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.