The world’s #1 debit card? UnionPay from China! . Visa is #2.
UnionPay, a Chinese state-owned company, is accepted in about 180 countries around the world.
200 million cards issued outside China
40 million merchants outside China accept UnionPay cards
Banks in 78 countries issue UnionPay cards
First, let’s clear up some confusion about EMV debit and PIN debit. EMV debit cards function the same as previous magnetic stripe debit cards. Using an EMV debit card will deduct funds from a bank account. It still requires entering a PIN or signing for a transaction.
EMV debit is not a new or separate category of debit card – it’s simply debit cards with a chip for increased security. The two main types of debit are still PIN debit and signature debit. As of 2023, there are no cost differences for accepting a chip debit card vs. a magstripe debit card.
In order for a terminal to prompt for a PIN when a customer uses an EMV debit card, both the terminal and the card must be configured to allow PIN entry. There are 4 main reasons why your machine may not prompt a customer for their PIN:
Across the U.S., there are many common debit card networks, and below is a listing of some of the common fees for reference.
Accel Interchange & Network Rates
Pin Debit | 0.05% + $0.21 |
Pinless Bill Pay | 0.65% + $0.13 |
Internet PIN | 0.05% + $0.21 |
NYCE Interchange & Network Rates
QSR | 1.30% + $0.03 |
PIN Debit | 0.05% + $0.21 |
Internet PIN | 0.05% + $0.21 |
Pulse Interchange & Network Rates
PIN Debit | 0.05% + $0.21 |
Petroleum Base | 0.80% + $0.15 |
Pinless Bill Pay | 1.59% + $0.12 |
Shazam Interchange & Rate Fees
General Retail | 0.85% + $0.15 |
Business Debit Card Present | 1.70% + $0.09 |
Internet PIN | 1.15% + $0.15 |
Star Interchange & Network Rates
QSR | 1.15% + $0.08 |
Petroleum | 0.85% + $0.17 |
Internet PIN | 0.90% + $0.195 |
Understanding the different fees the PIN networks charge is important because it impacts many layers as money flows through the payment system.
For example, merchant transactions involve the merchant, acquiring bank, payment processor, and the issuing bank. All of those layers charge a fee that the consumer never sees but impacts the economics of each layer.
The PIN debit card can help make the transaction more secure for the merchant and the entire payment process.
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
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.
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.
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
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.
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:
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:
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
A typical payment transaction passes through one or more switching platforms from acquirer to network and on to an issuer’s switching application. The switching systems drive transactions from initiation to destination. They are the cogs in the payments machine that never stop turning. These switches process billions of ATM and POS transactions in milliseconds every day. For example, Mastercard drives a network response time that averages 140 milliseconds per transaction, to process over 22 billion Mastercard branded transactions per year.
With today's polymorphic payments landscape there is a real demand for smarter, more efficient payments systems - a necessity for the volumes being handled. The capability, reliability and efficiency of the payment switches are crucial in delivering today’s customer expectations.
As a result, the switching applications market is witnessing stiff competition.
Authentic by NCR
Authentic is an agile, high-performance open development platform for switching and authorising payment transactions used by issuers, acquirers, payment service providers, ISOs and merchants. Authentic can be deployed as a platform-independent, high-performance switch to route transactions between multiple acquirers, issuers, networks and other switches. It is benchmarked at 10,000 transactions per second.
BASE24, UP BASE24-eps and Postilion by ACI Worldwide:
BASE24 runs on HP’s NonStop server, providing a robust, high-performance, fault-tolerant solution for processing consumer payment transactions. It provides everything from ATM device driving and POS channel management to transaction routing and authorization. Other capabilities include host and interchange interfaces, settlement, management reporting, network control and stored value functionality. UP BASE24-eps, is the next-generation payment switch. It offers better flexibility, improved risk management and many other improved features.
Postilion is a fully integrated suite of products for financial institutions and processors for acquiring, routing and authorising payments, as well as, managing the card issuance and merchant acquiring side of the business.
SmartVista by BPC group
BPC’s SmartVista platform manages the entire payments lifecycle, with components designed to work and grow together: high-performance authorisation switching and routing, full ATM and POS management, comprehensive card management, advanced fraud prevention, loyalty program management, card personalisation and production, billing and merchant management and integrated Internet and mobile banking. SmartVista’s broad range of capabilities effectively support and manage payments across all channels, including Internet and mobile applications.
Tranzware by CompassPlus
Tranzware is a high-performance scalable multi-card processing solution enables efficient electronic funds transfer, inter-network switching and the handling of an unlimited number of devices and delivery channels. The system was specifically designed to deliver great flexibility and options for system expansion unrestricted by hardware, operating system, networks and host systems, financial products, types of transactions, devices and delivery channels.
