Jul/Aug 2011 pulsationsThe Debit News MagazineSM Durbin Amendment Update Industry Responds to Fed’s Final Debit Card Rules fter a delay of more than two months, on June 29 the The final rules, known as Regulation II, incorporate some Federal Reserve Board released its final interchange, trans- significant adjustments to the proposal released by the FRB last Aaction routing and network exclusivity rules, as required by December – most notably, an increase in the regulated inter- the Durbin Amendment. Originally slated to be issued on April change cap from the $0.12 originally proposed to $0.21, plus an 21, 2011, the rules were delayed as Federal Reserve staff reviewed ad valorem component of 5 basis points (bps) of the transaction the more than 11,000 official comments it received on the pro- value to cover fraud losses. In addition, an interim final rule, when posed rules. implemented, will enable financial institutions that meet certain (continued on page 10) PULSE Participant Survey Financial institutions rate the network on transaction switching, fraud prevention, acceptance ULSE periodically commissions surveys of its financial institution participants through independent research firms to learn more about the challenges debit card issuers are facing, and to better understand participants’ satisfaction with PULSE Pproducts and services. Earlier this year, Analytica, Inc. conducted a survey of 160 PULSE participants representing a wide range of financial institution types, sizes and geographical locations. (continued on page 8) PULSE Platform The Impact of 2011 PULSE Upgrade Change on Fraud Conference: Page 4 Detection The Changing Page 5 Nature of the Debit Industry Page 6 VIEW FROM THE TOP Dear PULSE Participant, n June 29, 2011, the Federal Reserve Board issued its final rules for implementation of the Durbin Amendment, which became law as part of the Dodd-Frank Wall Street OReform and Consumer Protection Act. The final rules include significant adjustments to the proposal released by the FRB last December, as outlined in the lead story in this issue. Based on initial reaction to the Federal Reserve’s final debit interchange rules, it appears none of the stakeholders in this issue is happy with the regulation. Merchants are displeased that the regulated interchange rate is nearly twice the Fed’s original Dave Schneider proposal. Regulated issuers and networks are concerned that the rate is a substantial reduction to the current average interchange, and less than the 27 cents identified in a comment to the Fed by a group of eight banking and credit union associations as the actual cost of a debit transaction. Even “Regardless of the Board of Governors seemed dissatisfied when they cast their votes on the final rule on June 29. Governor Daniel Tarullo said, “I’m positive there are many merchants, issuers, consumers and how any of us networks which would want to change much of what has been proposed, just as some of us at the Board may want to do … [But] we have to act in accordance with the language of the statute.” feels about the Governor Sarah Bloom Raskin added, “I want to underscore my colleagues’ unease with this kind of regulatory intervention. Indeed, when a regulator has to intervene in a market to better align regulation, it’s a pricing with costs, that market must be working somehow less than competitively. We didn’t create this market. We didn’t craft the Durbin Amendment. We’re only doing what Congress has directed.” fact, and PULSE is Governor Elizabeth Duke voted against the rule altogether, her primary concern being the effectiveness of the small issuer exemption. here to help guide Regardless of how any of us feels about the regulation, it’s a fact, and PULSE is here to help you through the guide you through the changes that lie ahead. We have identified work we need to do as a network to comply. In particular, we will be making changes to our rules to ensure compliance with the regu- changes that lie lation’s requirement for merchant-directed routing. We also are working with issuers that have agreements with PULSE for PIN debit network exclusivity to design solutions that comply with the ahead.” new requirements. Finally, we will be implementing a pricing structure that reflects the regulated interchange rate for issuers subject to that regulation and utilizes the interchange exemption for small issuers. Further details about the network rules revisions and pricing changes have been communi- cated to network participants’ primary PULSE contacts. Please contact your PULSE account manager if you have any questions about the changes that are outlined in these communications. As always, thank you for your continued support of PULSE. Sincerely, Dave Schneider President All debit all the timeSM 2 PROFESSIONAL DEVELOPMENT On-Demand Chargeback Webinars Available, Fall eForum Scheduled ULSE participants looking for updates on current chargeback Insights & Solutions eForum issues and trends found an abundance when they attended PULSE will host its third eForum in October. This moderated, Pthe recent PULSE Debit Performance Webinar Series, interactive