MasterCard Proposes a Durbin Solution for EMV, But Will EFT Execs Buy It?

MasterCard Inc. on Friday proposed a solution that it says would allow merchant acquirers to route EMV debit transactions in compliance with a federal law mandating that merchants have a choice of networks.

Under the proposal, MasterCard would open a proprietary application identifier (AID) associated with its Maestro brand to the debit industry so that any transaction could be routed by merchant processors according to network choices designated by merchants, as required under the Durbin Amendment to the 2010 Dodd-Frank Act.

In the EMV specification, the AID is a string of characters that identifies both the network brand and the specific type of card, for example, credit or debit. As things stand now, EMV does not allow network choice and so cannot comply with the Durbin requirement, which went into effect April 1, 2012, that all debit cards support at least two unaffiliated networks. By opening the Maestro AID to the industry, MasterCard proposes to solve that problem by introducing a solution that would reside on the chip and would trigger a computerized lookup at the merchant processor to route the transaction to one of the merchant’s preferred networks.

Any EMV card can carry the solution, but all transactions will pass through MasterCard before arriving at the final network switch. MasterCard will not levy any switch fees, Carolyn Balfany, group head for product delivery, tells Digital Transactions News. The requirement for MasterCard switching is to ease EMV testing and certification requirements for merchant processors, she says. Processors “already have to certify to MasterCard, now they don’t have another network to certify to,” says Jane Cloninger, director at Edgar, Dunn & Co. in San Francisco.

MasterCard released its proposal just as members of EMV working groups affiliated with the Smart Card Alliance, a trade group promoting chip cards, and the Secure Remote Payment Council (SRPc), a consortium of electronic funds transfer networks, were convening a conference call on the routing issue. Participants and industry observers expected that MasterCard and Visa Inc., which own the rights to the EMV intellectual property, would indicate whether they will support a solution that was proposed last month by networks affiliated with the SRPc.

These networks propose a so-called common AID that would apply to any of them, allowing again for routing from the merchant processor according to a table of bank identification numbers (BINs) to determine which networks the issuer belongs to and which one the merchant prefers. A separate solution would address a problem involving so-called issuer portability. With EMV, issuers can’t change networks or add a new network without writing or acquiring a new application and reissuing cards, an expensive proposition when each card contains a microchip.

Instead of receiving a yes or no, call participants heard from MasterCard about its open Maestro solution, which it says doesn’t duplicate the common-AID approach but solves the same problem. Apparently participants were not immediately convinced. “We did not reach consensus on a common U.S. AID solution,” an EFT network executive tells Digital Transactions News. “The solution offered today had some dependencies on it that the industry needed to digest. The specific sticking point was we all want to see a U.S. AID that we can all equally utilize.”

Visa did not participate in the call. Contacted by Digital Transactions News, Visa refused to discuss the issue and instead issued a brief statement. “We are evaluating our chip debit strategy for the U.S. and consulting with key stakeholders to determine the best way forward,” it says.

Some executives on the call also questioned whether and how ownership of the MasterCard solution will be shared. The ownership issue as presented, “isn't comfortable for everybody,” the EFT executive adds. But he also says, “I commend MasterCard for coming to the table and engaging with us.”

Cloninger says the MasterCard solution will save a great deal of time, a commodity that is running out with EMV deadlines bearing down on the payments industry. By April 1, for example, processors must be capable of handling EMV transactions. “Everyone says it would take at least a year to develop a new AID,” she says. “This [MasterCard proposal] simplifies all that.”

Now the ball is in the debit networks’ court. More discussions may ensue at a Smart Card Alliance conference in February. “We’re going to continue to meet and collaborate and move some of these things,” the EFT executive says.