PINless Debit Routing in the United States and the Durbin Clarification


Connor Sullivan


June 20, 2023

June 20, 2023

June 20, 2023

If you run an online business in the United States and accept any form of debit cards, you’re guaranteed to hear a lot about the Durbin Amendment in the coming weeks. On July 1, 2023, a Clarification to the Durbin Amendment goes into effect in the US and will have a large impact on the way ecommerce businesses route PINless debit transactions. Not to worry! Pagos is here to share our insight on the history and context of these upcoming changes to PINless debit routing, and help you understand how you can use our microservices to answer critical questions about your own PINless debit strategy.

What is the Durbin Amendment?

The Durbin Amendment was passed into United States law as a part of the Dodd–Frank Wall Street Reform and Consumer Protection Act and took effect in 2011. This amendment outlines two specific requirements that have had a lasting impact on the world of payments:

  1. The Federal Reserve must regulate interchange fees on debit card transactions.

  2. Issuing banks must ensure all in-person debit transactions can be processed by at least two non-affiliated networks.

The US Congress passed these measures with in-store payments in mind and the intention to lower the interchange fees merchants incur from card networks (also known as card brands). When merchants face lower fees while processing transactions, they can conceivably pass those savings down to consumers, thus benefiting the entire payments ecosystem.

What is the Durbin Clarification?

Since 2011, the world of payments has changed dramatically and the prevalence of PINless and online payments has grown remarkably. As a result, the Durbin Amendment is receiving a Clarification this year to account for card-not-present transactions and tokenized debit cards.

The Clarification to the Durbin Amendment that will go into effect on July 1st, 2023 says the following:

  1. Issuing banks must ensure all debit transactions—including card-not-present (CNP) transactions—can be processed by at least two non-affiliated networks.

  2. A tokenized debit card qualifies as a debit card, and therefore the prohibition on network exclusivity applies.

In other words, the Durbin Amendment and Clarification requires card issuers to both enable PINless processing capabilities on 100% of debit cards issued, and ensure there are at least two unaffiliated debit networks attached to every debit card for in-person and online transactions. This is huge news! Before the Clarification, issuers only enabled PINless processing on roughly 30% of debit cards, meaning most CNP merchants didn’t see a prominent business use case for accepting this payment method. As of July 1, however, you can not only accept all PINless debit transactions online, but you can even determine for yourself which network you process them through.

What is PINless Debit Routing?

When you tap your card to pay for a coffee or when you enter your debit card information to check out online, you’re usually doing so without entering your bank PIN associated with that debit card. These are examples of PINless debit transactions. With that in mind, PINless debit routing refers to a merchant’s ability to send PINless debit transactions to any domestic or regional debit network without obtaining a PIN from the customer. 

Advantages of PINless Debit Routing

When deciding whether or not you want to implement a PINless debit routing strategy, there are some important factors to consider. The three potential major benefits of PINless debit routing are:

  1. Cost savings - Given the increased competition for merchant transaction volume, most debit networks offer reduced interchange rates for any traffic that’s routed to their network. According to CMSPI, a typical ecommerce merchant could expect to save between 20% and 30% on interchange and assessment fees by routing debit transactions to the lowest costing network.

  2. Improved Authorization - Each network can have different transaction acceptance criteria based on a number of factors like interchange, fraud, and network cost. As such, you can potentially increase your overall approval rates by choosing which processor to route a transaction to based on the likelihood of approval given your average order value (AOV), business type, and fraud profile.

  3. Flexibility - Implementing PINless debit routing gives you the flexibility to optimize your payments strategy. Ultimately, you can choose whether to send debit transactions to a signature network (Visa or Mastercard) or a specific debit network (Pulse, Accel, Star, Interlink, etc.) based on your own set of business criteria, whether that be cost, performance, fraud, approval rates, or chargeback rates.  

PINless Debit Roadblocks

The Durbin Clarification removes a major hurdle for PINless debit by mandating that there be 100% issuer support of PINless debit capability on all issued debit cards by July 1, 2023. Even so, there are still some barriers that can make implementing a PINless Debit routing strategy difficult. 

For one, how you actually implement a flexible strategy of routing PINless debit transactions to the most affordable network depends entirely on your payment partners’ support and capabilities. It’s likely that you’re using more than one payment service provider (PSP) for processing, and each sets their own rules for transaction routing. It’s important to understand how each PSP routes debit transactions and how flexible they are in allowing you to set network priorities or send specific routing instructions on the transaction level. 

It’s also extremely important to understand your payments data in order to build an effective routing strategy. As such, you must determine what level of access you have to valuable metrics such as interchange costs, authorization and chargeback rates, and your transaction volume broken down by variables like card type or payment method. Without these data points, it would be very difficult to build a meaningful routing strategy and—maybe more importantly—measure the success of your routing strategy. 

How Pagos Can Help

Pagos is a global platform of API-driven microservices that sits on top of your existing payments stack and provides the data, insights, and tools you need to design and implement a successful payments strategy. With Pagos, you can take full advantage of PINless debit routing flexibility to lower your interchange rates and improve your bottom line. Here’s how our products can help:

  • Parrot - An accurate BIN resource is critical when implementing a PINless debit routing strategy. Without one, you can’t determine which debit networks are available for routing on a card-by-card basis. Parrot is an easy-to-use BIN service that provides up-to-date BIN data and insights refreshed weekly. You can connect with Parrot via API or download and manage BIN data locally.

  • Peacock - Peacock by Pagos ingests all of your payments data from each of your PSPs and organizes it into dashboards of data visualizations. With these dashboards, you can quickly identify your processed transaction volume by card brand and even understand your current fee breakdowns. Use this data to build a business case for implementing a debit routing strategy, to guide conversations with your PSPs around such a strategy, or to negotiate with card networks for better rates. Once your new strategy is live, you can even measure its success over time across segments and partners!

  • Canary - Set thresholds for debit card transaction approval rates by network, and receive real time alerts when things change unexpectedly.

  • Toucan - Having a flexible token service provider can be crucial to your PINless debit payment strategy by allowing you to choose whether to send a token or a PAN in your transaction.

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