By Brad Goad, Senior Vice President, Acculynk
Contributing: Kalyani Iyer, Square
December 1, 2016
The Durbin Amendment: more regulation? Yes, but, in this case it has created an opportunity for merchants to smart route and save billions of dollars in fees.
There is so much going on in the payments industry. There is so much noise, so much hype about disruption and the established industry giants are desperate to maintain relevance. They fear disintermediation. There are no doubts that FinTech innovation is changing the playing field and forcing reconsideration of the rules. Furthermore, society is changing faster than they can evolve their old business models and address today’s realities. Just read bellwether Visa’s SEC filings. Consequently, old business models are being marginalized rapidly. So the fears of the established players are merited. They cannot “innovate” fast enough, either technically or commercially.
This societal shift is inducing more democratic, more secure approaches to exchanging value, including how we make payments and to the underlying business models and technology that support these models. Generational behavioral patterns are accentuating the shift to the use of debit as opposed to credit. The Durbin Amendment is part of these broader trends. While the merits of the Durbin amendment are highly debatable, hidden within is a serendipitous opportunity for merchants to avoid Visa and Master Card on debit.
How? The Durbin Amendment allows merchants to priority route debit card transactions. The effect of Durbin and the ever-increasing use of debit cards is that leading merchant innovators like Amazon, Intuit and Uber are leveraging a dynamic priority routing gateway to reduce expense while also improving approval rates.
Result: Merchants using dynamic routing are seeing a 10%-30% savings on Visa/MC signature debit CNP processing fees.
Merchants across multiple industries are catching on. Rapidly. However, until recently, there was not a viable solution for merchants not in a position to set up their own routing solution. Countless merchants were left fighting fees in the courts and searching for alternatives. A solution began to unfold after the Durbin Amendment was passed when the major debit networks like Pulse, STAR and Accel implemented an alternative to Visa/MC signature debit. This frictionless, PINless e-Commerce transaction is now available on all major US debit networks. PINless payment solutions are now integral to building a seamless, valuable, and cost-efficient experience benefiting both CNP (Card Not Present) merchants and their convenience motivated consumers. That was Step One.
Democratizing PINless
Step Two: The major debit networks worked with Acculynk to create a standard framework for a unique PINless debit gateway providing a one stop shop for secure and speedy implementation of smart debit processing. The gateway allows CNP merchants to gain access to all participating debit networks through a single connection. Additionally, the gateway normalizes acquiring, settlement and reporting through a single provider. Among all the hype of innovation and disruption, with a little technical ingenuity and nimbleness, Acculynk brilliantly created a simple, evolutionary solution that keeps step with consumer trends and makes for easy adoption by merchants.
In a significant way, this least-cost or ‘priority’ routing is accomplishing a chief goal of MCX – avoiding Visa and Master Card fees.
This priority routing is dynamic, creating the ability not just to least cost route, but also to prioritize qualitative and quantitative factors like higher transaction speeds, lower costs, and high approval rates. A far broader spectrum of merchants can now participate in this ‘democratization’ as they are more empowered with more choices, more business opportunities with their customers, and more profit to the bottom line.
“Merchants should take advantage of the ability to least cost route away from Visa and MasterCard to benefit their businesses while increasing competition in the debit payments processing industry,” says President & COO Nandan Sheth.
As more and more Millennial and GenX consumers use debit CNP, merchants can no longer ignore the priority routing opportunity for online debit transactions. An underscoring example is a merchant that recently implemented least-cost routing and achieved immediate savings of 15% upon going live. After a few months the merchant experienced 40% of signature debit volume convert to least-cost routing. This amounted to over $1 million annually in savings. “Customers typically see 20-30% in savings”, says Nandan Sheth.
Sometimes being smart and innovative means being elegantly simple and practical. Consider least-cost routing.