IST/Switch, Cortex by FIS
IST/Switch is an open platform high-performance credit and debit processing switch. As a front-end processor that handles unlimited devices, networks and host systems, IST/Switch manages ATM and POS networks of any size, electronic funds transfer and inter-network switching. It provides batch and online network interfaces required to process credit/debit transactions through all the major card associations and networks, including Visa, MasterCard, Interac, American Express, Diners etc.
Still LOT more switching products in the market. This is just high level overview of few.
The registration flow is represented by steps 1~3 for both cases.
When you click the “Pay” button on your phone, the basic payment flow starts. Here are the differences:
𝐀𝐩𝐩𝐥𝐞 𝐏𝐚𝐲: For iPhone, the e-commerce server passes the DAN to the bank.
Over to you: Apple needs to discuss the DAN details with banks. It takes time and effort, but the benefit is that the credit card info is on the public network only once.
2. The merchant benefits from the use of the credit card with higher sales volume and needs to compensate the issuer and the card network for providing the payment service. The acquiring bank sets a fee with the merchant, called the “𝐦𝐞𝐫𝐜𝐡𝐚𝐧𝐭 𝐝𝐢𝐬𝐜𝐨𝐮𝐧𝐭 𝐟𝐞𝐞.”
3. 3 3 - 4. The acquiring bank keeps $0.25 as the 𝐚𝐜𝐪𝐮𝐢𝐫𝐢𝐧𝐠 𝐦𝐚𝐫𝐤𝐮𝐩, and $1.75 is paid to the issuing bank as the 𝐢𝐧𝐭𝐞𝐫𝐜𝐡𝐚𝐧𝐠𝐞 𝐟𝐞𝐞. The merchant discount fee should cover the interchange fee.
4.The interchange fee is set by the card network because it is less efficient for each issuing bank to negotiate fees with each merchant.
5. 5 5. The card network sets up the 𝐧𝐞𝐭𝐰𝐨𝐫𝐤 𝐚𝐬𝐬𝐞𝐬𝐬𝐦𝐞𝐧𝐭𝐬 𝐚𝐧𝐝 𝐟𝐞𝐞𝐬 with each bank, which pays the card network for its services every month. For example, VISA charges a 0.11% assessment, plus a $0.0195 usage fee, for every swipe.
6 6. The cardholder pays the issuing bank for its services.
Why should the issuing bank be compensated?
The issuer pays the merchant even if the cardholder fails to pay the issuer.
The issuer pays the merchant before the cardholder pays the issuer.
7. 7 The issuer has other operating costs, including managing customer accounts, providing statements, fraud detection, risk management, clearing & settlement, etc.
Banking as a Service Providers
Open banking providers (a.k.a third-party service providers)
Platform banking
Amazon had patented methods for linking bank account information and for prepaid cards as early as 2004. As seen below, these patents offer supporting insights into what a bank account issued by Amazon could look like.
The company’s competitive advantage lies in its cloud infrastructure and online hosting. In the event that Amazon does decide to offer full-fledged banking account services, AWS would enable it to have cloud-based operations that would be more secure than traditional banks or its other Big Tech competitors.
However, while Amazon has pushed into checking primarily through its Amazon Cash offering, it seems to have abandoned plans to create its own checking account so as to avoid becoming subject to strict banking regulations, according to The Information. Speculations around the launch of an Amazon checking account resurfaced in 2021, but the company has not made any official announcements so far.
Rumor: Amazon will introduce more BNPL options
Source: November 2021, The Financial Brand
Why it’s interesting: Amazon’s new partnership with PayPal’s mobile payment service Venmo will allow users to pay for their purchases using their Venmo account. The deal could also open doors to Amazon providing additional BNPL products at checkout, considering PayPal also offers a Pay in 4 service. Although Amazon already has a partnership with Affirm, The Financial Brand notes that many online retailers provide several BNPL options at checkout.
Rumor: Amazon’s banking ambitions post-Bezos will grow.
Source: The Financial Brand
Why it’s interesting: Jeff Bezos has been a driving force behind many of Amazon’s key initiatives. It comes as no surprise that his transition to the role of executive chairman and the appointment of Andy Jassy as the new CEO raises lots of questions. For one, financial organizations wonder what Amazon’s future banking ambitions are.
Jim Marous, an expert on the digitalization of banking, says that “the decision by Bezos to step down from his current position will most likely only strengthen the commitment to financial services by Amazon.” Also, Jassy worked with Capital One, Stripe, Robinhood, and various other financial companies while leading AWS. And this experience may prove to be invaluable in helping Amazon innovate in the finance field.
Alyson Clarke, the principal analyst at Forrester, also points out that Amazon is likely to continue partnering with other financial institutions. She doesn’t think that “Amazon will — or needs to — get a license and become a bank. Any ambitions they have can be done via partnerships.”
