Merchant A and Merchant B Explain the Dilemma of EMV

The latest act in the Kabuki drama over exactly how to implement EMV in the U.S. has dragged on since October 2012. That’s when the Secure Remote Payment Council framed the issue that was on everyone’s mind: How to implement EMV in an equitable manner.

Five months later ten of the Pin Debit Networks followed up by adopting a common U.S. Debit Application Identifier, or AID.  Then nothing.

But just like an auction where no bids get placed till the clock ticks down to the final seconds, this week saw a flurry of activity as the prime-time players in the U.S. EMV implementation drama finally started getting down to formal proposals as implementation deadlines approach.

The first player to move was the SRPc. It proposed to the Big Brands, Visa and MasterCard, to begin discussions with SRPc and its Chip and PIN Working Group on an AID solution that points to an application that is owned and governed by all parties. For a discussion on the AID issue, scroll down to the prior post.

The SRPc proposal gets to the crux of the debate: Who will own the technology that will be used to route transactions in an EMV environment?

Understanding what AIDs are, the difference between AIDs and applications, and why this all makes such a difference may be hard to figure out. But to its credit, SRPc used a simple, but elegant, analogy to explain why the AID issue is hanging up this debate.  

Use of any proprietary AID, according to the SRPc analogy, is like walking through the door of Merchant A to buy something from Merchant B. That is, if the Pin Debit Networks buy into the use of any proprietary AID developed by Visa or MasterCard, they would subordinate themselves to that brand. 

The PDNs, working through their membership in the SRPc and their participation in the PIN and Chip workgroup, are essentially imploring the brands to work with them to create or enter into a compromise that would ensure the licenses used in permitting use of the underlying technology/application, whatever it is, turns out to be something they own in perpetuity.  In turn, this would create an equal and level playing field with fear of reprisal from any ‘owner’ of the technology ‘down the road when the licenses begin to expire.’

How did the Brands react? Visa seemed to take exception to the proposal. MasterCard’s response was, well, no response at all.  

The SPRc’s proposal is something that potentially removes a barrier from the discussions regarding the adoption of a Common U.S. Debit AID. It appears an equitable starting point in the final act of this drama. The next move belongs to the Brands.  

EMV-A Struggle to Find Consensus

The EMV Migration Forum issued a press release on July 2, following its most recent meeting in Chicago. The EMV Migration Forum is an industry group trying to provide guidance on the best way to implement EMV in the U.S.

EMV for the uninitiated is a security standard for debit cards thought to provide a higher level of protection against fraud than the current technology used for those cards. It is recognized in most industrialized countries with the exception of the U.S. and Israel.

While it sounds like a simple change, it’s actually extremely complicated because of the large number of stakeholders involved in the implementation process and the fact that many of them have competing interests.

According to the press release four of the mainstream payment industry participant groups (issuing banks, merchants, merchant acquiring processors and issuing processors) say they recommend a set of principles for implementing EMV PIN debit in the U.S. that would result in encoding a “single common U.S. debit payment application identifier (AID) on a debit card that represents each of the debit networks enabled on the card.” 

For U.S. PIN debit transactions initiated at POS and ATM devices in the U.S. this is a reasonable approach.  Where it would begin to break down is when consumers carry these cards issued by U.S. banks to Europe, Latin America or Asia where either POS or ATM routing will not include any of the debit network brands found in the US. 

Indeed, what do we find in Europe, Latin America or Asia?  MasterCard.  Visa.  American Express. 

U.S. retailers have expressed a desire for a single US debit application.  That is not the same thing as a single US debit AID.  The identifier is like a macro in Excel®, where the application is like Excel itself.  Here’s the kicker – the press release incorrectly states they want a single AID.  What they meant to say was they want a single application.  There will be multiple AIDs on PIN debit cards unless issuers all of a sudden decide to disallow their debit cards to be used outside of the US. 

Doubt that will happen. So the press release, rather than clarifying the issue, has added more confusion to an already confused situation.