When it comes to payments, things are rarely as straightforward as they seem – debit routing is no exception. Beneath the surface, there are numerous complexities that merchants and payfacs need to consider when crafting an effective debit routing strategy. Each merchant’s situation is unique, but there are key factors that every business should evaluate. Let’s break down some of the most critical considerations.
1. Industry and MCC Code
Your industry and, more specifically, your Merchant Category Code (MCC) play a major role in determining your interchange rates. For some industries, transitioning from Visa or Mastercard debit to a PINless debit network could yield little to no cost savings, while for others, it could result in significant relief. Adding another layer of complexity, PINless networks often categorize their interchange fees into two main buckets: e-commerce rates and bill pay rates. Typically, bill pay rates are much lower, making it vital for merchants in bill pay-like industries (such as healthcare, utilities, government, and telecom) to assess the potential cost savings.
For instance, healthcare transactions on Visa/Mastercard debit might cost around 1.65% on interchange, whereas the same transactions on a PINless network, considered bill pay, could see rates drop to around 0.65%.
Understanding this distinction is crucial for merchants evaluating whether PINless debit can provide cost benefits. If your business falls within an industry that fits the bill pay category, such as utilities or healthcare, PINless debit could offer substantial savings. However, e-commerce transactions may not see the same level of benefit.
2. Issuer & Network Participation
The networks your cards are associated with also play a significant role in determining potential savings. For example, Maestro and Interlink are primarily card-present debit networks that have recently created PINless interchange rate schedules due to regulatory requirements. However, these rates often mirror those of Visa and Mastercard, meaning routing transactions from Visa/Mastercard to Maestro or Interlink offers little to no savings.
It’s essential to understand the networks associated with the cards you accept, as this can significantly impact your savings. If a large portion of your transactions are tied to networks like Maestro or Interlink, your potential savings may be limited.
3. Processor Support and Network Tokenization
Even if you’ve done all the necessary analysis and determined that PINless debit could save you money, it all hinges on whether your processor can support it. Processors vary widely in their capabilities; some have been supporting PINless for years, while others are just beginning to implement it. Understanding what your processor can offer is critical.
If your processor does support PINless, you’ll also want to explore the kind of routing logic they provide. Some processors offer sophisticated tools that can evaluate each transaction in real-time, comparing costs across networks and routing to the lowest-cost option. Others might leave the decision-making up to you, requiring you to provide a routing table that ranks networks by preference.
Tokenization, where sensitive card data is replaced with a unique identifier or token, has become increasingly common in the payments industry. However, network tokenization can interfere with PINless routing. If you want to use both tokenization and PINless routing, ensure that your system is set up to make routing decisions before tokenizing the transaction. This way, eligible transactions can be routed through PINless networks before being tokenized.
4. Routing Logic and Least Cost Routing (LCR) Fees
Routing logic is another key factor in determining your savings. Some processors offer “smart” routing, where each transaction is evaluated in real-time to determine the most cost-effective network. This approach can maximize savings but typically comes with higher fees. On the other hand, some processors offer “static” routing, where the merchant provides a fixed routing table, leaving the onus of decision-making on the merchant. The choice between smart and static routing depends on your business needs and the potential savings versus the cost of implementation.
The fees charged by your processor for implementing least cost routing strategies, particularly for smart routing, are an important consideration. These fees can eat into your potential savings, so it’s essential to subtract them from your total savings to calculate the net benefit. The more advanced the routing logic, the higher the fees tend to be, so weigh these costs carefully against the savings PINless debit might offer.
5. Dual Message vs. Single Message
Another important consideration is how your processor handles dual-message versus single-message transactions. A single-message transaction involves both authorization and settlement happening simultaneously, while a dual-message transaction separates these two steps. The dual message system is typically used in both card-present and card-not-present transactions in which a signature is required, either physically or electronically. Whereas the single message transaction is used for transactions with a PIN confirmation. Not all PINless networks or processors can handle dual-message transactions, so it’s vital to confirm this capability with your processor if your current setup relies on dual messaging.
6. Network (BIN) Eligibility: 6-digit vs. 8-digit BINs
As the payments industry evolves, so too does the complexity of routing transactions. Traditionally, merchants have used the first six digits of a card number (known as the BIN) to determine routing eligibility. However, the shift toward eight-digit BINs adds another layer of complexity.
With an eight-digit BIN, merchants can more accurately determine network eligibility, potentially unlocking additional routing options that might not be apparent with a six-digit BIN. However, this requires a more sophisticated setup, often necessitating a dedicated team to manage and update the BIN tables regularly. BIN tables can be created by the merchant, paid for from an acquirer, or obtained from a third party such as a gateway.
Debit routing is a complex and nuanced aspect of payments that requires careful consideration and planning. Each of these factors—industry, network participation, processor support, routing logic, and more—plays a critical role in determining whether PINless debit routing is a viable and beneficial strategy for your business. By understanding and addressing these complexities, you can craft a debit routing strategy that optimizes costs and enhances your payment processing efficiency.
If you’re having difficult navigating your debit routing strategy or would like help in optimizing your strategy, Optimized Payments would be glad to help.