Rumor: Amazon is building a digital currency
Source: Coindesk
Why it’s interesting: Several job postings revealed that Amazon is assembling a team to work on a digital currency project in Mexico. One job posting noted that the product Amazon is about to build will “enable customers to convert their cash into digital currency” and then use that currency to shop for goods and services, including Prime Video.
Amazon’s Digital and Emerging Payments (DEP) division is in charge of this payment product. Another job posting said that the currency is geared toward emerging markets. It remains unclear what the value proposition of Amazon-owned currency is and whether it is blockchain-based.
Perhaps the currency could be used to send money abroad to friends and family to buy specific products from Amazon’s stores. Whatever the case, Amazon has once again shown its willingness to experiment with different technologies.
In July 2021, Amazon put up another job advertisement for a blockchain and digital currency expert who would use their “domain expertise in Blockchain, Distributed Ledger, Central Bank Digital Currencies and Cryptocurrency to develop the case for the capabilities which should be developed, drive overall vision and product strategy, and gain leadership buy-in and investment for new capabilities.” The expert would join the company’s payments team. Although Amazon has yet to announce a digital currency expert as of 2022, the job posting proves it’s exploring crypto behind the scenes.
Rumor: Amazon is going deeper into the home
Source: July 2019, NY Times
Why it’s interesting: Amazon has previously worked with residential real estate brokerage Realogy to create TurnKey, a service to connect buyers and realtors on Amazon’s marketplace. However, the partnership between Amazon and Realogy was suspended in mid-2020 because of the Covid-19 pandemic. Realogy CEO Ryan Schneider said that “home services that require people being in someone’s home just doesn’t work in a Covid-kind of social distancing world.”
Nevertheless, Amazon is trying to wedge itself deeper into the home. By getting ahead of buyers as they start their search and incentivizing them with Amazon services, the company is aiming to create a massive cross-selling opportunity for its products.
It’s also a new way to grow distribution for its portfolio of home hardware devices such as Ring, smart devices like Alexa, and services like Amazon Home Services installation. The move could also help Amazon expand into home insurance or mortgage offerings.
Further reading: It’s Not Just Your Smart Speaker. How Amazon Is Coming For The $50T+ Commercial and Residential Real Estate Industries
Rumor: Amazon reportedly had discussions about offering home insurance
Source: June 2018, The Information
Why it’s interesting: This rumor is based on an anonymous source that reported Amazon had discussions about offering insurance in conjunction with its connected home devices. However, none of Amazon’s existing investments or products tie to home insurance, at least in the US. While the company has made insurtech investments in India (such as in Acko) and a partnership in the EU to offer Amazon Protect, acting as more than a distributor of existing home insurance products seems unlikely.
Rumor: Amazon is getting into mortgages
Source: March 2018, Housing Wire
Why it’s interesting: While Amazon has not made concrete plans, it has been making a series of strategic hires for lending with a focus on mortgage banking. The company hired a head of its newly formed mortgage lending division. In addition, the firm has a number of home services businesses such as Alexa, Prime streaming, and Amazon Fire Stick, and this could be its next move in owning the home.
Rumor: Ripple is helping Amazon with cross border payments
Source: May 2018, CryptoDaily
Why it’s interesting: While cryptocurrencies saw a huge spike in interest in 2017, many of the world’s most prominent figures in financial services — including JPMorgan Chase CEO Jamie Dimon and Berkshire Hathaway CEO Warren Buffett — have outwardly cast it aside as mass speculation.
Amazon is known to take unconventional approaches to solve customer pain points, so it would not be surprising if it were to explore applications of blockchain across financial services products.
Rumor: Amazon and PayPal are meeting with bank regulators to expand their financial services
Source: December 2017, American Banker
Why it’s interesting: Amazon and some other FAMGA (Facebook, Amazon, Microsoft, Google, Apple) members have been making headlines with rumors of moving deeper into financial services. Skeptics have punted back that the complexity of the regulatory landscape would inhibit them from entering the market. News that the firms are connecting with financial regulators suggests that regulations are not an inhibitor, but rather just an obstacle, and meeting with the Office of the Comptroller of the Currency (OCC) is one way to get the conversation going to overcome it.
Following this meeting, the OCC worked on a fintech charter for tech firms, including Amazon, which was supposed to include a centralized application that would give tech firms a limited (but universal) financial license vs. having to go state by state for approval. However, a federal court ruled in October 2019 that the OCC did not have the authority to issue such a charter. The OCC plans to appeal the decision.
Rumor: Amazon is buying Capital One
Source: February 2017, American Banker
Why it’s interesting: This rumor was one of the earliest that suggested Amazon would buy a bank. Amazon has a decent amount of cash on its balance sheet and could use that cash to buy a small regional bank. Capital One, in particular, is already operating on the AWS cloud and is looking to make further inroads into personal finance, so it could be a good combination.
