For everyday consumers, using a debit card is a simple and direct choice, transferring funds straight from their banking account. For businesses, however, it’s a different story.
The Durbin Amendment to the landmark Dodd-Frank banking law, passed in 2010, limited the transaction fees that card processors could impose on businesses. This had the happy side effect of ushering in a wave of fintech innovation by new companies offering creative solutions, bringing real competition to the payment-routing landscape.
But the changes didn’t stop there. In July 2023, a revision to the law mandated that all U.S. debit cards be branded by a network unaffiliated with Mastercard, Visa or Discover. This gave merchants the autonomy to choose which network would facilitate each individual transaction, a process known as debit routing.
This opened the door to additional competition from smaller players such as NYCE, STAR, PULSE, and Accel. The upshot was a confusing array of options to choose from, but with the upside of additional savings and flexibility for merchants who are familiar with these processes. For any business that accepts debit cards, the opportunity is significant.
The Power of Debit
Despite the fact that technology and regulation have fueled the emergence of a plethora of new payment options, debit cards remain the preferred choice for millions of consumers.
According to platform data from payment services leader Adyen, debit transactions made up 58% of all electronic transactions in the U.S. in June 2024, excluding those made with cash or checks.
“The modern retailer must accept debit cards–a no-brainer in today’s market. From everyday payments like grocery and fuel to subscriptions and services, debit cards are one of the most popular ways to pay in the U.S. Retailers should be looking for ways to optimize the flow and routing for this highly utilized payment method.” – Ben Danner, Senior Analyst, Credit and Commercial at Javelin Strategy & Research
Learning from Experience
For merchants, the Durbin Amendment introduced a range of routing platforms, each with its own advantages and costs. However, selecting the optimal choice for every individual transaction is hardly practical.
Fortunately, another recently developed tool can help merchants navigate these new opportunities: artificial intelligence. A robust machine learning program can analyze past transactions to optimize the processing of future ones, ideally providing cost savings with every payment.
For example, in 2023, Adyen processed $1 trillion in transaction volume. This represents $1 trillion worth of data that can be used to guide merchants toward the optimal outlet for their payments. Powered by AI, each of these transactions was driven by real-time machine learning decisioning. As Adyen continues processing transactions, it remains committed to researching and implementing holistic, data-driven strategies to optimize decisions across the entire payments funnel.
These investments have culminated in Adyen’s Intelligent Payment Routing for US Debit solution. While many similar solutions focus on increasing conversion rates or reducing merchant costs, Adyen’s offering stands out as the only AI-based solution capable of delivering both. In a pilot program involving more than 20 enterprise businesses, including eBay, 24 Fitness, and Microsoft, Adyen helped participants achieve not only an average of 26% in cost savings but also a 0.22% increase in authorization rates. One customer, in particular, experienced substantial results, with Adyen delivering cost savings of over 50%.
“Least-cost routing is not new, but what has gotten complex are card issuer algorithms that look at a range of attributes around a transaction, including what network the transaction uses when considering whether to approve or decline it. Introducing AI to learn based on this transaction throughput enables Adyen to not only optimize routing for cost, but also for performance.” – Don Apgar, Director of the Merchant Practice, Javelin Strategy & Research
Developing Intelligence
The businesses that participated in the pilot program have already experienced the benefits of Intelligent Payment Routing. These businesses varied widely, from eBay to 24 Hour Fitness, but any business handling a large volume of debit payments is likely to see advantages from the service. Businesses with low to medium average transaction values—typically under $100—and high transaction frequency are particularly well-positioned to benefit the most.
Some of these business include:
- Retail and e-commerce
- Fast-food and sit-down restaurants
- Insurance and healthcare
- Subscription services
- Event venues
- Ride-sharing services
- Online travel agencies
The list also extends to include any other industries where consumers frequently use debit cards. In addition, network token and digital wallet transactions are eligible to make use of Intelligent Payment Routing.
How It Works
While Least-Cost Routing programs have been available for some time, Intelligent Payment Routing for US Debit represents a giant leap forward. By leveraging AI, the solution reduces transaction costs by determining the optimal route for every transaction. By expanding routing options, it improves authorization rates at the same time. This service uses Adyen’s ecosystem data from both online and in-store debit transactions, allowing retailers to maximize their bottom line across all sales channels.
Intelligent Payment Routing analyzes a variety of factors for each payment, including the scheme and the issuer, to select the best network based on success rates and processing fees. This ensures decision-making prioritizes performance and cost efficiency.
The results speak for themselves. In Adyen’s pilot program of over 20 enterprise businesses, one customer reported $600,000 in savings within just the first month.
With so many routing options available, it’s important to note that Intelligent Payment Routing employs no favoritism. Unlike some competitors in this space who run their own networks and may prioritize their interests over those of merchants, Intelligent Payment Routing is designed to optimize outcomes for retailers. Merchants should ensure their routing system is focused on meeting their needs—not those of the system’s owners.
The Bottom Line
Intelligent Payment Routing offers merchants a golden opportunity to optimize for higher performance while reducing costs. Whether it’s a domestic enterprise trying to compete in North America, or a global enterprise looking to expand operations in the U.S., this technology can significantly increase profit margins.
Discover more about the benefits of Adyen’s Intelligent Payment Routing solution, as well as the effective strategies to reduce the total cost of payments.
