Blog

Thoughts on the Durbin Amendment final rule

July 28, 2011 by Marc Borbas — VP, Marketing, INETCO

Are your transaction monitoring costs more than $0.007 per transaction?

In the final rule, the Fed backed off from a lot of the more "extreme" proposals (e.g. the 12 cent provision, the dual network routing option provision). In fact, the final rule pretty much splits the distance between issuers and merchants and provides a compromise solution.

As a Canadian who is used to zero percent interchange on debit, the pricing in the U.S. market still looks pretty good!

But in the space of fraud monitoring, they actually dug deeper and legislated more than I expected.

I think it's really interesting that the Fed has waded into this particular area of the transaction processing business. There was a lot of debate about fraud prevention costs, and fraud losses, and it's admirable that they've taken a concrete position in the final rules. It also highlights that there's a big difference between those who are really good at fraud monitoring, and those who just aren't as efficient.

Buried deep in the Durbin Amendment final rule, is an interesting number - the median cost of transaction monitoring is $0.007 per transaction. Even more interesting was the spread from the median cost ($0.007) to the 80th percentile cost ($0.012). That means some issuers are paying up to 70 percent more for transaction monitoring than the Fed thinks is "normal."

Why is there such variation? I think I know the answer. For some issuers (and processors), it's just harder to get at the transaction information you need to do effective monitoring. It's fragmented across multiple applications, accessed through different tools, and getting at it consumes a lot of expensive resources on your processing systems. So even if you have the same fraud monitoring software as the next guy, and paid the same price, you could be paying a lot more to feed it the right data.

For example, one of our customers has built scale in the processing business through acquisitions. With each acquisition came a customer base with unique requirements and a technology platform designed to serve them well. The result? Four different processing platforms, any (or all) of which can be exercised to authorize a transaction.

That means four different feeds to a fraud system, four different systems integration projects, four different load and capacity forecasting exercises...you get the idea. And you see how you could easily spend 70 percent more than the Fed thinks is "normal."

Fortunately, there's a better way. New business transaction monitoring technology can pull transaction information in real-time from multiple applications and feed it directly into your fraud systems, providing a complete view of every transaction and allowing you to turn off expensive extraction tools on your processing systems.

The median cost of transaction monitoring for INETCO customers is $0.00023 per transaction.

Business transaction management solutions are the "next generation" of application performance management tools, specifically designed to isolate issues affecting transaction performance - anywhere along a complex transaction path - in real-time.

About Marc Borbas

---

None