Launching EMV in the U.S.

The EMV Migration Forum (EMV) held its quarterly meeting last week in Dallas. One hot topic was a launch project for EMV in the U.S, or USEMV. Target date: fourth quarter 2014.

This working committee has targeted Orlando for the launch USEMV. But the committee is a little like the dog that finally caught the car.  It’s gotten to the point of launch. But what do they do now?  

EMF has been diligent in trying to bring together multiple disparate forces to launch EMV in the U.S. It’s already lined up a number of these participants for the Orlando kick-off. These companies are already reviewing and editing a draft memorandum of understanding they would all use in the launch of USEMV in Orlando.

Theese participants include acquiring processors, issuing banks, the Big Brands (all of them), card manufacturers, regional debit networks and merchants. 

Somehow one key stakeholder, Ma and Pa Cardholder, missed their invitation. But we’ll get to that.

There’s no doubt that the EMF has worked hard just to get to this point.  But now like that dog staring up at the rear bumper, EMF faces some critical decisions. These begin with getting its arms around just how big a task it has on its hands.  The decision coming out of Dallas on how to do that is to build a Project Management Office.

I’ll cop to the fact that project management will be critical to ensuring that EMV doesn’t end up in the recycle bin next to the playbook for metric system adoption. EMF realized that once EMV is injected into the U.S. payment ecosystem it will touch every aspect of that ecosystem. How we pay for groceries at the supermarket. How we check our balance at an ATM. And eventually, how we buy that pair of killer shoes at zappos.com.

Which brings us back to Ma and Pa Cardholder.  The consumer educational issues alone could sink this project.  We’ll know we’re in trouble when Ma steps up to the teller line in her bank and tells the clerk her card hasn’t worked since she picked that ugly gold foil off the front.

So consumer education could be a project in and of itself. And getting legal clearance for an MOU from legal departments at multiple, disparate companies could be its own project. Then there is the mission, the project charter and probably the most important task—the budget. As my first CFO in this business reminded me, everything in this business—fortunately or unfortunately—comes down to money.

This all goes beyond a PMO. USEMV will require a lot more than that. A project of this scope needs oversight of the whole field, an ability to anticipate when and where problems will occur, and the acuity to adjust as circumstances are breaking down. That’s a lot different than checking off tasks on a project plan.

So try this on: running such an initiative may represent an opportunity for the not- profits and associations that track and cater to the payments industry. To date, there has been overriding business case for most of the players in EMV. So a non-profit or association will walk into this role without unrealistic expectations. But the result of dedicated project leadership will be a body of knowledge that will be necessary for moving forward from market to market in order to make EMV a reality in the U.S. That education will benefit everyone in this industry. And isn’t that why these associations exist?

Now, if Pa can only figure out what Ma wants those killer pumps for…

How Will Discover's Membership in EMVCo. Affect EMV Migration in the U.S.?

Recently we reached the latest milestone on the yellow brick road to USEMV implementation.  On September 3 Discover announced that it had taken an equity stake in EMVCo.  For the uninitiated EMVCo. is the international entity that administers the standards for EMV. This is important because now all four of the major brands marketing payment cards in the U.S.—MasterCard, Visa, American Express and now Discover—have seats at the table where the EMV rules get made.  Sort of like a Justice League of payment brand superheroes.  

Although Discover joining EMVCo. didn’t get a lot of attention at the time, it really is a significant development for USEMV implementation. Astounding, really.  

Why? Consider the eight month-long effort by the Secure Remote Payments Council to keep the PIN Debit Networks relevant after EMV is implemented in the U.S. Those are largely documented below in previous posts. The anticipated launch of SRPc’s CommonCo later this month is the most recent move in this direction. CommonCo’s development was spurred by the agreement between PDNs to get behind a common debit application for EMV.   

Do you want to guess who spurred this effort? How about the newest caped crusader sitting around the Justice League payments table?

 So now we have a PDN owner with equity in EMVCo.  Where do we think this might lead?

 Pulse, the network owned by Discover, has been one of the most outspoken PDN voices since it became apparent about eight months ago that there might not be a big play for PDNs in EMV.  Since then Pulse has worked closely with its owner to ensure an application for EMV would include the PDNs as an alternative routing network in compliance with Regulation II of the Dodd Frank Act. 

Pulse was influential in the development of CommonCo and is a leading voice at the SRPc meetings where CommonCo’s rules are being written.  And their egalitarian approach  stands in stark contrast with the game of shadows being played by the Big Brands.

The question remains whether Pulse and Discover have done all they can do to ensure their card-issuing bank customers continue to see the value that PDNs bring to the payments industry. 

Of course, before that happens, the industry has to survive the uncertainty caused by Federal Judge Richard Leon and his ill-timed decision throw out two years of Solomonic  work by Federal Reserve Board analysts to set equitable debit interchange rates. I might lecture here about what happens when the government tries to fix prices, but that’s a post for another day.

The EMV Forum has a scheduled meeting next week in Dallas. The elevation of Discover to EMVCo. should help liven things up in the cocktail lounge. With the Brands migrating their strategy to behind closed door sessions, it looks like they may have inadvertently left a door open that could permit SRPc and CommonCo to lobby card issuers at a time when they should be making decisions about routing debit in a post-USEMV market. 

