As predicted by many in the card processing community, a set of unforeseen consequences is occurring in relation to the implementation of the Durbin Amendment. In this latest round, the card brands are significantly modifying their billing structures to compete more directly and differentially against one another. The best article I have seen that discusses all of these changes can be found here.

To be specific, since debit cards are now required to carry multiple competing brands, there is an opportunity for merchants, or acquirers in place of the merchants, to select the least cost route associated with processing a specific card. By way of comparison, in the pre-Durbin world there was little to no brand competition on a single card, but rather simply the choice as to whether to promote PIN entry or not.

Before getting too much further into this, it should be noted that there is likely a threshold of relevance to be discussed here. That is to say, I would predict that understanding the impact of these billing changes will be material to the profitability of Tier 1 and 2 merchants and will likely not have much impact on Tier 4 merchants. Tier 3 (Card Not Present) merchants will be impacted in relation to their transaction volume and should start to pay special attention once yearly volume exceeds one million transactions.

To be quite honest, forecasting the impacts of these billing changes is going to be difficult, if not impossible, as some of the information simply may not be available. For instance, while acquirers have built the ability to route transactions based on a merchant’s desired selection, getting a report as to the relative frequency of network pairs on the debit cards just may not exist. Therefore a merchant has the ability to examine the rates and choose the most favorable route based in the options available, but actually understanding how frequently a card is presented and which carries both the Interlink and STAR bugs may not be available.