January 31, 2013
It took less than two weeks for the Secure Remote Payment Council (SRPc), a consortium of U.S. electronic funds transfer networks, to reject MasterCard Inc.’s offer for EFT networks to use its proprietary Maestro application identifier (AID) to allow processors to route EMV debit transactions according to network choices designated by merchants, as required under the Durbin Amendment to the 2010 Dodd-Frank Act.
Early Thursday, the Westwood, N.J.-based SRPc posted an open letter to the payments industry on its Web site. Copies were sent separately to MasterCard and Visa Inc., which is expected to state its position on making debit transactions EMV-compliant under Durbin within the next week.
In its letter, the SRPc says that while MasterCard’s solution is a step in the right direction to make EMV debit transactions Durbin-compliant, it “presents major obstacles including: intellectual property rights, licensing control, lack of long-term business terms, and most importantly, restriction on the innovation of other PIN debit networks.”
The SRPc also objects to MasterCard’s requirement that all EMV debit transactions first be routed through its network. MasterCard would then route transactions to the merchant’s network of choice. This is “an unreasonable requirement by many networks’ standards,” the letter says.
Finally, the SRPc notes that MasterCard’s proposed solution does not address the coming liability shift on EMV transactions for ATM owners.
EMV, which stands for Europay-MasterCard-Visa, is a proprietary standard for chip card transactions that is in the process of being introduced in the United States after winning adoption in much of Europe and Asia as well as Canada and Mexico. While major U.S. card networks have imposed deadlines for EMV readiness, the industry is wrestling with the standard’s non-compliance with the Durbin Amendment’s mandate that all debit cards support at least two unaffiliated networks.
On Jan. 18, MasterCard proposed that debit networks use the application identifier (AID) for its Maestro debit brand to identify and then route transactions according to merchant choice. The proposal has the added benefit of streamlining EMV certifications for acquirers and debit networks, MasterCard said. The AID proposal came in response to a proposal from the SRPc for a so-called common AID that all the networks would use. Under EMV specifications, the AID is a string of characters that identifies both the network brand and the specific type of card, such as credit or debit.
“MasterCard’s proposal does not go far enough,” says Paul Tomasofsky, the SRPc’s president. “With its solution, ownership and governance of the AID is not clear and MasterCard is saying route transactions to them first; these are tough [choices] for other networks to stomach.”
MasterCard’s requirement that all debit transactions be routed through its network before being sent to the merchant’s network of choice also creates a single point of failure that would make it difficult for merchants to move EMV transactions to processors in the event MasterCard’s network was unavailable.
“Right now that issue does not exist with magnetic stripe-based transactions, and our goal for EMV is to create a set of common AID parameters controlled by the industry and that allow merchants to choose the network over which the transaction is routed, as is the case in the mag-stripe world,” Tomasofsky says.
In response to the SRPc’s letter, Carolyn Balfany, group head for product delivery for MasterCard, says MasterCard offered the industry use of its AID because it could immediately answer the requirements for making EMV debit transactions Durbin compliant.
“Our intent was to provide a solution, not suggest something else,” Balfany tells Digital Transactions News.
Balfany is also quick to point out that MasterCard’s solution does not stymie applications that networks can hang off the AID, such as consumer loyalty programs, which they can offer merchants. As to the looming deadline for the shift in ATM liability, Balfany says that dialog on the issue is ongoing, though she did not say MasterCard is contemplating any change in deadlines.
Concerns among EFT networks over ownership of the technology behind MasterCard’s AID are not likely to go away as Balfany acknowledges that ownership of the technology will belong to MasterCard. Visa spokespersons were not immediately available for comment.
The SRPc, which in April 2012 formed a chip-and-PIN working group to address EMV debit issues related to Durbin, has proposed a set of common AID parameters that would apply to all networks. The creation of parameters instead of an industry standard to which all networks must adhere allows networks to retain their proprietary applications that hang off the AID and enables them to differentiate their services to merchants.
“If the entire industry is using the same standard, then the applications beneath the AID can’t be specific to my network,” says Terry Dooley, senior vice president and chief information officer at the Johnston, Iowa-based Shazam Network, an SRPc member. “That limits innovation from a network perspective.”
The SRPc’s open letter also raises concerns about MasterCard’s liability shift for EMV transactions at ATMs, which goes into effect in April. Under the shift, ATM owners that don’t meet the April deadline will be liable for any fraudulent transactions made by counterfeit EMV cards issued in other countries that use a magnetic stripe to initiate the transaction.
“Right now it appears ATM owners will not be ready to meet the April deadline for all their machines and that MasterCard is not even ready to certify ATMs that are EMV-compliant,” says David M. Tente, executive director, U.S.A., for the San Diego-based ATM Industry Association. “This deadline does not make sense since the liability shift for merchants occurs in 2015.”
Tente says the SRPc’s decision to mention the issue in its letter helps raise awareness of it and can build industry support for MasterCard to extend its deadline. Rival networks Visa, American Express Co., and Discover Financial Services have yet to announce their own ATM deadlines.
Looming over the disagreement over how to make EMV comply with Durbin is the specter of government intervention. “If the main players come up with their own solutions, then it’s going to be a question of whether those solutions provide the routing choices Durbin mandates or if the industry simply ends up primarily supporting a duopoly [in the form of MasterCard’s and Visa’s solutions],” says Mary Weaver Bennett, director of government and industry relations for the Washington D.C.-based Electronic Transactions Association. “Without complete cooperation among the networks, the federal government, which has shown an interest in this issue, could step in and set the industry standard.”
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