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Three Things to Look for in Another PIN Network

By: Jim Ghiglieri

To comply with the Federal Reserve Board’s final rules governing debit interchange and network routing, some community banks need to make an important change — and fast. By April 1, 2012, all debit card issuers must have at least two unaffiliated card networks assigned to their debit card programs. The regulation is designed to provide merchants with a choice, as the final rules shifted network routing power to them.

When evaluating networks, consider three key areas: flexibility, additional services and, of course, cost.


The recent attention the payments industry has received is not the last we have seen of regulation to this area of the financial services business. The payments world is changing rapidly, and community banks must partner with networks capable of adapting. To that end, bank executives should understand, prior to signing a contract, exactly what the terms and conditions of that contract are and if there is room to negotiate.

For instance, does the network partner require the bank to sign a seven-year agreement? With the volatility of the industry today, a long-term commitment may not be in the bank’s best interests.

Banks should also get a feel for the network’s flexibility where other aspects of the partnership are concerned. Terms like branding requirements, for example, can have a sizable impact on a bank’s overall costs. Does the network mandate that banks add the network’s mark to all debit-card plastic? And if so, will the timing of that requirement necessitate a re-issue?

Additional Services

Networks are often referred to as “partners” for a reason. Given the right mix of expert staff, contract flexibility and an eye to the future, a network can not only provide a bank with the nuts and bolts of transactions routing and processing but it can also provide strategic guidance.

This is particularly important in the area of fraud prevention. Many network providers have developed fraud programs based on years of experience with shutting down fraudsters. They understand how these criminals think, what their likely next moves are and how to act quickly to minimize fraud losses.
Banks evaluating network partners should understand the “what else” these providers can add to a debit program. While fraud-prevention tools are a popular ancillary service, several networks also offer support in areas like loyalty or rewards programs, auditing assistance, marketing services, penetration testing and even merchant processing.

Also, a few of these network partners have begun to invest in next-generation payments technology. This allows banks to maintain significance to consumers as the way they transact changes. Mobile wallets, for example, are predicted to become much more pervasive over the next 12 months. Banks will need partners who can help them successfully navigate the resulting shift in consumer transaction behavior.

It will be important for banks to understand the additional services available as they may determine future enhancements to the debit portfolio. Bank executives should consider how some of these services may align with the bank’s strategic growth goals.


Pricing is likely to be the most important piece of the pie when evaluating additional networks, particularly for those banks not exempt from the debit interchange cap. However, it is vital that banks are able to make a true apples-to-apples comparison when examining proposals from different networks. It is not unusual for these documents to have varying line items. What one network may call a “switch fee,” another may call a “processing fee.” Some networks may separate these costs, while others may combine them. Additionally, one network may include national network fees; another may leave that cost off the proposal entirely.

It is also important to note that network proposals are estimates based on what is called a “blended interchange rate.” The blended rate is an estimate based on the average interchange paid to the issuer. Fortunately, banks can influence the accuracy of these estimates by bringing the details of their portfolios to the table. When requesting proposals, be as specific as possible, sharing things like how frequently its cardholders shop at big-box retailers vs. mom-and-pop establishments. This will help the network partner provide a more accurate estimate of the interchange the bank can expect. Ask specific questions about fees, as well; they definitely should understand which portion of the fee is their responsibility.

In talks with network partners, adopt the philosophy of “there are no dumb questions.” There are intricacies to the final rules that the industry is still working to comprehend. Network routing, for instance, is one area that is difficult to understand given the language of the regulations. Banks need to know how network partners have interpreted the rules and how that interpretation will impact the routing of their debit transactions and the resulting interchange they receive.

Of course, there are additional areas banks will want to take into account as they evaluate network partners. Acceptance, for instance, is important. If a particular provider fits a bank’s goals to a T, yet is not accepted as broadly as its portfolio requires, that bank will want to consider adding a supplemental network.

To start, however, concentrate on flexibility, additional services and price. This focused analysis will allow for a timely, well-informed decision — and one that achieves much more than simple compliance with the law.
Jim Ghiglieri is senior vice president corporate communications for SHAZAM. Contact him at jghigli(at)

Copyright (c) February 2012 by BankNews Media