In a recently published infographic, CMSPI’s Martha Southall inspected each decision that a merchant must make in order to optimally process an online transaction, highlighting that everything from updating tokens or account numbers, to verifying a customer’s CVV, to retrying transactions, can have an impact on cost and performance.

Like ecommerce transactions, myriad factors influence the fate of each debit transaction, making debit cost optimization a rapidly moving, and measurably-shrinking target. Despite existing caps and routing provisions, payments managers are dealing with more complexity and costs than ever before when processing debit transactions. In order to tip the scale, those merchants must turn to BIN data.

What is a BIN?

A BIN stands for Bank Identification Number and is typically represented by the first 6-10 digits of a debit card. Some digits of the BIN will provide clues about features of the card. For example, most cards badged with Visa will start with a 4, while most cards badged with Mastercard will start with a 5.

How to use a BIN

The data provided by a BIN alone is typically not enough information for a payment manager to optimize the costs of debit acceptance. While the BIN may tell you the card’s issuer and which global network it is badged with, it won’t tell you which other networks and network subtypes are available on the card, whether it is PINless enabled, and more.

The answer to these questions rests in analysis of BIN-level trends, rather than the BINs themselves. By examining payments data at this level, merchants can unlock powerful insights and drive seven-figure savings.

BIN-level analysis in practice

The number of factors to consider for analyzing the cost efficiency of a given debit transaction has more than doubled in the last five years.¹ While previously merchants reviewed the issuer type, authentication method, and available networks in order to optimally route a debit transaction (which even still is a difficult task), today this analysis must include the channel of presentation, the availability of PINless networks, the capabilities of those PINless networks, the network subtypes available on each card, knowledge of net-new issuance patterns, and the presence of other layers of technology that may inhibit cost-efficient routing.

1. Issuer Type

In the U.S., per-transaction interchange fees for debit card issuing banks with over $10 billion in assets (‘regulated’ issuers) are capped at $0.21 plus 0.05% of the transaction value, with an additional penny added in the case the issuer applies certain fraud prevention standards. Issuers with less than $10 billion in assets (‘unregulated’ issuers) can conversely earn well above the interchange cap for a given transaction.²

As demonstrated in Figure 1, unregulated issuance has not only become more common, but also more expensive, as average interchange rose from 1.12% in 2012 to 1.20% in 2022.

Driving this trend are two market dynamics. The first comes from the many fintechs who, in the last five years, have launched a card program associated with their core services. In one recent review, only one of 25 fintechs analyzed partnered with a regulated bank.³ This activity has been so rampant that some regulators are beginning to take notice given its potential impacts on the broader banking system.⁴

The second dynamic is a rise in mono-badging – where only one debit network is made available on a card. These cards represented nearly 7% of PIN transactions as of September (Figure 2).⁶ For one mono-badged card, interchange is estimated at 1.45% + $0.45 per transaction plus a 0.95% network fee. For a $50 transaction, that comes out to 3.30%, nearly double the average unregulated interchange in 2022. The relatively high fees associated with these cards may entice banks and networks to continue this type of activity.

2. Network Availability

While the BIN may tell you which global network is available on the front of a given card, the alternative networks available can change overnight. In fact, up to 2.5% of transactions may occur on a card where the combination of networks is different from the preceding month.⁷

The rate of change appears to be increasing, too. From January to December 2022, CMSPI’s debit optimization tool observed that nearly 10% of transactions occurred on cards where the networks were different from the beginning of the period. This year is shaping up to be one of the most active with respect to network issuance changes, with nearly 8% of transactions occurring on cards where the networks were different during the first half of the year (Figure 3).⁸

These swings in availability can seriously disrupt volume-based merchant debit incentives, as even just a 1% drop in network issuance can cause a merchant to fall below their volume commitments.

3. Channel and PINless Availability

The COVID-19 pandemic shifted nearly 10% of transactions online in the period 2020-2021⁹, leading to increased costs for many merchants in part due to the premium card fees charged on card-not-present (CNP) transactions (Figure 4).¹⁰

In October 2022, the Fed clarified that two unaffiliated networks must be available on all debit card transactions, including card-not-present transactions. This announcement has opened the CNP environment to never-before-seen levels of competition. For merchants to take advantage of this, however, it’s essential to evaluate PINless availability by BIN. BINs that are PINless enabled can be routed to multiple competing debit networks without the requirement of PIN-entry.

4. Fraud Liability

BIN knowledge is crucial when building a debit strategy inclusive of fraud liability considerations because fraud liability frameworks differ depending on channel, card type, and network. In the CNP space, liability is generally on the merchant unless 3D Secure is deployed.¹² In contrast, issuers are liable for EMV card-present transactions. Some domestic networks even have CP PINless fraud liability thresholds that shift liability from the issuer to the merchant once a certain transaction value is reached.

BIN-level analysis is getting more complex as BINs and credentials change

With unregulated issuance on the rise, decreasing competition as mono-badged cards gain issuance, and shifting availability of PINless networks by channel, debit optimization today is more complicated than ever.

While BINs have been the focus of granular cost and performance optimization for years, it’s important to note that BINs and the forms in which credentials are stored and analyzed are rapidly changing. BINs are shifting from six- to eight-digits, with cards that require eight-digit BIN analysis already hitting the market. As more eight-digit BINs are phased in, the level of complexity is compounded by the number of card subtypes that are pushed to the 8-10 digit level.

In addition, network tokenization is making its way into more and more methods of payment, ranging from digital wallets, to browser autofills, to cards-on-file. Once a card is tokenized, the PAN is masked, potentially inhibiting the ability of merchants and/or their acquirers to identify available networks over which to route the transaction and potentially reducing the ability of the merchant to make a routing selection.

Merchants need more data today than ever before to optimize. This involves tracking PINless enablement by channel, network and network subtype availability month-on-month, evaluating the cost of acceptance by channel, and mapping various scenarios against pre-existing routing set-ups. BIN-level analysis is one of the sharpest tools for merchants diving into granular cost-savings analysis, but given the rapid market changes, it’s just the tip of the spear.