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Table of Contents

Lead Story

IRS says no merchant fees for 1099-K reporting: Who's listening?


Industry Update

PCI SSC seeks focus group topic

Visa outlines post-Durbin strategy

Is biggest Durbin impact loss of routing control?

FiServe CEO says Durbin good for tech spending

ACI thwarting S1-Fundtech merger

Trade Association News


An interview with Kurt Strawhecker

Ken Musante
Eureka Payments LLC

Banks counseled to meet the underserved

Patti Murphy
ProScribes Inc.

Research Rundown

Mobile payments present new sales channel

Gene Distler
VeriFone Inc.

Antiquated thinking could doom mobile payments at the POS

Biff Matthews
CardWare International

The green advantage

Selling Prepaid

Prepaid in brief

Streit says Green Dot exempt from Durbin

Winning prepaid's PR battle with regulation


Checks: Like the Energizer Bunny, they just keep going

Patti Murphy
ProScribes Inc.


Street SmartsSM:
Why MLSs should attend tradeshows

Bill Pirtle
MPCT Publishing Co.

SAFE Data notification bill: Does it go far enough?

Nicholas Cucci
Network Merchants Inc.

Working your P-L-A-N

Dale S. Laszig
Castles Technology Co. Ltd.

Company Profile

Blueprint SMS

New Products

Cloud-based document printing hits college campuses

Heartland Campus Solutions WEPA program
Heartland Payment Systems Inc.

Stop identity theft and fraud in its tracks

IdentiFlo Management Platform
Electronic Verification Systems LLC


The art of venting


Can new regulatory burdens become a competitive advantage?



Resource Guide


A Bigger Thing

The Green Sheet Online Edition

August 22, 2011  •  Issue 11:08:02

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Is biggest Durbin impact loss of routing control?

A new white paper authored by PayFusion LLC Chief Executive Officer Thomas "TJ" Riha asserts the biggest impact for community financial institutions (FIs) of the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is not the cap on debit interchange fees but the loss of network routing control on debit transactions.

In his paper titled Race to the Bottom: Debit Card Network Routing in a Post-Durbin World, Riha describes the impact allowing merchants to make routing decisions will have on the payments industry.

"Unlike the routing provision's headline-grabbing counterpart (i.e. the interchange cap), which exempts most credit unions and community banks, the Fed's final rules on debit network routing apply to all debit card issuing FIs regardless of size," Riha wrote. "What this may mean for credit unions and community banks is that their interchange cap 'exemption' is actually a false freedom from the rules."

Debit routing

It used to be debit card issuers could route cards to the path of least cost and highest interchange fees, but those days are past, and problems lie ahead, Riha pointed out. Challenges ahead include determining the bottom of the network interchange rates and defining potential new PIN POS network infrastructure troubles.

Recently Visa Inc., the nation's largest issuer of debit cards, indicated it will lower processing costs for merchants in an effort to maintain customer loyalty in the new debit environment. Riha anticipated this reaction noting, "In order to maintain or gain market share, it is quite possible that ... networks may actually lower their interchange rates and/or merchant fees to attract merchant routing.

"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."

Predictions less certain

Riha believes the new rules make it more difficult for networks to manage their businesses. Pre-Durbin, networks could project infrastructure and capacity needs based on how many issuers were under contract, the number of cards in the network and projections of transaction volumes. Now the networks will also need to determine how many transactions will go down alternate, less preferred routes.

The CEO voiced other concerns, too. "The shift in control also leads to the risk that a network may not be prepared to handle the additional surge in volume when merchants begin to implement smart routing solutions," he wrote.

"If this scenario occurs, we are likely to see processing performance begin to suffer, leading to time-outs that may result in higher-risk stand-in processing or failed transactions. "In the post-Durbin world, it will be critical for the networks to work closely with the merchant community to understand merchants' routing preferences and forecast potential capacity," Riha wrote.

Riha also urged networks to begin working with FIs that have chosen alternate, unaffiliated networks as soon as possible.

"It will be critical to review your FI's average interchange income by network, as well as understanding both network fees and processor-related fees when your transactions route through one network versus the other," he wrote.

After this review is done it is just a matter of projecting the financial impact of routing using one network or another to estimate potential loss of interchange income or cost increases, Riha added.

He also said unknown factors will affect the direction of post-Durbin debit transaction processing. These include new network discounts for interchange and fee routing services, as well as the impact of the two-tier interchange system on smaller financial institutions competing for post-Durbin dollars.

For additional news stories, please visit and click on "Read the Entire Story" in the center column below the latest news story excerpt. This will take you to the full text of that story, followed by all other news stories posted online.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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Spotlight Innovators:

North American Bancard | USAePay | Board Studios