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…

Where Are the Issuers on EMV?

Well, the Big Brands made their long awaited move.

Last week we talked about the Kabuki drama that is EMV implementation in the U.S. The Secure Remote Payment Council made the first move with a proposal that would ensure a role for PIN Debit Networks in the brave new world of EMV debit payments. We asked you “stay tuned.”  Recall, SRPc had issued a proposal to MasterCard and Visa asking them to consider a compromise in terms of licensing agreements and ownership rights to the application technology the issuers would install for their PIN and signature debit programs. 

As it turns out, the PIN debit networks and SRPc didn’t have to wait long for the Brands' move.

On July 30, 2013, Visa and MasterCard issued a press release that essentially renders the SRPc proposal moot.  The Brands reached a compromise on their own, exclusive of any arrangement with SRPc and D-PAS (Discover’s payment application), which would have allowed for the routing of debit transactions through the PDNs.

This was a jointly issued press release announcing an agreement between just Visa and MasterCard to license each other’s respective common U.S. debit solutions “to meet the industry need for a streamlined approach to route U.S. chip debit transactions over multiple, unaffiliated networks,” according to the release.

But what about Regulation II of the Dodd-Frank Act? The Act’s so called Durbin Amendment requires that merchants have a routing choice of between at least two unaffiliated networks. Let’s look at those words “unaffiliated networks.”  The unaffiliated networks have to be associated with a use case.  Signature was one use case.  PIN is another.  So, for PIN transactions, the unaffiliated networks amount to anything but Interlink if the card carries a Visa brand or anything but Maestro if it carries a MasterCard brand.

So it appears that the cross-licensing agreement means that MasterCard could send everything to Interlink and be in compliance with Durbin. And Visa?  They could send everything to Maestro and ditto – they’d be in compliance as well. 

So what does that mean for Star?  For NYCE?  For Shazam?  For Pulse?  For any of the PIN debit networks? 

Without their software on the EMV chip it appears they’d be cut out of the debit routing business.

And, by the way, where are the card issuing banks on this? Is it in their interest for the PDNs to survive? And what about competition in the network business?

Competition is good.  Having alternatives is good.  On an issue where there are more questions than answers, the Big Question right now is do the issuers feel that way as well?

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.