I was speaking with a major debit card issuer recently about the effects of Durbin and he said “It’s flipped.” He was talking about the former issuer practice of heavily promoting signature debit flipping, post Durbin, to greater issuer interest in PIN debit.
The impact of the first flip has been intense and substantial. Forecasts and models are one thing, the reality is another. The Durbin margin compression has now hit the monthly financials and the pain is real, creating renewed interest in PIN debit.
But that’s not the only flipping thing about Durbin. Durbin flipped the tables on network exclusivity. Regulated FIs who had exclusive deals with the associations are working toward their April 1st deadline to finalize their second network. The competition among networks to win these issuers, who under the Durbin non-exclusivity rules must select a second network, has been intense. Every day I’m scanning the industry press for big announcements.
There is a third major Durbin flip that stands to reshape payments industry dynamics.
Durbin also flipped the control of routing from the issuers to the merchants. Instead of issuer’s picking the routing choice that provides them the greatest revenue, now merchants have the power to choose the routing that provides them the lowest cost (interchange + fraud + network fees + other fees).
- Merchants with interchange pricing, typically big merchants, will benefit the most. Other merchants, who have blended pricing will not benefit.
- EFT networks whose value propositions and pricing have focused on serving issuers are now looking to develop strategic relationships with major merchants.
- Merchant routing power is resulting in merchant negotiating power and incentives. Networks can offer merchants a “deal” on network / switch fees, e.g. VISA announced volume-based lower fees, if merchants give them more volume.
Sandra Chesnutt is SVP Marketing for Acculynk, provider of PaySecure. PaySecure brings PIN debit to the Internet.