Debit routing is the process of debit card transactions being routed through various payment processors in order to find the best rate for the merchant. This can be done either through an automated system or manually. When a debit card is swiped, the processor will check with multiple banks to find the best interchange rates. The processor will then route the transaction through the bank that offers the best rate. Debit routing can also be used in order to process payments faster. By using multiple processors, the chance of a declined transaction is greatly reduced. This can be especially helpful for online businesses that need to process payments quickly and efficiently.
The wheels of Justice do in fact turn slowly. Back in 2014, Discover’s debit network PULSE filed a lawsuit against Visa and their pricing practice called Fixed Acquirer Network Fee or “FANF.” FANF is a pricing strategy where Visa charges a monthly fee for an established number of transactions. This is an incentive for merchants/acquirers to route more of their business towards Visa to ensure that they meet that threshold. PULSE says this is part of Visa’s ongoing, anti-competitive practices. Visa says this is just a free market pricing strategy.
As the National Retail Federation outlined in their press release on the matter, this issue will finally get its day in court. Here’s more from NRF:
The National Retail Federation today welcomed a federal appeals court ruling that payment processing network Pulse can sue Visa over practices it claims reduce competition over who gets to process billions of dollars in debit card transactions each year.
A three-judge panel of the 5th U.S. Circuit Court of Appeals today reinstated two counts of Pulse’s 2014 antitrust lawsuit against Visa, saying a U.S. District Court judge in Texas had improperly dismissed the case in 2018 when she said Visa’s practices affected only merchants and card-issuing banks rather than Pulse. The appeals court sent the case back to District Court for further consideration and ordered that a new judge be assigned.
Pulse argued in its lawsuit that a “Fixed Acquirer Network Fee” created by Visa after Congress passed the Durbin Amendment to regulate debit card transactions in 2010 violates federal antitrust law. The new monthly fee came in addition to existing per-transaction fees for processing debit transactions. To recoup the new fee, merchants would be forced to route debit transactions through Visa’s networks even if they preferred to use a competitor such as Pulse, the lawsuit claimed.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group