<< MasterCard to stop third-party transactions
By Andrew Backover, USA TODAY
A new rule by MasterCard could crimp online commerce by stopping merchants from accepting credit card payments through third parties, such as the popular PayPal, USA TODAY has learned.
Unless a settlement is reached, on May 1 Internet merchants and other mom-and-pop firms that rely on third-party billing could miss out on sales via the USA's No. 2 online credit card. And MasterCard holders could have a harder time using their cards at many sites that use PayPal and similar services, says Gartner analyst Avivah Litan.
"The promise of the Internet was that anyone could set up shop and get paid," she says. "It's not a level playing field anymore if this rule goes through."
According to MasterCard, its 15,000 members, such as banks and credit unions, won't be able to process credit card transactions using third-party services such as PayPal. They are used most often by small merchants who cannot afford to take MasterCard, other credit cards or checks.
Even if the MasterCard change goes through, consumers would still be able to use the card to buy goods from Web sites that deal directly with MasterCard.
The biggest third-party system is PayPal. It has about 13 million registered users, most of whom are small Web merchants or people who frequent auction sites.
The change would require those merchants to set up deals with banks so they could take MasterCard directly. That's a time-consuming and costly process, especially for small merchants.
The reason for the change, says MasterCard spokesman Alex Lau, is to protect financial institutions and card holders from fraud and identity theft.
Based on the rule's wording, it could affect other third-party services such as Yahoo's PayDirect and eBay Payments, Gartner's Litan says. Yahoo could not be reached. EBay says it does not expect to be affected because its services work through Wells Fargo.
PayPal is working hard to get an exemption, it says. Catering to small Web merchants and individuals, PayPal will sign them up with fewer hassles and lower fees than banks. PayPal uses its agreements with big banks to process credit card payments for these customers. PayPal has been one of the few Internet initial public offerings in recent years. It closed Thursday at $24.46.
PayPal spokesman Vince Sollitto says PayPal is "hopeful and confident" it will come to new terms with MasterCard. Visa says it still accepts PayPal. American Express still accepts PayPal and one other service.
The change is likely aimed at porn and gaming sites that have higher occurrences of credit card fraud and identity theft, Litan says. One in 20 online consumers were victimized by credit card fraud last year, she says. >>
From USATODAY
