The loss of network routing control for debit card issuers, an effect of the Durbin Amendment, will have a deep impact on community financial institutions, according to a PayFusion debit expert.
In his newly released white paper, “Race to the Bottom: Debit Card Network Routing in a Post-Durbin World,” PayFusion CEO TJ Riha explores the consequences of the Federal Reserve’s new networking rules, including the shift of power for network routing control, infrastructure and capacity concerns.
Debit card issuers have always had control of which PIN network their cardholders’ transaction will route, but when the new rules take effect on Oct. 1, merchants will take control and determine on their own which PIN network they will use.
In his paper, Riha said the shift in power will have several important consequences.
“Sending transactions down the lowest cost route for the merchant could lead to lower average interchange, as well as additional expense or fees for the issuer when transactions do not follow their preferred network path,” Riha writes.
Riha provides suggestions for financial institutions, credit unions and community banks to help them prepare for the new regulations as well as for the April 1, 2012, deadline when all debit card issuers must have at least two unaffiliated networks.