Blog November 11th 2022

Global Debit Optimization: Why Merchants Are Taking Their Routing Strategy Cross-Border

With the Fed’s most recent announcement, PINless has fast become the hottest topic in U.S. payments. The ability to route online transactions to the lowest-cost network – an opportunity largely restricted to the in-store space until now - is estimated to place up to $3bn in annual savings on the table for merchants.

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Martha Southall

Senior Manager, Global Advocacy Manager

With the Fed’s most recent announcement, PINless has fast become the hottest topic in U.S. payments. The ability to route online transactions to the lowest-cost network – an opportunity largely restricted to the in-store space until now – is estimated to place up to $3bn in annual savings on the table for merchants.1

But the U.S. isn’t the only market where ‘debit routing’ is on the menu – and offering tasty cost efficiencies. Domestic networks can be one of payments’ best kept secrets, but how do global merchants take advantage of these alternative rails? From Australia to Belgium, here are CMSPI’s three top tips for building a global debit routing strategy.

1 – Know Your Payments Mix

In the U.S., we’re all used to PIN debit transactions. Due to the presence of at least two competing networks on every debit card required by the 2011 Durbin Amendment, merchants with the right expertise are able to route these transactions to the lowest-cost network. But PIN authentication isn’t always an option. That’s why, until the PINless breakthrough, debit routing optimization meant working predominantly with your in-store, domestic, PIN-authenticated debit transactions: analysing each of these payments down to the BIN level, determining the available networks, and using these data insights to secure and execute an optimal routing order. But not all domestic networks are created equal. Germany’s Girocard network is similar to the U.S.’s in the sense that it has (albeit due to technical limitations rather than business practices) historically only been available for in-store, domestic debit transactions. But it too is undergoing a transformation through its rising online availability via Apple Pay.2 In contrast, if we look to markets like Denmark, online payments have long been a staple of accepting the Dankort network. In France, the ability to route to the local network can even extend to credit transactions, and to commercial cards , opening up a wide array of opportunities for volumes which may have gone untapped in the U.S. In Asia-Pacific, the story gets even more complex; Australian merchants, for example, can generally only access the local Eftpos network for contactless transactions, making them the polar opposite of their PIN-prompting American counterparts. The first step in generating a global routing strategy is therefore to know your key channels of acceptance, as well as the popularity of domestic networks across all of your markets. Who knows, the same type of payment made in a different jurisdiction may have multiple routing options that competitors are already taking advantage of.

2 – Find Your Payments Partners

Once you have determined the networks within your international footprint, the next step lies within your technical architecture. In the U.S., this is already complex enough. Processors may differ significantly in their routing capabilities, and factors such as regular issuance shifts, as well as the sheer volume of data involved, can make it near-impossible for merchants to decipher whether last week’s routing order remains optimal today. But processors play a crucial role in other markets too. In Australia, for example, the Reserve Bank recently introduced requirements for processors to develop Least Cost Routing functionality to improve access to the Eftpos network.3 Many other markets require in-country processing in order to utilise domestic options, meaning merchants accepting these payments via a global processor could be unknowingly doing so via an indirect, local relationship. In CMSPI’s experience, the complexity of translating vastly differing charging structures into per-transaction fees via these indirect relationships can generate significant mischarges that prevent merchants from accessing the full benefits of a localized strategy.

3 – Claim Your Savings

So, why is it that multinational merchants are clamoring to access the world’s domestic networks? A large part of the answer lies in the cost of acceptance. CMSPI estimates that changes to headline rates by the global card brands earlier this year could add $475 million to U.S. merchants’ annual acceptance costs4, and they’re not the only ones; Europe has also seen over €1.4 billion in estimated annual network fee increases since the introduction of the EU’s Interchange Fee Regulation.5 With other markets following suit, generating competition between networks is the name of the game. German retailers are estimated to save $200 million annually due to the presence of the local Girocard network, and many other markets see significant cost reductions – even to below regulated rates – as a result of optimal routing. With local merchants already taking advantage of these savings through in-market expertise and local relationships, it is the multinational players – often the merchants with greatest leverage in these discussions – who can be left behind.

Building the Business Case

Merchants with global operations have always had the complex task of ‘acting global, thinking local’, with diverse payment methods and channel preferences often serviced by teams operating outside of each market. But there are options behind the checkout that local merchants know best, too; domestic networks can offer significant savings for merchants, but their relevance differs according to retailers’ unique payments mixes and capture methods. That’s why the global payments teams that CMSPI works alongside are all starting in the same place: data. With the right transaction-level insights and local expertise, U.S. debit routing becomes just one element in a holistic network strategy that balances local demand with multinational scale.



  5. CMSPI estimates and analysis

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