It sounds like mandating ISO 3166-2 for region would be the way to go (where applicable) - and null or empty string otherwise.
@aestes, @adrianba, @rsolomakhin, @mnoorenberghe... it's a fairly significant change to implementations, but it does resolve a potential huge mess for merchants who would otherwise get a bunch of different values (as @TSMatthews points out).
This is what browsers do now:
* Chrome: region is always a free-form text input field, right @rsolomakhin?
* Microsoft Wallet: provides a drop-down in certain cases (e.g., Australia and Canada)... but not in others (e.g., Argentina allows for free form input for province) and but doesn't follow ISO 3166-2.
* Safari/ApplePay: free-form input field.
* Firefox: plan was to make it text input.
If there is agreement that ISO 3166-2 is the way to go, then I can add this to https://github.com/w3c/payment-request/pull/654
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