of payments.[5] The regulation prevents card schemes from having rules that prevent issuers from including payments functionality of two or more networks on one card. It also requires that any scheme rules, routing principles or technical or security standards involving co-badged cards should be objectively justified and non-discriminatory. It specifies that the choice of payment application for transactions using co-badged cards should be made by users, not imposed by card schemes, issuers, acquirers or processing entities.

Individual countries within Europe have different structures with respect to card networks and mobile payments. For example:

  • In Denmark, the domestic debit card system is Dankort; there are also co-badged ‘Visa Dankort’ debit cards. On co-badged cards, domestic transactions are routed via Dankort, while transactions made abroad are routed through the Visa network.
  • In France, Carte Bancaire is the domestic (credit and debit) scheme, often co-badged with MasterCard or Visa, with the latter networks used typically for cross-border transactions and Carte Bancaire used for domestic purchases.

In Canada, the Code of Conduct for the Credit and Debit Card Industry in Canada (‘the Code’) explicitly provides for dual-network cards but takes a different approach.[6] It allows for non-competing, complementary domestic applications from different networks to exist on the same debit card but specifies that competing domestic applications from different networks cannot be offered on the same card. In practice, this means that domestic point-of-sale transactions made on co-branded debit cards are processed through one network, in particular the domestic Interac network, while other applications such as on-line payments and payments at foreign point-of-sale terminals may be processed through the other network on the card. Contactless payments are also processed via Interac (‘Interac Flash’ transactions). The Code also states that payment card networks must ensure that co-badged debit cards are equally branded. All representations of payment applets in a mobile wallet or mobile device, and the payment card network brands associated with them, must be clearly identifiable and equally prominent. Cardholders in Canada are now able to provision non-competing domestic networks on dual-network cards for mobile use.

Although there is no unifying precedent so far regarding how public policy will evolve regarding mobile payments and dual-network cards, many authorities recognise the benefits of competition among different schemes and have sought to avoid artificial restrictions on competition. A press release from the European Commission in June this year indicates its expectation that dual-network card functionality will be available in both physical and mobile forms.[7] In particular, the Commission noted that under its new interchange fee regulation, consumers will be able to require their bank to co-badge a single card (or in the future their mobile phone) with any card brands that they issue to the consumer.

Footnotes

When used overseas, proprietary eftpos cards have access to the Plus, Cirrus or Maestro networks of Visa or MasterCard. [3]

This excludes prepaid cards. It also excludes the 5 million ‘combo’ (eftpos debit and international scheme credit) cards on issue. [4]

See http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32015R0751&from=EN [5]

See http://www.fcac-acfc.gc.ca/Eng/forIndustry/publications/lawsReg/Pages/CodeofCo-Codedeco.aspx [6]

See http://europa.eu/rapid/press-release_IP-16-2161_en.htm [7]