The Federal Reserve's clarification to Regulation II (Debit Card Interchange Fees and Routing) has opened up new possibilities for merchants in the United States. This update mandates all debit card issuers to enable two unaffiliated debit networks for each type of transaction, including card-present and card-not-present transactions. As a result, merchants now have more debit network routing options, allowing them to optimize their payment processing, reduce costs, and enhance customer experiences.
In this article, we will cover the steps merchants need to take for updating their current routing strategy and embracing the Reg II opportunity, particularly when it comes to card-not-present transactions. We will also delve into solutions that optimize debit network routing, ensuring seamless in-store, online, and mobile payments, while offering real-time reporting and analytics for transaction performance and trends.
Steps for optimizing debit network routing
1. Make sure you understand Reg II and its implications
Regulation II, the Federal Reserve’s regulation enforcing the Durbin Amendment, was introduced to regulate debit card interchange fees and network routing. With the recent clarification, it is now mandatory for all debit card issuers to offer two unaffiliated debit networks for each type of transaction, including card-not-present scenarios. This opens up opportunities for merchants to explore multiple routing options, leading to potential cost savings and improved approval rates.
2. Identify an end-to-end debit solution
When updating your routing strategy, look for a comprehensive end-to-end debit solution that caters to in-store, online, and mobile payments. An all-in-one solution streamlines your payment processing, ensures consistent customer experiences, and simplifies reporting and reconciliation.
WATCH NOW: How Reg II Can Impact Your Debit Strategy Webinar
3. Ensure you have access to reporting and analytics
The ability to track transaction performance and trends is crucial for making data-driven decisions. Access to timely information empowers merchants to optimize their routing choices further and identify areas for improvement in the payment process.
4. Check that your routing is supported on all major U.S. networks
Ensure that your chosen routing solution supports all major debit networks in the U.S. This flexibility enables you to reach a broader customer base and ensures seamless transactions regardless of the issuer's network.
5. Consider managed routing for cost reduction and increased approval rates
Managed routing solutions can lower costs and improve approval rates by automatically selecting the most cost-effective network for each transaction. Look for a provider that offers intelligent routing algorithms to optimize every payment.
6. Reconsider ROI for card-not-present transactions
With the updated Regulation II, merchants who previously decided against routing card-not-present transactions due to ROI concerns should reassess the numbers. The increase in ROI is likely to be significant, making it a favorable choice for payment processing.
7. Implement an optimized routing solution
If your business is already routing card-not-present transactions, explore an optimized solution that automatically adapts to new networks as more issuers start supporting card-not-present routing. This ensures continuous cost savings and efficient payment processing without major changes required on the merchant's end.
8. Ensure continued routing optimization
Look for a routing solution provider that offers ongoing improvements in routing optimization and strives to increase the volume of routable transactions. A dynamic routing engine ensures secure, cost-effective end-to-end debit solutions across all payment channels.
Seizing the opportunity with Reg II
The recent clarification to Regulation II has presented merchants with a valuable opportunity to optimize their debit network routing strategies, particularly for card-not-present transactions. By updating their routing strategy and selecting the right solution, merchants can streamline payment processing, reduce costs, and improve customer experiences.
When evaluating routing providers, merchants should prioritize end-to-end debit solutions, real-time reporting and analytics, support for all U.S. networks, and managed routing to increase approval rates and ROI. With the right tools and partners, merchants can fully leverage the Reg II opportunity and stay ahead in the ever-evolving payment landscape.
Connect with us today if your business would like to explore the benefits of a managed routing solution.
Note: Content is for educational purposes only. Consult with your Legal and Compliance department for your organization’s interpretation of Reg II.
