Payment network routing: Why it's important and how it impacts transaction revenue
Payment network routing is perhaps one of the most confusing aspects of card strategy development. Industry regulations such as the Durbin Amendment, as well as security concerns complicate the issue, and cause many financial institutions to maintain their status quo in payment network choice. Institutions that take a closer look at their payment network routing strategy will find that choosing one network over another can have a direct impact on portfolio revenue.
By definition, a payment network is the conduit between all aspects of a transaction, from the cardholder to the issuing bank and fund settlement. Transactions are routed via a network that both the card issuer and the merchant participate in.By definition, a payment network is the conduit between all aspects of a transaction, from the cardholder to the issuing bank and fund settlement. Transactions are routed via a network that both the card issuer and the merchant participate in.
The Durbin amendment requires that financial institutions use at least two unaffiliated POS payment networks and there are plenty to choose from including Interlink, Jeanie, Maestro NYCE, Pulse and Star. However, not all payment networks are the same. Some networks have participation and/or transaction strategies that are detrimental to an issuer’s POS interchange income. Additionally, POS interchange rates vary by network, with some being more economically favorable to merchants than financial institutions.
There are several factors to consider when choosing an ATM network such as transaction set, surcharge free alternatives and whether it serves your targeted geographic area. Evaluating all the ATM and POS network options and their varying benefits can take a lot of time and expertise that financial institutions don’t often have to spare. An alternative is to consult with a reputable payment processing company. Vantiv, for example, takes an unbiased approach to ensure the network routing solution you choose is right for your institution.
Worldpay developed, owns and controls the Jeanie Network™, the first online-shared ATM network with a nationwide acceptance. A majority of Worldpay’s financial institution clients use Jeanie, and it may also be the right option for your institution. Rather than offering a one-size-fits-all solution, we evaluate the needs of each financial institution, including their cardholders’ purchasing habits. This provides a better picture about the interchange rates that would favor both the institution and their cardholders, and the networks that make the most sense.
All payment networks transfer money from one point to another, but some are better suited to certain scenarios over others. With so many contributing factors to consider, it’s worth engaging your payment processing partner to help determine what networks will best drive transaction revenue to meet revenue goals. To learn more, read Payment Networks 101.