MasterCard may halt 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 this month, Internet merchants and other mom-and-pop firms that rely on third-party billing could miss out on sales via the nation'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.