Europe Union VS United Payments Infrastrcture - From Flagship Partners

 

The Durbin Amendment

One piece of legislation that nearly all merchants are familiar with is the Durbin Amendment. This still stands as the only piece of major legislation that has any impact on regulating the fees a merchant pays for accepting card payments. While this is limited to debit card payments, both signature and PIN, having debit interchange regulated to just 0.05% plus $0.22 (in most cases) from cards issued by banks with greater than $10 billion in assets was a win for most — not all, but most. Beyond just this fee regulation, however, came other critical elements: the addition of requiring two unaffiliated debit card networks for least cost routing and the merchant’s ability to direct this routing.

Merchants do very much flex their routing muscles, using a series of consumer behavior shifting tactics as well as complex routing hierarchies. As discussed in our previous article regarding PIN debit, merchants can lower their acceptance costs through these strategies while still providing a high-quality consumer experience. This, on the surface, sounds great for merchants; however, even the PIN space is dominated by Visa and Mastercard’s combined 70% plus market share. This begs the question, how much choice and competition is there considering the market share and how did it get this way

Network incentives create limitations for merchants using PINless debit routing

While Visa and other major networks often create incentive arrangements with individual merchants regarding preferred routing, these networks creating incentive arrangements with issuing banks, as alleged, becomes problematic. This is especially so under the lens of a card not present environment, such as mobile or e-commerce. We have talked about this before, where only a few regional debit networks can support PINless debit routing. Those networks are STAR, Accel, NYCE, and Pulse. If a merchant wanted to be in more control of their routing and utilize PINless as a strategy, they could only influence customers with cards issued with at least one of these networks.

Visa and Mastercard have no incentive to have Interlink and Maestro participate as PINless networks as this cannibalizes their signature debit rails. As this probe is seeking to address, they do have incentives to arrange deals with issuers to allegedly reduce competition by offering incentives to advance their PIN networks at the expense of others. Whether this is a fair market practice is clearly up for debate, and we are certain that more information will become available as to how the global brands flex their incentive dollars. 

A brief primer on network tokenization

 Network tokenization refers to solutions offered by Visa (Visa Token Service (VTS)) and separately also by Mastercard (Mastercard Digital Enablement Service (MDES)). Tokenization is simply a process that replaces a card’s primary account number (PAN) — the 16-digit number on the plastic card — and other sensitive card details with a unique identifier, or “token” provisioned and managed by the card network.

Sidenote: Network tokens are different from payment gateway/acquirer tokens, which merchants also often use.

• Acquirer level tokenization, which is typically provided by an ecommerce merchant’s payments processor — your standard Adyen, Stripe, Braintree, Cybersource, etc. — also protects the card data from being compromised at the merchant level.
• But network tokens go one level beyond: network tokens provide increased security through the use of cryptograms, such that each token is unique to the specific transactional context (unique to a specific combination of PAN, device/channel, and merchant). So where gateway/acquirer tokens are theoretically decipherable and can be used by sophisticated bad actors to exploit cardholders/merchants, network tokens are specific to domains, making the lives of fraudsters harder.

Signature debit vs. PIN debit rails

 The regional debit networks in the U.S. play a pivotal role in the payments ecosystem, providing reliable networks to conduct our debit transactions over. That being said, many consumers go about their day without even realizing that there is a war being waged over exactly how they use their debit cards

Signature debit vs. PIN debit rails

On one side we have the signature debit rails, often referred to as “processing as credit,” which are maintained by the major networks like Visa, Mastercard, and Discover. In the other corner is the true debit rail, which is maintained by regional debit networks like Interlink, Maestro, Accel, STAR, NYCE, Pulse, Jeanie, Culiance, Shazam, and AFFN.

Redbridge Debt & Treasury Advisory report - Market share data on the PIN debit networks

 

Market share by regional debit network

According to data accumulated from our database, we wanted to provide some insights into market share. In the card present space, we see the following market shares in terms of dollar volume:

• 47% – Interlink
• 25% – STAR
• 13% – Maestro
• 12% – PIN Authorized Visa Debit
• 3% – All other networks

When we reviewed our data to perform the same exercise in the card not present space, we saw the following market share in terms of volume:

• 60% – STAR
• 20% – Pulse
• 15% – NYCE
• 5% – Accel

With the stage now set, the conversation can truly take shape on why this probe is likely to yield, at its minimum, very interesting information

Breakdown of the different debit card networks in the US