Why does contactless cause debit routing to be more difficult?
As part of the configuration setup for contactless acceptance, merchants set up a cardholder verification method (CVM) limit on the devices. This limit represents the transaction value at which a cardholder either would, or would not, need to provide a form of cardholder authentication (PIN, signature, etc.) to complete the transaction. The brands vary on how high this limit can be set in the U.S., but it typically ranges between $25-$50 with some variation due to the sector the merchant operates in. CVM limits act as one of the main benefits of contactless by shortening transaction time for lower value purchases. However, this can also produce a problem for merchants who are reliant on the benefits derived from the Durbin amendment and the financial benefits of routing towards a domestic debit network. For example, if a retailer sets a $50 CVM limit and accepts a $40 contactless payment, the cardholder will not be asked to enter the PIN and the transaction would be routed to a more expensive global network, as opposed to a debit network. While PINless debit is an option for merchants who support it, the cost benefit of PINless is less than PIN debit for higher valued transactions and requires that it is supported by the merchant, processor, and issued card, as well as any third party payment processors that the merchant works with.
Setting CVM limits lower in order to force a PIN transaction is a possible solution for merchants, but this takes away much of the benefit of contactless by creating a less fluid consumer experience. Finally, a lack of awareness about authentication differences between contact and contactless could result in merchants allowing acceptance without taking precautions to protect their bottom line.
How many single message networks support PINless debit?
Most of the domestic debit networks now support PINless transactions. These include STAR, Pulse, NYCE, Accel, Culiance, Jeanie, and Shazam. In addition to the domestic networks, Mastercard also participates in PINless through its Maestro network, however, this is only when Maestro is co-badged on a Visa card. Visa’s Interlink network does not currently offer a PINnless debit option.
Can you use contactless and still ask the customer for a PIN after the tap?
Yes, it is possible to prompt a customer to enter a PIN after a contactless “tap” and in some scenario’s CVM limits may even make this a requirement. Despite this, for many lower/medium ticket value transactions, the customer experience is likely to be negatively affected through requiring customers to take an extra step to complete a payment.
"In France, the Cartes Bancaires (CB) local card network operates across both credit and debit cards, and has significantly lower scheme fees than Visa and Mastercard. As a result, the vast majority of domestic card transactions in France and routed through CB, and the Visa and Mastercard functionality is only included largely so the cards can be used abroad."
Callum Godwin - Chief Economist, CMSPI
Are there examples in other countries of network non-exclusivity on credit?
Routing is more readily available on debit, with several local debit schemes operating in many countries including Australia. However, co-badging on credit cards is not without precedent. In France, the Cartes Bancaires (CB) local card network operates across both credit and debit cards, and has significantly lower scheme fees than Visa and Mastercard. As a result, the vast majority of domestic card transactions in France are routed through CB, and the Visa and Mastercard functionality is only included largely so the cards can be used abroad.
In many countries where credit card interchange fees are regulated at low levels, there is of course less of a pressing need for co-badging to create competition between networks. This is in sharp contrast to the U.S., where credit card interchange fees average more than 2% of the transaction value and show no sign of declining.
With CDCVM, shouldn’t mobile transactions paid via contactless get a fee reduction?
For CDCVM it is worth mentioning that we would actually expect it to increase cost. Common Debit Applications cannot support CDCVM, so any transaction over the CVM limit where CDCVM is the authentication method would use the signature debit (global) application and be sent to a global network (Visa and Mastercard).
How can merchants prove they are being charged the correct rates?
The payments industry is opaque – by design, perhaps – and finding out if fees are accurately being passed on by your suppliers can be difficult. Ideally, it should be suppliers proving this to merchants, but that certainly isn’t the norm. In order to know what rates you should be charged, merchants need to know the underlying network and interchange fees being charged to merchant processors. These fees are often not publicly available, and some processors may build additional margin into the fees when they pass them on to merchants.