webcast will focus on current fraud trends and provide Understanding Chargebacks Results in Decreased Fraud. The webinars strategies to help mitigate loss. An opportunity for live Q&A will be were among PULSE’s highest rated in recent memory. To learn available throughout the webcast. Further details will be distributed more about these sessions, see the article on page 4. to network participants soon. All three webinars in the series are now available on-demand in the Professional Development section of the PULSE website. Both the archived recordings and printable presentations are accessible for Insights & Solutions replay or download at no charge. As with all PULSE webinars, these sessions can be used for in-house training at your institution to further develop employees’ knowledge of the payments industry. Connect with Us On-demand replays www.pulsenetwork.com/DPWS www.pulsenetwork.com/eForum Professional Development information www.pulsenetwork.com/pd [email protected] PULSE 30-Year Evolution: Value Through Innovation ore than 30 years ago, the New Payments Products founders of PULSE established Strategic Business Initiatives Ma network designed to serve the PULSE established as Regional ATM Switch 1981 best interests of the entire financial com- PULSE PAY® PIN POS Debit launched 1985 munity. This forward-thinking business Automated adjustment system 1988 approach resulted in the introduction of numerous products and services over PINless bill payment 1995 the years. Signature debit support 1996 1997 Acquired GulfNet Connect with Us 2001 Acquired Money Station PULSE Products & Services www.pulsenetwork.com/public/about.html 2002 Acquired TYME PULSE Durbin Amendment Resource Center In-house processing platform 2003 www.pulsenetwork.com/debitregs Stored value 2004 Discover Financial Services acquired PULSE 2005 China UnionPay acceptance JCB interchange agreement Discover® Debit signature debit 2006 LINK interchange agreement DebitProtect® fraud detection system Recurring PINless bill payment Perks Everyday® debit rewards 2007 2008 Discover Financial Services acquired Diners Club Intl PULSE Select® Surcharge-free ATM Network PULSE Global Cash Access Network 2009 PULSE® Internet PIN Debit BC Card (South Korea) interchange agreement PULSE PAY® Choice 2010 DinaCard (Serbia) agreement 2011 3 p u l s e n e t w o r k . c o m PULSE Completes Major Platform Upgrade ULSE completed a significant upgrade minor but important changes before all of its processing platform in May. The processors were moved on May 16. When Pnetwork transitioned its online switch the day came, all processors were transi- transaction processing environment to new tioned to the new environment in a very Blade servers at the Riverwoods and Ohio short time frame, with 94 percent of con- data centers, and built a state-of-the-art nections being restored within 12 minutes. testing and development platform. This was an enormous technological These new platforms represent a achievement. considerable investment in supporting the PULSE has a number of other major future growth of PULSE and its participants. They enable the technology projects under way, including an integrated process- network to deliver improved transaction processing performance, ing platform. This project includes new data warehouse/analytics, as well as significantly increased processing capacity. fee billing, settlement and dispute processing platforms, which “The transition was a success, due not only to the efforts of will be implemented in stages over the next few years. These sys- many employees but also to the cooperation and assistance of tems will provide network participants with a more informative network processors,” said Tony Zeis, PULSE Senior Vice President presentation of the data they receive from PULSE today, as well as of Switch Services. “Countless hours were spent preparing for and enhanced visibility into the details of their PULSE participation. completing the migration, and it paid off.” These technology investments – which participants will hear A “dress rehearsal” was conducted beforehand with four more about in the coming months – will give PULSE the flexibility processors, allowing us to test our migration protocol and make to provide a wide variety of future service enhancements. Understanding Chargebacks = Decreased Fraud 2011 PULSE Debit Performance Webinar Series Gives Solid Pointers he PULSE Professional Development provided a detailed update of Visa and Part 3: Manage and Measure Program is designed to provide our MasterCard reason codes, including The third installment of the series T network participants with guidance new international codes. concentrated on the value of tightening and insights they can use daily, as well as The presenters emphasized the up back-office management and tracking in developing long-term strategies. importance of documentation, as well as fraud metrics, as well as the latest trends “When we talk to our participants resisting “tunnel vision” for the top four in data breaches. While studies show a about where they need support, the reason categories in use.