Wal-Mart’s Visa Suit Uncorks a Long-Festering Controversy

A simmering controversy in the U.S. conversion to EMV chip card payments burst into the open last month when Wal-Mart Stores Inc. sued Visa Inc. The giant retailer claims that Visa is trying to make it use signature verification for some EMV debit card transactions and route those transactions over Visa’s network rather than Wal-Mart’s preferred PIN-debit networks.

Two days after Wal-Mart filed its suit, the Debit Network Alliance (DNA), a consortium of PIN-debit networks, issued a statement saying it “is concerned about recent developments” in the EMV migration, particularly Visa and MasterCard Inc. rules about consumer payment choice that the consortium says reduce merchants’ routing options.

Wal-Mart’s suit, filed in New York State Supreme Court in Manhattan, essentially claims that Visa is violating the Durbin Amendment to the 2010 Dodd-Frank Act. As implemented in the Federal Reserve Board’s Regulation II, the amendment requires that a debit card give a merchant a choice of at least two unaffiliated networks for transaction routing, and that the routing choice be up to the merchant.

“Visa, however, believes that Wal-Mart should be required to use the more fraud-prone mechanism of signature verification for certain debit card transactions, which in the case of a Visa-branded debit card would route debit card transactions across Visa’s debit network rather than the competitor networks of Wal-Mart’s choosing,” the lawsuit says.

Visa did not respond to a Digital Transactions request for comment.

On a similar note, the DNA said Visa and MasterCard EMV rules concerning consumer choice “have led some merchants and point-of-sale terminal providers to implement POS processes that force consumers to select a debit AID [application identifier] for routing when presenting a chip-enabled debit card for payment at the POS, effectively overriding merchant routing choice.”

But Chiro Aikat, senior vice president of product delivery for EMV at MasterCard, says the DNA’s assertion “is a bit surprising to me” because merchants can program their terminals to use the so-called common AID that accesses the PIN-debit networks.

“The merchants have full control,” says Aikat. “The whole reason for building that utility was to enable routing choice. The merchants can absolutely pre-select it.”

Redacted in many parts, Wal-Mart’s publicly available civil complaint does not specifically state how Visa allegedly tried to force Wal-Mart debit transactions onto the Visa network. But it recounts the history of POS debit card usage in the U.S. and how Visa came to dominate debit before the Durbin Amendment through exclusive deals with issuers.

Those pacts had issuers providing cards that offered only the Visa network for signature debit and the Visa-owned Interlink network for PIN-debit. Such exclusive pacts were nullified when Regulation II took effect.

Bentonville, Ark.-based Wal-Mart has long supported PIN debit for its lower fraud and interchange rates than signature debit. Debit cards account for 70% of the dollar value of Wal-Mart’s U.S. card payments.

After the card networks’ EMV liability shifts took effect last October, Wal-Mart instituted a so-called chip-and-PIN protocol, now in effect at more than 3,700 stores, that requires customers with chip debit cards to insert their cards into the EMV card reader, and then enter their PIN. The protocol described in Wal-Mart’s suit apparently removes the signature-debit option—a possible point of contention for Visa.

“[Cardholders] could not bypass the PIN requirement by signing a receipt or signing electronically at the POS terminal,” the suit says. “If a cardholder either refused to insert his or her chip debit card or to enter a PIN, then the transaction was declined and the cardholders [sic] was asked to use another form of payment.”

The complaint asks for a jury trial, the awarding of Wal-Mart’s legal costs, and unspecified further relief.