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When in 2010 our solons in Congress enacted the Dodd-Frank Act with its Durbin Amendment controlling various aspects of the debit card business, many who opposed this mischievous amendment (including us) did so on principles of free-market economics. We pointed out, for example, that the very merchants who were lobbying hard for this legislation would not want the federal government dictating pricing ceilings for what they sold in their stores.
But there was one other objection, one that did not attract quite as much attention at the time but has recently come to the fore in the midst of efforts to bring the Europay-MasterCard-Visa chip card standard to the United States. That objection has to do with what has delicately been referred to as the Law of Unintended Consequences. Another way to express this law to say that no legislation, no matter how wise and well-informed, can substitute for the collective action of tens of thousands of market participants.
What has this got to do with EMV, you ask? Well, as our cover story this month (page 32) points out, the payments industry is struggling to bring EMV to chip-based debit cards in such a manner as to make the cards comply with Durbin’s mandate that all debit cards support at least two unaffiliated network choices. As a proprietary standard belonging to MasterCard and Visa (Europay was absorbed by MasterCard 11 years ago), EMV is not capable of meeting that mandate. Only in the United States, with its Durbin requirements, is this an issue.
This is a big deal not only because chip cards must comply with federal law but also because the major card brands have mandated an April 1 deadline for merchant processors to be ready to handle EMV transactions. Several proposed solutions have emerged, as our story explains, including a so-called common application identifier from the electronic funds transfer networks that would let processors route transactions in compliance with Durbin. Still, regardless of the merits of these proposals, time is short.
One wonders whether, three years ago in the cozy Xanadu of Washington, this was an outcome contemplated by Sen. Durbin or his staff, or by anyone else not directly involved in the payments business.
The current mess does have one signal advantage, however. It has focused attention on the question of whether, after all, it’s such a good thing that chip cards should be tied to a proprietary standard like EMV. We take no position on this question, but think it’s well that it be raised, though perhaps it would have been better to have thought this through some time ago. Meanwhile, the Law of Unintended Consequences takes its toll.
John Stewart, Editor
john@digitaltransactions.net
