Tuesday, February 12, 2013
According to interviews with a number of payments industry executives, EMV's introduction into the U.S. market is proving technically more difficult than anticipated because of new federal regulations under the Durbin Amendment to the 2010 Dodd-Frank Act, which requires that merchants have a choice of at least two independent debit networks for processing debit transactions.
On Jan. 16, 2013, the Electronic Transactions Association called for the industry to adopt a single application identifier (AID) for EMV debit transactions. A debit AID is a number encoded on a debit card that identifies the card type and debit network(s) associated with the card. A chip on an EMV card could be loaded with the unique AID of the debit routing networks approved by the card's issuer, or the industry could adopt a common AID that allows the issuer to select or change networks without necessitating recalling and reissuing the card.
The Durbin Amendment isn't the only impediment to EMV adoption. At the AppsWorld North America conference in San Francisco on Feb. 7, ETA Chief Executive Officer Jason Oxman told The Green Sheet that the Visa Inc. and MasterCard Worldwide timetables for EMV implementation are "aggressive" and that the card brands didn't factor in the technical challenges EMV implementation would present when establishing their EMV road maps. He called on the card companies to adjust their timelines.
"We are behind already," Oxman said. "We need to get this common debit AID issue resolved, and resolved quickly. It would be a shame if the card companies faulted acquirers for failing to reach the check point in the road map when they are unable to meet that benchmark for lack of a single AID debit solution. The card networks need to be cognizant of our abilities."
Oxman said the acquirers' April deadline for EMV readiness can be missed without having significant impact on the U.S. EMV migration. The more important industry goal is to have EMV in place before liability for card counterfeit fraud shifts in October 2015 to merchants who are not EMV compliant. "To the extent there are check points along the way, the April deadline is not as important as the date for the liability shift," he said. "October 2015 … that's the date we are committed to working with card networks to meet."
In early 2013, at least four payment organizations offered separate common AID platforms to adopt for routing EMV debit transactions in the United States. These are Visa; MasterCard; the Secure Remote Payment Council (SRPc), an organization dedicated to the promotion of secure debit e-commerce and mobile payments; and the Shazam Network, a network providing electronic fund transfer services to financial institutions.
MasterCard said Jan. 18, 2013, it would make its Maestro debit network AID available to other U.S. debit networks and allow acquirers to brand transactions originating from the Maestro AID.
Visa reported Feb. 4, 2013, it would make some of its EMV chip technology available free, along with a generic, unbranded AID. Visa said its solution allows merchants to route EMV debit transactions in the same way mag stripe debit transactions are routed and allows issuers the ability to change debit networks without having to reissue cards.
The SRPc believes there is a danger in adopting either the Visa or MasterCard AID solution. "The EMV infrastructure is brand-specific at the card application level," the group said in a Jan. 31 press release advocating for the development of an independent common debit network AID for EMV. "This creates an environment which can erect significant barriers to entry."
The SRPc also believes the adoption of either of the card companies' platforms would harm competition. "The legislation requires that merchants have the ability to route payment transactions to networks," it stated. "However, with EMV, these alternative brands must have their own EMV applications on cards to participate." Building EMV applications is expensive and "of little or no benefit" especially in the case of prepaid or PIN debit cards, the SRPc added.
In addition, the SRPc objected to the notion of issuers requiring debit transactions to route to their networks first and then to alternative debit networks, calling this "an unreasonable requirement by many networks' standards."
The SRPc suggested the industry build, test and adopt an independent common U.S. debit AID platform. It said the process may take time to implement, but "adopting a long-term solution now is far better than quickly implementing a solution that may have numerous negative consequences for the industry. … The current deadlines were invented as competitive weapons to try to force unbalanced solutions."
Shazam Network released its EMV AID specifications to its industry partners Feb. 5. "We are fully committed to a common solution," Terry Dooley, Shazam Senior Vice President and Chief Information Officer, said. "A priority for us is working with all industry stakeholders on the enhancement of the terminal selection process to provide network choice at the time of the transaction."
Mansour Aaron Karimzadeh, Managing Director and Chief Technology Officer of the SCIL-EMV Academy, has overseen EMV and smart card payment processing implementation projects throughout the world. He pointed out that the U.S. market is distinct from the more than 200 countries where EMV has already been deployed.
"In most countries there is a single debit network, and the lines are owned by the bank and the issuer," he said. "There are 18 different debit networks in the U.S., and then there is the debit amendment to contend with." The American standard of competition is confusing and slowing the introduction of EMV here, Karimzadeh said. "The industry is at a standstill waiting to see what they do about debit routing before the issuers proceed with the EMV rollout," he stated.
The SCIL-EMV Academy said in a Jan. 31 press release that for EMV to work in the United States, it has to achieve interoperability, comply with issuer requirements, obey federal law and still allow routing flexibility. It believes the way to achieve this is to adopt a single existing common AID and decide whether to use unique or common values to identify routing choices. "These alternatives can be implemented in less time and at a lower cost than those that would likely be required for the creation, certification and distribution of a new U.S.-specific … application," the academy noted in a white paper issued Jan. 9.
It is a misconception that a card company debit AID on a card would automatically route transactions to networks affiliated with the payment network that owns the application, Karimzadeh said. He added that the routing path for an EMV debit transaction can be determined by the same bank identification number or card prefix, interchange categories or other methods employed with mag stripe cards.
Karimzadeh estimated it would take a year or more to develop a new U.S. debit AID, which would result in additional expenses and delays throughout the payments chain.
He also pointed out that any application adopted by the industry to route debit transactions has to be customized to match issuer security protocol. "The industry assumes it will use AID for routing debit transactions from cards," he said. "Currently this means if you want to give the merchant two different routing choices you need two different applications on the card. The problem is nobody uses the AID for routing anywhere in the world."
Oxman believes a solution may be close at hand because the ETA is working with Visa to modify the company's initial common debit AID platform. "We are encouraged by the Visa proposal to develop a solution in cooperation with the ETA," he said. "They have expressed a willingness to make modifications to their proposal to address the concerns of the ETA." Discussions are continuing regarding the Visa proposal, Oxman added.
He noted that the switch to the EMV protocol is "the biggest change in technology in the credit card industry in 40 years," and the industry should slow down implementation until it is sure it has developed the best EMV solutions for the United States.
"We shouldn't rush it," he said. "We should do it right. Nobody in the EMV value chain doesn't want this to happen. They want EMV to work. They just didn't contemplate the challenge of implementing the debit routing solution."
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