Friday, August 5, 2011
The exclusivity provision of the amendment demands every debit card have at least two processing options. McWilton said MasterCard now handles only 9 percent of the PIN debit transactions in the United States. He believes the company is positioned to acquire a much larger share of the market when merchants are given the routing choice starting Oct. 1, 2011. (Full debit card issuer compliance is required as of April 1, 2012.)
"It is not surprising large merchants are looking for incentives for routing preference," he said. "At the same time, acquirers for smaller merchants see themselves as directing routing to debit networks when there are multiple PIN marks on cards. They, too, are looking for incentives for routing.
"Issuers are looking to reduce cost complexity and the uncertainty of maintaining multiple PIN network functionality on their debit cards. They will need to decide whether to put one exclusive PIN mark on their cards or maintain multiple marks."
According to McWilton, the market response to the Durbin Amendment and, therefore, MasterCard's strategy in the new regulatory environment, remains uncertain.
"There are still a lot of moving pieces that need to play out," he noted. "Until these PIN mark decisions are made, it is difficult for anyone to predict what new PIN debit share shifts might occur among the networks. It is also tough to know how rebate and incentive decisions might shift until there is more clarity around routing decisions."
McWilton said MasterCard, with its small U.S. debit card market, is in a completely different competitive situation than companies with larger segments of the market. "Ours is one of potential upside, not the need to defend a large incumbent position," he said.
In addition, McWilton believes this will give MasterCard the opportunity to offer more "strategic, surgical" incentives for PIN enablement and network routing to merchants, issuers and acquirers.
"Our final pricing approach will be dependent on how much we win in the bulk of the card [market] and in what form – exclusive or multiple marks," McWilton said. "Therefore a deal-specific approach is needed to give us the flexibility to navigate all of the complexities." Citing competitive reasons, he did not elaborate on how this flexibility would be marketed and sold.
"PIN debit economics pre-Durbin were quite thin and will become even thinner after paying routing incentives," McWilton said. "As a result, volume growth rates will exceed revenue growth rates as the space unfolds. Lower revenue yield does not necessarily equal lower operating margins.
"Given the scalability of our network, we are able to process additional transactions at a very low, incremental cost. We will be strategic and selective when considering strategies where we are willing to pay enhanced economics for routing."
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