The Debit Routing Wars Are Heating Up — And Most Issuers Aren't Ready
Regulation II's debit routing requirements were designed to give merchants choice. A decade later, the battleground has shifted to card-not-present — and many issuers are still operating as if nothing changed.
Background: What Regulation II Actually Required
The Durbin Amendment — implemented through the Fed's Regulation II — did two things when it took effect in 2011. It capped debit interchange for large issuers. And it required that every debit transaction have access to at least two unaffiliated networks for routing purposes.
The second requirement got less attention at the time, but it's the one with compounding strategic implications. Merchants — or more precisely, their acquirers and payment processors — gained the right to choose which network carries a debit transaction. And for the past decade, the card-not-present environment has been a slow-motion dispute about what that right actually means in practice.
In October 2023, the Fed clarified: Regulation II's routing requirements apply to card-not-present transactions too. Issuers must enable at least one PIN debit network as an alternative to Visa or Mastercard for online transactions. The industry had been expecting this clarification. What many issuers underestimated was how quickly merchants and processors would move to exercise it.
Why This Matters for Interchange Revenue
Debit interchange on a Visa or Mastercard transaction runs differently than debit interchange on a PIN network like NYCE, Pulse, or Star. For regulated issuers (assets over $10B), the differential is constrained by the Durbin cap — but the routing decision still affects which network gets the transaction fee, and which relationships you're reinforcing with the networks.
For smaller issuers who are exempt from the Durbin cap, the stakes are higher. A merchant routing a card-not-present debit transaction to a PIN network rather than Visa or Mastercard isn't just a routing preference — it's a revenue difference. If your card-not-present volume shifts meaningfully to alternative networks, the interchange you modeled when you launched your debit program may no longer hold.
This isn't theoretical. Acquirers and large merchants have been actively configuring their systems to route to lower-cost networks where they have the choice. Issuers who haven't thought carefully about their network configurations are discovering this through their monthly settlement reports.
The Practical Problem: Card-Not-Present Enablement Is Not Automatic
Here's where many issuers are caught flat-footed: enabling a PIN debit network for card-not-present routing isn't just a switch you flip. It requires technical enablement on the network side, configuration in your card management system, and coordination with your processor. Not all of this has been handled uniformly.
Some issuers who believe they're compliant with the routing requirements have discovered gaps when merchants actually try to exercise routing choice and the transaction falls back to Visa or Mastercard because the alternative network isn't properly enabled for that transaction type.
If you haven't done a recent audit of your debit card-not-present enablement, that's the first place to start.
Network Strategy, Not Just Compliance
The issuers handling this well aren't treating it purely as a compliance exercise. They're thinking about it as network strategy: which relationships do they want to strengthen, what routing preferences do they want to encourage or discourage, and how does their network configuration interact with their overall card program economics?
That framing leads to different questions. Rather than asking "are we technically compliant," they're asking "where is our card-not-present debit volume routing today, why is it routing there, and is that the right answer for our program?"
The answers often require looking across your processor reporting, your network settlement data, and your interchange detail — none of which live in the same place by default. Building that visibility is the precondition for any strategic conversation about routing.
What to Do Now
For issuers who haven't recently reviewed their debit routing posture, the practical checklist looks like this:
First, confirm that your card-not-present transactions have at least two networks available and that both are properly enabled at the technical level — not just contractually committed.
Second, pull your routing data. Where is your card-not-present debit actually going? If it's concentrating on one network more than you'd expect, find out why.
Third, understand your interchange exposure. If routing shifts continue, how does your debit program economics change? Model the downside so you're not surprised by it.
Fourth, talk to your networks. Visa, Mastercard, and the PIN debit networks all have opinions about how you should route. Understanding their incentives helps you make decisions that serve your interests, not theirs.
The routing environment will continue to evolve. Merchants and processors are getting more sophisticated about exercising their routing rights, and the regulatory posture from the Fed suggests further scrutiny if compliance isn't demonstrably achieved. Issuers who treat this as a strategic issue rather than a compliance checkbox are going to be in a materially better position.