eCommerce’s Next Game Changer – PINless Debit Routing

02nd November 2017
Contributor:
Alistair Matthewson
Alistair Matthewson

PINless debit routing for card not present (CNP) merchants is still a relatively new concept in the payments space. While many merchants have been using PINless debit successfully for years at brick and mortar sites, and a handful of larger CNP merchants were early adopters of PINless online, it has only recently started to gain mainstream popularity online. Supply chain developments mean most merchants can now consider whether PINless debit is right for their business.

In this blog, we’ve gone back to basics. We explain what PINless debit routing it is, why it could be a game changer for eCommerce merchants, and highlight the two main considerations merchants must make before implementing it into their payments process.

What is PINless debit routing?

Traditionally, PINless debit routing takes place when a merchant chooses to have no customer verification method (CVM) requirements for transactions of less than $50. These payments are routed away from the global signature networks (Visa and Mastercard) to domestic PIN networks that can also route these transactions.

Many eCommerce merchants are now also able to benefit from this solution, without limits on transaction value. This opens up a huge opportunity to savvy merchants who put efficient routing tables in place – the PIN networks are keen to take a bigger slice of the eCommerce pie so merchants (for once) are in an excellent negotiating position.

Supplier capabilities and the battle for PINless

When considering whether a PINless debit routing solution is right for your unique business, you first need to address the main question: can my current supplier/s accommodate PINless debit transactions? Not all processors can, but further, even if they are PINless enabled, they may not have the capability to accept transactions from all PIN networks.

Some PIN networks have enabled PINless (generally, the domestic networks) while others have been less forthcoming (generally, the global networks). Finding out who in your supply chain can accommodate this technology can be a long, drawn-out task. In addition, the demographics and locations of two merchant’s customer bases can differ greatly, impacting how many transactions could have been routed without using global network rails. There is no one-size-fits-all for merchants and understanding the capabilities of each member of your supply chain is crucial

Through analysis of Bank Identification Numbers (BINs), CMSPI observed smaller banks to be early enablers of PINless, whereas larger banks have, on occasion, attempted to protect their existing relationships with Visa and Mastercard and opted against issuing PINless enabled cards. There is an argument that this in fact represents a violation of the “no network exclusivity” clause of the Durbin amendment.

PINless-enabled networks are fighting back though, with some mandating issuers enable PINless as a prerequisite to partnership. Indeed, CMSPI data suggests that the great majority of cards featuring the logos of the larger domestic networks are now PINless enabled.

Any debit card issuer that fails to enable PINless is effectively preventing the enforcement of the Durbin amendment’s “no network exclusivity” clause for CNP merchants by enforcing the use of Visa or Mastercard. The merchant community will be glad to hear things are gradually changing.

Making the business case

From understanding the capabilities of your suppliers, and discovering if you can accept PINless transactions, you then need to decide whether you should. This will depend on your payment profile, domestic payment preferences (if you operate multi-nationally), fraud prevention, acceptances rates, chargeback reason code variations, and ability to avoid downgrades on interchange, to name a few.

When building a business case for PINless debit, it is crucial to consider if you can fulfil orders immediately, or if you need a delay. Usually, anything unavailable for immediate shipment is a delayed transaction, and fewer dual-message networks will be able to accommodate this at present. However, even if they not already running or piloting the technology, most networks are close to enabling dual-message transactions. If merchants can complete immediate fulfilment, then more networks are available using single-message settlement/authorization technology.

It’s important to keep in mind that PINless rates are different to PIN rates, but both tend to be more expensive than signature at lower transaction values (around $15 or less based on typical MSC rates. Understanding how these key thresholds correspond to your transaction distribution is important to developing a robust business case.

CMSPI has seen examples of rebate incentives from global networks that exceed the potential benefit of dynamically routing PINless transactions, but understanding the balance between transactional savings and incentives is complex and time-consuming. Conversely, CMSPI has also seen rebate incentive structures that are close to cost neutral when a change in routing order and additional processor fees are considered.

Conclusion

PINless debit routing is a fast-growing arena, and thinking about whether it is beneficial for your business sooner rather than later will keep you at the forefront of the industry. If you already have PINless routing in place, our analysts can provide an audit of your arrangements to ensure your transactions are being routed optimally. If you haven’t yet adopted PINless on your eCommerce platform, we can help you conduct an independent business case analysis.

Want to learn more about PINless debit routing?