On October 3, 2022, the Federal Reserve Board adopted a final rule that clarifies Regulation II (Reg II). The rule, which applies to card-not-present (CNP) transactions, clarifies that each debit card must be enabled to be processed on at least two unaffiliated payment card networks. The final rule will be effective July 1, 2023.
PULSE® has made the necessary investments to help issuers, merchants and partners comply with this rule. The PULSE network currently supports both card-present and CNP transactions in all merchant categories.
Federal Reserve seeks to encourage competition in CNP debit
When the Board initially issued Reg II in July 2011, the market had not yet developed solutions to broadly support multiple networks for CNP debit transactions. Since that time, technology and networks have evolved to address these barriers. However, not all debit card issuers have enabled at least two unaffiliated networks for merchants to choose between when routing CNP transactions. This issue has become increasingly pronounced because of continued growth in online payments.
“We have always championed choice, competition and a level playing field in debit. We positioned our network for the shift to digital commerce prior to the pandemic, which enabled us to ‘meet the moment’ when CNP volume growth accelerated.”
Dave Schneider, President of PULSE
The Fed’s final rule will encourage competition among networks for CNP debit transactions. Input received by the Board in connection with its proposed Reg II clarification suggested that many debit issuers, and especially most community bank issuers, are already compliant with the final rule.
“The Fed expressed the view that the vast majority of issuers already support network choice for the full suite of debit transactions, which is consistent with our experience,” said Dave Schneider, President of PULSE. “Issuers participating in PULSE’s CNP transactions are already compliant.”
PULSE invested early in expanded network capabilities
PULSE believes that issuers, merchants and the broader payments industry benefit from transparency, choice and fair competition in payments. As the payments industry has transformed over the past decade – driven by consumer demand for convenient, frictionless payments – PULSE has also transformed.
More than a decade ago, PULSE set a goal of enabling its network to switch and settle all debit transaction types. The network implemented a series of enhancements that enabled broader transaction capabilities. These included:
- Enabling PINless, dual-message and CNP transactions
- Enhancing e-commerce capabilities with chargeback and dispute rights, as well as support for all merchant categories and ticket sizes, split shipments, incremental authorizations and settlement over the authorized amount
- Significantly expanding issuer and merchant support for routing these transactions to PULSE.
PULSE also invested in its infrastructure, launching new fraud management and disputes platforms and enhancing its settlement platform. The network also implemented an updated fraud model to enhance CNP fraud detection and added the ability to deliver the DebitProtect® fraud score to issuers in the online transaction message. Both enhancements strengthen issuers’ ability to support growing CNP volume.
Looking forward, PULSE is developing a debit network token service that will support “side-by-side” tokens. This solution will provide merchant-routing choice for card-on-file tokenized transactions. Further details will be made available in 2023.
Choice and competition are in PULSE’s DNA
“We have always championed choice, competition and a level playing field in debit,” said Schneider. “We positioned our network for the shift to digital commerce prior to the pandemic, which enabled us to ‘meet the moment’ when CNP volume growth accelerated.”
With these capabilities in place, PULSE is ready to support issuers, merchants and processors in fully complying with Reg II, including the Fed’s recent clarification.
To learn more about the Reg II clarification and other related developments, connect with your PULSE Account Executive, or a PULSE debit expert.