Third party payment providers such as PayPal and iBill could have major challenges ahead of them if MasterCard goes through with reported changes in its policies.
Friday's edition of USA TODAY reported that MasterCard may implement a policy that would stop merchants from taking credit card payments via third parties such as PayPal.
The business plan for most third party payment providers is based on getting smaller merchants to use their system; such merchants normally couldn't afford the costs associated with getting a merchant account through Visa or MasterCard. Instead, they use a merchant account from a service like PayPal. Auction sites like eBay and Internet gaming sites are prime sites for third party payment providers.
Such a policy could be damaging to third party payment providers and the merchants they cater to. According to USA TODAY, 15,000 MasterCard card issuers won't be allowed to process credit card transactions using third-party services.
PayPal is the biggest third-party service, with about 13 million registered users. It does 240,000 transactions a day worth about $13 million--about half of which is done via credit cards.
MasterCard released a short statement in response to the published reports.
"MasterCard rules are designed to protect its cardholders, merchants and member financial institutions by ensuring, among other things, that all companies who hold themselves as a participant in the MasterCard system are entitled to do so," the statement said. "This requires that all MasterCard merchants have a valid agreement in place. More than 23 million merchants around the world accept MasterCard, and no card is more accepted. It is MasterCard's policy not to comment publicly on specific rules and requirements."
USA TODAY reported that the new policy wouldn't affect those who use services like PayPal on an occasional basis to sell goods online. MasterCard said the new policy is geared toward companies and groups who sell goods and services on a regular basis. The new policy would require such entities to set up merchant accounts with banks so they can take MasterCard accounts directly.
Alex Lau, a MasterCard spokesman, told USA TODAY that the new policy is directed at protecting banks, merchants and cardholders from credit card fraud and identity theft. He hinted that the change was aimed at the adult entertainment and Internet gaming industries, both of which have higher occurrences of theft and fraud than other sectors.
PayPal spokesman Vince Sollitto told the paper that PayPal is ''hopeful and confidant'' it will come to new terms with MasterCard. Visa and American Express still accept PayPal.
When reached for additional comment on the policy, or to find out if the gaming sector was indeed targeted with the new change, Lau referred all comment back to the statement that was released by company officials.
Tighter regulations and a closer watch from credit card companies have made it increasingly difficult for consumers to use credit cards at online gambling sites in the last year. Many players have turned to third party payment providers and alternative payment solution providers for their payment options. Nearly all systems, though, rely on the use of a credit card at some point in the process, and oftentimes it is used via a third-party provider. It is still unclear how these systems could be affected by the change in policy.
Numerous officials with PayPal were contacted by IGN for comment on the policy change, but neither the company nor its media relations firm returned IGN's calls.
The USA TODAY report suggested that PayPal may be in talks with MasterCard to secure its relationship with its customers and the credit card giant. Since PayPal is the first company to offer such a system and has worked with MasterCard in the past on other issues, company officials feel an agreement can be reached that will be satisfactory to both sides.