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October 03rd 2022

Card Not Present Routing: The $3 Billion Opportunity for Merchants

The Federal Reserve's most recent announcement amends Regulation II to specify that debit routing applies to Card Not Present transactions. But the benefits from this aren't guaranteed. In this article, we’ll explore the impact expanded CNP routing can have for your business - and explain how merchants can avoid missing out on the estimated $3 billion in total benefits that full PINless enablement could bring.


What is Debit Routing?

Routing is the process of choosing the least cost debit network to route each debit transaction. A debit card will have multiple competing networks available to route the transaction, and card networks can differ vastly in the pricing structures they offer on a per-transaction basis. A simplified example is shown below, where Network A’s competitiveness shifts significantly based on the ticket value and strategic deals in place.

Merchants working with their processor to dynamically choose the optimal debit network for each transaction can save millions in annual card fees. But even in-store, it’s far from easy. In our experience, working to optimize routing for leading retailers is often incredibly complex, as merchants navigate issuance shifts, volume commitments, sub-optimal processor routing tools and more. Those merchants with the right tools are already ahead; CMSPI estimates that least cost debit routing has saved U.S. merchants over $1 billion annually. It is the scale of this largely-untapped opportunity online that makes getting their PINless routing arrangements right the first priority for merchants following the Fed’s announcement.

Figure 1: What is debit Routing?

What is PINless Debit?

Currently, in-store, PIN-authenticated transactions are the only transactions that are typically offered a choice of networks. For CNP transactions, PINless authentication should guarantee the merchant’s ability to route, but current limitations have significantly depressed PINless enablement rates, thus preventing merchant from fully utilizing CNP debit routing today.

Why the Federal Reserve’s Announcement is so Important

With their recent announcement, the Fed have stepped in on a key competition limitation for merchants. As mandated by the Durbin amendment[1], debit card issuers are required by law to enable at least two unaffiliated networks on each card. As a result, merchants should have the ability to choose how to route debit card payments for remote, online, and mobile transactions.

Despite regulation, stakeholders in the supply chain don’t appear to be offering merchants the network choice mandated by Durbin, which means that a merchant’s ability to route CNP transactions is currently limited (Figure 2). The dramatic increase in online transactions throughout the pandemic has shone new light on this issue, leaving many merchants who have embraced CNP transactions as a core aspect of their business paying unnecessarily higher fees.

Figure 2: PINless Volumes are Low

Despite regulation guaranteeing merchants access to PINless routing, PINless volumes are a fraction of non-PINless debit, suggesting that enablement rates are low.

Source: CMSPI estimates and Federal Reserve

What Could Full Enablement Mean for Merchants?

CMSPI estimates that, as of October 3rd, only 51.1% of debit cards in the U.S. have PINless functionality enabled. This is despite the Durbin amendment requiring that debit routing should be available for all debit transactions, not just in-store.

If PINless enablement were to reach 100%, CMSPI estimates that U.S. merchants are slated to save $3 billion annually.

Why Merchants Need to Prepare Now

If PIN optimization were complex enough, PINless is a whole other ball game. While most merchants’ payments partners have been equipped to handle PIN debit routing for years, capabilities across all players – from issuers, to networks, to processors, to gateways, to a merchant’s own tech stack – come into play when accessing the world of PINless.

That’s before even considering the rates retailers are paying for those transactions; optimizing incentives and volume commitments amidst a rapidly-shifting issuance environment requires market-wide insights for merchants looking to ensure they aren’t paying more than their peers. So with inflation hitting bottom lines, and a potential $3 billion opportunity on the table, merchants need to be preparing now to make the most of what the Fed’s announcement could bring.


  1. The Durbin amendment to the Dodd Frank Act in 2011, the first meaningful regulation around payments costs in the U.S., saved merchants and consumers billions of dollars annually by introducing caps on interchange. In addition, the regulation introduced the “no-network exclusivity” clause which required at least two competing card networks to be branded on a debit card. This clause allows merchants to choose which network to route to for their debit transactions. As a result of debit routing, CMSPI estimates that merchants and consumers have been able to achieve over $1 billion in annual cost savings.