For example, when customers insert a chip-based debit card into a new terminal, they may be offered only Visa’s network as the choice. Or they may see two options: “Visa debit” or “U.S. debit.” Since most consumers don’t know what “U.S. debit” is — it’s actually is a link to smaller networks like NYCE — they usually pick Visa.
Instead of being prompted to enter their PINs, shoppers are asked for a signature, and the merchant is charged from 1 percent to 2 percent per transaction when a card is issued by a smaller bank. About a third of all debit cards come from financial institutions with less than $10 billion in assets, whose fees aren’t capped under an amendment to the U.S. Dodd-Frank Act.
By contrast, most PIN-based debit-card transactions, such as those over the NYCE network, have average fees of about 25 cents — and slightly more for cards issued by smaller banks. Visa and MasterCard have PIN-based debit networks too, but many of the new terminals are set up to favor their more expensive signature systems.
The main issue is that under the amendment sponsored by Senator Richard Durbin of Illinois, an ally of the retail industry, merchants must be given at least two options for routing transactions. However, many processing companies and vendors haven’t upgraded their clients’ terminals with software designed to steer transactions to the least-expensive debit network. In many cases, the choice is preset, or it’s shoppers who are making the decision when they are prompted to choose a network.