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Federal Register / Vol. 86, No. 91 / Thursday, May 13, 2021 / Proposed Rules Two types of payment card networks currently exist to process debit card transactions: Single-message networks and dual-message networks.12 Singlemessage networks, which developed from automated teller machine ATM
networks, typically authorize and clear a transaction through a single message and have traditionally processed transactions authenticated using a cardholders personal identification number PIN.13 Dual-message networks, which developed from credit card systems, typically authorize and clear a transaction through two separate messages and have traditionally processed signature-authenticated transactions.14
Over time, technological developments, spurred by competition among networks to improve their capabilities and increase their transaction volumes, have allowed both single-message and dual-message networks to evolve beyond their traditional methods of authentication.
Today, transactions over dual-message networks may no longer require signature authentication or may use PIN
authentication. Similarly, transactions over single-message networks may no longer require PIN authentication. In addition, some networks have developed capabilities that depart from their primary messaging approach.15
There are various combinations of dual-message and single-message networks that a debit card issuer could choose to enable on its debit cards.
However, the market has evolved such that, for card-present transactions, the vast majority of issuers choose to enable one dual-message network and one or more single-message networks on their cards. As a result, when a consumer and merchant interact in person, the typical debit card arrangement provides the merchant with multiple network configured its card terminal to enable cardholder choice.
12 Examples of dual-message and single-message networks can be found at https
www.federalreserve.gov/paymentsystems/regiiaverage-interchange-fee.htm. The message in a card payment involves various information related to the payment, such as the amount, the account information of the consumer and the merchant, the identities of their respective depository institutions, and the transaction environment that is, cardpresent or card-not-present.
13 Because of their historical reliance on PIN
authentication, single-message debit card networks were traditionally known as PIN debit networks.
14 Because of their historical reliance on signature authentication, dual-message debit card networks were traditionally known as signature debit networks.
15 For example, some traditionally dual-message networks can now process certain payments using a single message. Similarly, some traditionally single-message networks can use two messages to authorize and clear some transactions.

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options to route a transaction. For example, when a consumer performs an in-person debit card transaction at a grocery store, the grocer has a dualmessage network and at least one singlemessage network as options to process the transaction. Such arrangements generally comply with Regulation IIs prohibition on network exclusivity as long as at least two of those networks are unaffiliated. In that case, the grocer has at least two unaffiliated networks competing to attract its debit card transactions. Regulation IIs prohibition on routing restrictions further ensures that the grocer or its acquirer is able to choose among the available networks.
At the time Regulation II was adopted, for card-not-present transactions, the market had not developed solutions to broadly support multiple networks for each transaction. While dual-message networks had long been able to conduct card-not-present transactions, singlemessage networks had limited ability to process such transactions at that time.
In particular, as discussed previously, single-message networks primarily processed PIN-authenticated transactions, but methods of PIN
authentication for card-not-present transactions, such as PIN entry in an online setting, were not wellestablished. Because of this difficulty, along with the industry practice of enabling only one dual-message network on each debit card, card-notpresent transactions could often only be processed on that one dual-message network at the time Regulation II was promulgated. The Board explained, however, that it expected the market to develop solutions to facilitate the use of single-message networks for card-notpresent transactions in the years following the adoption of Regulation II.16
As the Board anticipated, in the decade since Regulation II was adopted, various innovations have emerged, and most single-message networks are now capable of processing card-not-present transactions.17 Data on network activity 16 Debit Card Interchange Fees and Routing;
Final Rule, 76 FR 43393, 43448 Jul. 20, 2011.
Specifically, the Board expressed the view that, by requiring two unaffiliated payment card networks for each debit card transaction and removing limitations on merchant routing choice, Regulation II would promote innovation to facilitate the use of single-message networks in additional retail environments, including for online purchases.
17 For example, as noted previously, many singlemessage networks no longer require PIN entry for some transactions, including card-not-present transactions and low-value card-present transactions. Industry participants sometimes refer to such transactions as PINless PIN transactions.
Technologies have also been developed to support PIN entry in different transaction environments, such as online purchases. However, the industry
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collected by the Board confirm that nearly all single-message debit card networks conducted card-not-present transactions in 2019. In contrast, fewer than half of single-message networks reported such activity when Regulation II was adopted in 2011.
Despite the widespread adoption of these innovations, the volume of cardnot-present transactions processed over single-message networks remains low.
In particular, data collected by the Board indicate that single-message networks processed only 6 percent of all card-not-present debit card transactions in 2019. The single-message networks low aggregate share of card-not-present transactions contrasts sharply with their share of card-present transactions, which exceeded 40 percent in 2019.18
Additional data collected by the Board and information from industry participants indicate that the low prevalence of card-not-present transactions over single-message networks may have occurred because issuers have not consistently enabled single-message networks for card-notpresent transactions. According to responses to the Boards survey of covered debit card issuers, issuers that accounted for approximately 50 percent of all debit card transactions and approximately 50 percent of all cardnot-present debit card transactions did not conduct any card-not-present transactions over single-message networks in 2019.19 Information from industry participants, including individual merchants, merchant trade associations, and representatives of single-message networks, corroborates that some issuers do not make singlemessage networks available to process card-not-present transactions on any of their cards, while some other issuers make single-message networks available to process card-not-present transactions only on a subset of their cards.
A failure by an issuer to enable at least one single-message network for card-not-present transactions, combined with the common industry approach of only enabling one dual-message network on each card, results in only one networkthe dual-message networkbeing available to process card-not-present transactions. In this situation, merchants do not have routing choice for such transactions. The Board views these practices by issuers with respect to card-not-present transactions as inconsistent with Regulation II
because they restrict the number of has not widely adopted those technologies for PIN
entry.
18 See 2019 Data Report.
19 See 2019 Data Report.

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