Word has it that some of the Brands’ reps are not planning on being in Dallas for the EMF meeting. That should calm the waters a little. Maybe EMF could get Judge Leon to come speak on what he was thinking when he issued his decision. That would liven the place up.

It's Time to Move Forward with an EMV Debit Solution

It’s becoming clearer that the EMV Forum’s Debit Working Committee is struggling to maintain the momentum it built on the back of the double debit debacle caused by, first, Senator Durbin’s eponymous Amendment, and now, Judge Richard Leon’s Federal Reserve Board interchange interdiction.

  The Big Brands, Visa and MasterCard, continue to give the industry the silent treatment when it comes to questions about their proposed EMV debit application solutions and which might be issuer-worthy.  Their cover for going dark is the uncertainty caused by Judge Leon’s ruling and the FRB’s appeal.  This could go on for a year, maybe more. If it does, what do the PIN debit issuers do for EMV while they wait out the appeal process?

The payments industry has always functioned with a degree of uncertainty.  That uncertainty is managed by risk controls that consider the alternatives and then build solutions accordingly.  But in the case of EMV, that uncertainty is providing the Brands with deep cover against any unwanted scrutiny by the people outside of the Brands’ inner circles.  So we wait.  Until when?  Note that EMF Debit Working Committee meeting normally scheduled for Tuesdays was repeatedly canceled during July and August. Tough to have a conversation when one side won’t talk.

The waiting game is good for relationships, maybe.  It’s like surprises, which are good for our kids, our mates and our courtships.  But it has no place in business. 

 

Business abhors inertia. And surprises. We plan. 

We consider the possible alternative outcomes, assign probabilities to those outcomes and calculate the ‘expected value’ for any given outcome or situation.  So why is that not happening now?  Indeed, is this a case of ‘any port in the storm?’  Are the Brands rethinking their involvement in EMF?  What did they think they had to gain by joining an industry working group in the first place?

The Debit Working Committee of the EMF is soliciting agenda items for the September 17 and 18 EMF meetings in Dallas.  The Tag Group will present their proposed solution but is refusing to put that solution in writing until the Leon dust settles.  At least we’ll know what their proposal is and hopefully, be given the tools to know whether it’s something issuers can live. 

And the AID issue?  It will remain unknown at least until mid-September.  Of course, at that point in time, we’ll be two weeks away from the formation of CommonCo.  And launch of that entity should lead to a comparison of the AID solutions being proposed by SRPc, Visa and MasterCard. 

We’ve submitted an agenda item for the September meetings – to allocate time for the technology providers to show everyone the value their solutions bring to the industry.  We hope Debit Working Committee accepts this agenda item for the Texas meeting.

Time’s running out. As they say down in Texas, time to git all the liars ‘round one table…

The Price of Silence and What About that Business Case?

As you may recall from the previous post, Visa and MasterCard on July 30 made a joint announcement of their intention to co-license their PIN debit routing application technology.

 So what’s happened since then? The answer is more like what hasn’t happened. Two weeks of meetings of the Debit Working Group of the EMVMigration Forum were canceled since the Brands made their big announcement.  Coincidence?  Something more nefarious?  Something in between? 

The next working group meeting is scheduled for Tuesday, August 20. So far this meeting is still on track.

Part of the industry silence that has greeted the Brands’ co-licensing announcement may be technical. The entity proposed to manage a common application ID among the Pin Debit Networks, dubbed CommonCo, is not yet up and running. The timetable for that is late September.  That has left a void with no one to speak to the Brands’ joint release on behalf of the PIN debit networks.

The issuers have to be thinking about this.

In the meantime, while the reaction to the Brands’ co-licensing agreement has been muted, there has been plenty of talk about the business case for EMV.  We posted about this several weeks ago.

American Airlines went on the record at a recent EMV Migration Forum meeting to explain why it doesn’t see a need to move to EMV.  According to American, most of its sales are online in an e-commerce setting.  This means they could potentially be exposed to card-not-present (CNP) fraud.  But they’re not even worried about that.

 Indeed, at the CNP Working Committee meeting held earlier this month there was a good deal of talk about how to prevent CNP fraud from escalating once we move the physical POS to EMV. But American expressed some doubt whether they’d have any increase in CNP fraud.

Why?  Because someone buying an airline ticket can’t even get past security to board a flight unless the TSA knows who they are.  And the TSA has nothing to do with EMV.  Indeed, why do any of the airlines need to worry about the liability-shift dates when their customers are forced by the federal government to disclose who they are before they can buy anything or get past security to board a flight?  Answer: They don’t.

Nevertheless, airlines serve people from all over the world and currently the airline countertop infrastructure can only handle mag-stripe transactions. So the airlines will likely make this shift just to ensure worldwide interoperability for payment technology.  (In point of fact, Citibank offers an American Advantage EMV-compliant card for its global travelers.)

Passenger air travel is a high volume, low margin business. It's easy to see EMV as a non-essential expense the airlines will take on reluctantly. We have to wonder how many companies in other merchant categories think the same way.

And whither the Debit Working Committee? We’ll update you next post. 

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.