Evan Schuman's StorefrontBacktalk

Where there is a choice, it just keeps getting more complicated. Card issuers and networks are explicitly barred by the Fed rules from doing anything to force retailers to choose one particular network or to punish retailers if they choose a competing network. However, networks are explicitly allowed to offer “payments or other incentives to encourage the merchant to route electronic debit-card transactions to the network for processing.” Issuers can also specify a default network to use if a merchant or processor doesn’t want to make a choice.

For retailers that want to minimize interchange fees, all that’s left to do is keep track of every different card’s combination of networks and what the current interchange terms are for them, and then choose the cheapest network for the transaction as soon as the card is swiped. Yeah, that should be easy.

Building a secure system to identify what category of card the transaction is using, based on the card number? Expensive and a whole new can of worms for PCI, because it will require handling the unencrypted card number. Paying for a service to keep the card-type database updated, so it will actually pick the cheapest network for each transaction? An ongoing expense, and it won’t be cheap.

It probably makes more sense for that pick-the-network system to reside at your processor. Then you’re dodging the potential PCI issues but still paying an extra fee for finding the cheapest way to process the card. You’re also giving up any sort of fine-tuned control of the process. In addition, it means every transaction will take just a little longer, and jumping among networks could break (or at least complicate) some existing security measures such as tokenization.

That’s without any guarantee there will be noticeable competition based on interchange fees. Card issuers aren’t required to pick their networks for each card until April 1, 2012. And remember, they’re the ones who pick the competing networks, and they’re also the ones who get much of the interchange money. How likely will they be to pick networks that have deeply cut interchange rates?

So will trying to squeeze every last nickel out of interchange fees be worth it? It’s likely to be costly and risky (when it comes to PCI), and the payoff is largely theoretical. Starting on the project early—before you know for sure whether there will be any advantage at all to being picky about payment networks—means your ROI calculation will be even more of a crapshoot than usual.

But good luck explaining that to your CFO.