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The Value of Card Not Present Debit Routing for Insurers (Regulation II Update)


  • Global advisory firm CMSPI estimates that U.S. merchants have been able to achieve over $1 billion in annual cost savings as a result of debit routing.
  • By effectively leveraging PINless routing optimization, insurers can offset interchange costs and garner additional value.

Recently, the Federal Reserve updated a debit card processing rule (Regulation II) to reinforce its requirement that multiple payment networks be available for routing debit transactions, including those that involve e-commerce. Why was this necessary, and how does it impact insurers? Let’s take a deeper look.

What is Regulation II - the 'Durbin Amendment'?

Regulation II (Debit Card Interchange Fees and Routing Rule), or the ‘Durbin Amendment’ was enacted in 2011 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.1

It has 2 important components:

  1. It caps the interchange fees that debit card issuers (i.e., banks and credit unions) can charge merchants.
  2. It has a No Network Exclusivity (NNE) clause that requires debit card issuers to provide at least two unaffiliated payment networks for merchants to use when processing debit card transactions, essentially preventing network exclusivity.

What are Payment Networks?

Payment networks are the financial organizations that facilitate card-based payment transactions between card issuing banks and recipient businesses (merchants). They provide the infrastructure necessary for digital payment transactions and enable payment acceptance, verification, and approval. In the U.S., we have the major credit networks managed by Visa, Mastercard, American Express, and Discover, as well as the domestic debit networks that include Visa’s Interlink, Mastercard’s Maestro, Fiserv’s Accel and STAR, FIS’s NYCE, and Discover’s Pulse.2

What are Interchange Fees?

Interchange fees (sometimes referred to as ‘swipe fees’) are part of the overall fee structure charged by merchant services providers for processing credit and debit card transactions. While interchange fees are collected by merchant services providers, these providers don’t keep this money. The interchange fee portion is passed back to the bank that issued the customer’s card – the “interchange” activity taking place behind the scenes.3

What Interchange Fee Limits Did the Durbin Amendment impose?

The Durbin Amendment requires that the interchange fees received by large issuers be capped at 21 cents plus 0.05% of the transaction. The Federal Reserve allowed an upward adjustment of no more than $0.01 to be applied should the issuer provide fraud prevention functionality.4 According to the rule, these issuing banks must charge debit card interchange fees that are ‘reasonable and proportional to the actual cost’ of processing the transaction. Institutions with less than $10 billion in assets are exempt.

Why was Regulation II (Durbin Amendment) Enacted?

Regulation II (Durbin Amendment) was enacted to allow merchants to route PIN debit transactions (in-person transactions) and PINless debit transactions (online/e-commerce transactions) to the least-cost network in order to both reduce costs and increase competition between card networks (‘debit routing’). With Least Cost Routing (LCR), the payment service provider may quickly conduct an analysis of the transaction’s unique details to determine which network will actually net the lowest processing cost for the merchant. As a result of debit routing, global advisory firm CMSPI estimates that merchants and consumers have been able to achieve over $1 billion in annual cost savings.5

The Increase in Debit Cards, E-Commerce, and the Regulation II Clarification

When Regulation II was initially issued in 2011, the market had not yet developed solutions to widely support multiple networks for card-not-present (i.e., online) debit card transactions. As a result, many debit card issuers never enabled support for multiple debit processing networks for e-commerce transactions. This means many debit card transactions made online have been authorized without a second network available to compete for that transaction, with nothing preventing issuers from maximizing interchange fee opportunities.

In the years since, the pandemic, the increase in next-gen technologies, and the growth of more digitally native populations have all greatly impacted the rise of digital payments. Per Visa, worldwide e-commerce sales grew a staggering 27.6% in 2020.6 And 82% of Americans used some form of digital payment in 2021.7 Non-prepaid debit cards increased the most of all card types that same year, reaching 87.8 billion payments – approximately 56% of all card payments.8  

The Federal Reserve estimated the total U.S. e-commerce sales in 2011 to be $194.3 billion, accounting for 4.6% of total sales at the time.9 In contrast, the estimate for e-commerce sales for the second quarter of 2023 alone is at $277.6 billion, accounting for 15.4% of total sales.10 With this significant growth in online payments, it became clear the Federal Reserve needed to act. Effective July 1, 2023, Regulation II was updated to reinforce that debit card issuers need to enable at least two payment card networks to process all debit card transactions, including card-not-present (CNP) debit card transactions.11

The Evolution of PINless Debit Networks, PINless Optimization and Insurer Value

Domestic debit networks – such as Star, Pulse, Accel, and NYCE – historically used PIN verification. This limited their growth possibilities since entering a PIN didn’t enable the speed desired in e-commerce. To address this barrier, these debit networks (apart from Visa’s own local network, Interlink) developed technical capabilities to enable PINless transactions and drive more network competition. But PINless optimization is complex and involves the capabilities and expertise of many players. Payment service providers with several debit network connections can potentially save merchants even more on interchange fees. These providers have the infrastructure necessary to support broader coverage, and they can still rapidly deduce and select the lowest-cost option when comparing networks.

PINless Routing Insight, Payment Optimization and One Inc

At One Inc, we routinely track PINLess debit activity and monitor PINLess debit networks. Since the October 2022 Federal Reserve announcement of the Regulation II clarification (effective July 1, 2023), One Inc has observed a marked rise in our PINless debit network volume, as insurers prepared for the regulatory update.

Although the effective date imposed by Regulation II was July 1 of this year, our data suggests many issuers began rolling out changes starting in March. We observed a 5.2% bump in PINless debit volume between March and April. Since then, the growth has been exponential.

Between February and September of this year, we’ve seen a 50% increase in the number of debit transactions routed to STAR, NYCE, and Pulse (PINless networks). And issuers aren’t done yet. Although July 1 has come and gone, many are still catching up with the regulation. This will create a long-tail effect of continued growth in opportunity to leverage PINless debit networks, as more issuers enable support for these networks week-over-week.

Payment optimization is a nuanced and complex undertaking. It is therefore critical for insurers to partner with a payments provider proficient in running debit card payments through the card networks. By effectively leveraging PINless routing optimization, insurers can offset interchange costs and garner additional value.

One Inc is here to help insurers improve the payment experience, increase cost savings, and drive payment optimization. Get in touch.



  1. https://www.govinfo.gov/content/pkg/FR-2011-07-20/pdf/2011-16861.pdf
  2. https://www.redbridgedta.com/us/market-intelligence/visa-pin-pinless-debit-for-merchants/
  3. https://www.forbes.com/advisor/business/interchange-fees/
  4. https://www.cardfellow.com/blog/pin-debit-vs-signature-debit/
  5. https://cmspi.com/card-not-present-routing-the-3-billion-opportunity-for-merchants/
  6. https://navigate.visa.com/na/money-movement/why-2021-is-set-to-be-the-year-of-the-token/
  7. https://www.mckinsey.com/industries/financial-services/our-insights/banking-matters/new-trends-in-us-consumer-digital-payments
  8. https://www.federalreserve.gov/paymentsystems/fr-payments-study.htm
  9. https://www2.census.gov/retail/releases/historical/ecomm/11q4.pdf
  10. https://www.census.gov/retail/ecommerce.html
  11. https://www.federalreserve.gov/newsevents/pressreleases/bcreg20221003a.htm

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