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Blog July 29th 2024

Five Common Mistakes When Evaluating the PINless Debit Business Case

Payments teams love flexibility almost more than they love incremental savings. While PINless debit can offer both flexibility and savings, when talking PINless debit, however, many merchants claim that they don’t see a large enough opportunity to invest in the solution. Unfortunately, many merchants may not be evaluating PINless granularly enough to properly evaluate the potential savings.

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Christian Johnson

Global Director of Payments Public Policy

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Over a year since the Federal Reserve’s clarification of Reg II, many merchants are not taking full advantage of debit routing opportunities, and PINless debit remains one of the most complex facets of their business to optimize.

The complexity of PINless debit stems from five key characteristics that have historically correlated with variability in PINless enablement and availability: regulated or unregulated issuance, prepaid and non-prepaid debit, globally exclusive-badged cards, channel of enablement, and single network-enabled cards. 

 

PINless Enablement in the Right Lens1

CMSPI estimates that a merchant processing 100 million in card not present (CNP) debit transactions could save on average an incremental $100,000 for every one percentage point increase in PINless enablement, however, there are 5 common mistakes that merchants make when trying to maximize their PINless routing opportunities:2

1. Keeping analysis the same across issuers

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Figure 1. Difference Between Regulated and Unregulated Issuer Enablement by Channel (April 2024 – June 2024)

 

CMSPI analysis suggests that historically, unregulated issuers (i.e. issuers without capped debit interchange) have typically performed better on PINless enablement than regulated issuers (i.e. issuers with capped debit interchange).

 

The Impact: According to CMSPI estimates, as of the latest quarter, there was a minimal difference between transaction-weighted average regulated and unregulated issuer CNP PINless enablement, but significant differences when analyzing CP enablement. From April-June 2024, the difference between regulated and unregulated issuer enablement was over 30 percentage points. As a result, without segmenting their volumes by regulation and channel, merchants may be dramatically overestimating card present (CP) PINless enablement for regulated issuers and, to a lesser extent, underestimating CNP enablement for regulated issuers.

2. Assuming all card types are equally PINless enabled

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Figure 2. CNP PINless Enablement by Card Type (April – June 2024)

 

Prepaid cards, especially those associated with on-demand delivery, tend to exhibit less enablement than debit cards on average,3 although many prepaid cards are not exempt from the Reg II regulation and clarification.

 

The Impact: CMSPI estimates the difference between prepaid and debit CNP PINless enablement to be almost eleven percentage points between April-June 2024. Merchants either including or wholly excluding prepaid cards in their PINless analysis could be incorrectly estimating the savings available on those transactions.

3. Not looking out for the Signature networks

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Figure 3. Share of Transactions by CP PINless Enablement and Global Badging Pairs (April – June 2024)

 

Based on a transaction-weighted average, cards with only global networks available for Signature routing and PIN routing (i.e. those considered ‘globally exclusive’ because only global networks are available for each authentication type) are less likely to be PINless enabled than cards that are not globally exclusive.

 

The Impact: Only eight percent of CP PINless-enabled transactions as of June 2024 were ‘globally exclusive’, whereas over 66 percent of non-PINless enabled cards were on globally-exclusive cards. Merchants not accounting for the overall network availability of each card could miss this significant differential.

4. Using the same strategy across channels

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Figure 4. Share of Transactions Enabled for CP PINless for Top 10 U.S. Debit Issuers (October 2022 – January 2024)

 

Despite the Federal Reserve’s clarification that “all types of debit transactions” should be routable over two competing networks, there remains a large discrepancy between CP and CNP PINless enablement, with CNP showing significantly more enablement than CP on average.

 

The Impact: For the top ten debit issuers in the U.S., there is huge variability in CP enablement across issuers, with issuers enabling anywhere between less than ten percent and nearly 100 percent of PIN debit volume. That is alongside month-to-month volatility in an individual issuer’s level of enablement, with individual issuer enablement swinging upwards of 50 percentage points in just one month. This means not only that merchants need to differentiate their strategies across channels, but that their analysis needs to be constantly updated to account for fluctuations.

5. Assuming multiple networks if a PIN is entered

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Figure 5. Share of PINless Enablement by Single Network Routable Cards (April – June 2024)

 

Cards with just one PIN debit network available for routing (i.e. a ‘single network routable’-card) leave the merchant with only one network available for routing in the instance a consumer enters their PIN. For some such cards, the published interchange rate is more than twice as expensive than the available signature network.4

 

The Impact: Cards with multiple PIN networks available are over twice as likely to be CNP PINless enabled as single network routable cards. Similarly, single network cards are nearly five times less likely to be enabled for CNP PINless than non-single network cards. If merchants assume that there are always multiple PIN networks available on a card, they could miss this important difference.

Bringing the Data into Focus

Ultimately, these five mistakes come down to accurate data on PINless enablement. With every additional percentage point in CNP enablement estimated to save $100,000 for an ecommerce retailer processing 100 million debit transactions, tracking enablement as granularly as possible could be a multi-million-dollar opportunity.

However, seeing PINless opportunities isn’t just about controlling for PINless enablement. This is only a baseline, and one that can shift with network badging changes whereby the networks available on a card are switched. In addition, acquirer certifications across all network types, channels, and acquirer platforms for PINless debit routing can vary, especially on globally exclusive cards.

The Federal Reserve’s clarification has induced significant changes in the market, creating new network competition for debit transactions. Taking advantage of CNP and CP PINless opportunities, however, requires controlling for the various transaction- and card-level characteristics that correlate with variation in enablement. By doing so, merchants may begin to see the PINless opportunities clearly, minimizing inaccuracies and maximizing the potential benefits.

Sources

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1 Data in the following section is based on CMSPI’s consensus model built from data inputs from a variety of acquirers, networks, and merchants. The numbers below, covering the period April-June 2024 unless otherwise specified, are indicative of market-wide trends, but not all figures have been vetted against actual routed transaction outcomes and may be based only on data files from acquirers and networks, which can be imperfect. As a result, each data point should not be used as a benchmark for optimization. In addition, enablement is subject to change during the period analyzed and therefore the data is indicative of averages.

 

2 CMSPI estimates that CNP PINless is estimated to save merchants $3bn as of 2021. Based on the Federal Reserve’s 2021 Covered Issuer and Payment Network Report, there were 29.54bn CNP debit transactions in 2021. This comes out to an average $0.10 in savings per transaction. These figures are highly variable based on MCC and average transaction value.

 

3 CMSPI estimates and analysis

 

4 Based on published interchange tables for a $50 transaction

 

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