Blog April 5th 2022

Debit Optimization: Three Things You Might be Missing in your Strategy Today

While the merchant community might be breathing a sigh of relief having navigated the last two years of immense change, 2022 presents new challenges and opportunities in a familiar space: debit routing optimization.

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Dan Luehm

Director, Transaction Routing Optimization

1. BIN Issuance Shifts – The ever-changing debit card market

Debit networks are competing on two fronts simultaneously in today’s market. While they are trying to win merchants’ volume by offering incentives for priority routing or volume commitments, they are also competing to be branded on issuing banks’ cards, leading to a delicate balancing act for their business. Networks, as they win and lose business, will be removed from certain issuers and added on to others, which happens every single day. When it happens at a large issuer, it can affect a significant portion of transactions overnight.

CMSPI has seen some shifts that affect up to 3% of total debit volume for merchants. While that might seem like a small portion, a change like this can immediately put your incentives at risk and can go unnoticed without robust transaction-level data. Conversely, it could add networks to high-volume cards that open an opportunity to achieve better incentives with the affected networks. Maintaining optimal debit arrangements requires constant monitoring of where your volume is going. Without consistent monitoring of the market, your arrangements can very quickly become out of date. Overnight, there could be thousands, if not millions of dollars left on the table despite having great incentives in place.

2. Single PIN Badged Debit Cards: How is that even possible?

Merchants have utilized routing to achieve cost savings for over a decade now because of the Durbin Amendment. The Durbin Amendment mandated, through the “No Network Exclusivity” (NNE) clause, that at least 2 nonaffiliated networks be branded on every debit card issued in the United States. Merchants have criticized the mandate’s vagueness in that it didn’t specify whether those needed to be PIN networks specifically, or if the front-of-card network counts towards compliance. Today, as our analysis of CMSPI data sets show in the graph below, slightly over 3% of all debit transactions only have one PIN network on them, which limits merchants choice to one single message and one dual message network only.

For merchants, it’s important to understand how many of your transactions only have a single PIN network issued on the card, so that you can accurately assess how much volume can be achieved by each network in your debit portfolio. Even more importantly, the cards badged with one network can change at any moment due to the issuance shifts outlined above, so merchants must maintain a current, robust database of their debit transactions to remain optimal.

Transaction Distribution by PIN Networks on the Card

3. PINless Debit and routing options online

Last year, the Federal Reserve announced their intention to clarify that “debit card issuers should enable, and allow merchants to choose from, at least two unaffiliated networks for card-not-present debit card transactions, such as online purchases”.¹

This clarification should ultimately allow for merchants to have ubiquitous routing options online through a technology called PINless debit, which enables merchants to access domestic debit networks without the need for PIN authentication. While the official clarification has to date still not been published, and the Fed is dragging their feet with the announcement, leading merchants should still be proactive in assessing the opportunities surrounding PINless debit. There are marginal gains to be made if you have the data to execute a sophisticated PINless strategy, and those potential gains will only increase with time.

CMSPI estimates that this clarification could lead to almost $3 Billion in savings for merchants in the U.S., and transactions moving online only mean additional value can be achieved. If the Fed proceeds with the proposed clarification, proactive merchants can immediately make the most of the commercial opportunity by implementing the proper routing logic and incentive arrangements depending on their business and their card mix today. Like PIN debit in-store, the optimization opportunities with PINless can be immense but also very complex, and PINless isn’t a one size fits all opportunity. Achieving full optimization amongst the entire debit profile is now a larger, wider, and more diverse process with the clarification looming.

The savings are yours for the taking

Merchants have been faced with the challenge of navigating a pandemic and a resultant shift to online spend for the past 2 years, and debit routing might have fallen down the list of priorities. In 2022 a key focus should be reassessing debit arrangements to ensure they are still optimal, as there is significant value to be achieved for merchants through debit optimization. Understanding BIN issuance shifts, single PIN badged debit cards, and the opportunities for PINless routing are, among other strategies, vital in order to achieve the highest level of debit optimization across your entire estate. When it comes to debit, the market sees changes nearly every day; leading retailers and CMSPI clients are following it closely so they remain optimal. If you’re not looking at these types of marginal gains, you could be missing out on thousands, if not millions of dollars in cost savings. It’s never too soon to be reassessing your debit acceptance profile and ensuring you join them in a market leading position.

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