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Adyen NV early Monday began launching what its calls an intelligent-routing service for debit cards intended to reduce merchants’ debit-acceptance costs and increase authorizations for purchases.
The service, which enables Adyen to choose which network to route transactions over, was developed primarily in response to the Federal Reserve’s 2023 statement reinforcing the mandate that all debit cards issued in the United States carry the brands of least two unaffiliated networks.
The Federal Reserve’s decision came as a part of an amendment to Regulation II, also known as the Durbin Amendment, which caps interchange fees charged by debit card issuers. Late last year, the Federal Reserve’s Board of Governors announced it would revisit the debit fee cap
During Adyen’s recently concluded pilot with 20 large merchants, including eBay Inc. and fitness chain 24 Hour Fitness USA LLC, participating merchants saw acceptance costs decline by 26% and authorization rates increase 0.22%, on average.
To determine which network to route a debit transaction, Adyen uses artificial intelligence, which weighs global and local data, to select the lowest-cost network that will yield the highest authorization rate. Merchants can use Adyen’s routing service for in-store and e-commerce transactions. No additional coding is required by merchants to implement the service.
“Looking at the short and long term, payment data is going to be a key differentiator to make businesses optimize their revenue streams, not only by reducing cost of payments but by actually making payments become a key revenue driver for businesses,” Trevor Nies, senior vice president, and global head of digital at Adyen, says by email.
Another factor fueling the development of the new service is the increased use of debit cards. During 2023, about one-third of all payments were made using debit cards, according to the Federal Reserve’s annual Diary of Consumer Payment Choice report. In addition, data from Adyen’s platform, which excludes cash as a payment method, revealed that debit transactions accounted for 58% of all U.S. transactions in June.
“Competition between networks leads to lower costs for businesses, but also increased complexity, and an opportunity to optimize for higher performance as well as cost,” Nies adds. “We’re also in a time where business leaders are facing pressure to increase efficiency due to challenging operating circumstances, from supply-chain challenges to high inflation. Effective implementation of payments technology that enables organizations to boost revenue and cut costs is especially important now.”
