Payments Network Bogeyman Durbin Unleashes Double-Barreled Inquiry Into EMV

U.S. Sen. Richard Durbin, D-Ill., made his name in the payments business with an amendment to the 2010 Dodd-Frank Act that put a cap on the debit card interchange big banks can earn. Now, he’s investigating the nation’s rocky EMV rollout with separate inquiries concerning snarled certification queues and the behind-the-scenes power the big card networks wield through EMVCo, the international standards body they control.

In a letter on Wednesday to Edith Ramirez, chairwoman of the Federal Trade Commission, Durbin points to the delays merchants have faced in getting point-of-sale gear certified for EMV and calls on the powerful regulator to “examine how flaws and delays in the certification process can be addressed.”

Further, he says, the FTC should step in urgently to supervise EMV certifications. “The delays and problems caused by the EMV certification process require prompt attention and oversight,” he says.

Durbin says in the letter that his concern stems from the exposure to fraud the delays are causing for consumers and the “costly burdens” they are posing for businesses. Durbin cites “a grocery chain with stores in Illinois and other states” that bought 770 EMV terminals at a total cost of about $385,000. The stores can’t deploy the devices for EMV, he says, because of “repeated delays in obtaining certification.”

Merchants that have installed devices capable of handling EMV chip cards cannot switch them on for chip transactions until the devices and their software have cleared certification with each network and processor the merchant links to. While the deadline to switch on EMV fell more than six months ago, certification backlogs have forced some merchants, particularly mid-size sellers, to fall back on mag-stripe transactions. That has exposed the merchants to chargebacks for payments made with counterfeit cards, a risk formerly borne by issuers but now taken on by merchants that can’t handle EMV. Retailers in that position have started to sue banks and the card networks to recover their losses, in part citing a prolonged certification process.

“The certification process can last for months, yet some of the technical requirements were not even made available until shortly before the October 2015 shift to EMV technology,” Durbin charges, calling the certification process for EMV “opaque and confusing.

Durbin’s letter to the FTC follows inquiries he started making in March into EMVCo, which is controlled by half a dozen global card networks, including Visa, MasterCard, Discover, American Express as well as China’s UnionPay and Japan’s JCB. Durbin’s concern is that, by excluding other parties like merchants and consumers, EMVCo allows the networks to wield too much power over how EMV has rolled out in the United States.

“The lack of diverse stakeholder representation in EMVCo’s governance structure raises serious concerns that EMVCo is not sufficiently focused on making chip card technology work as well as it should for the benefit of consumers and non-network stakeholders,” Durbin says in a May 11 letter to the standards body. This latest letter, which copies both the FTC’s Ramirez and the U.S. Justice Department’s Antitrust Division, comes after one Durbin wrote March 17 expressing much the same concern. That missive drew an April 15 response from EMVCo addressing Durbin’s criticisms but apparently not dismissing them.

Durbin charges in his second letter that problems such as certification backlogs and consumer dissatisfaction with lengthy transaction times for EMV “were predictable problems” that might have been dealt with “if retail and consumer representatives had a vote in EMVCo decisions.” But his more serious charge is that the networks, working through EMVCo, are discouraging PIN authentication for EMV transactions because of investments the networks have made in signature verification.

“I am concerned that EMVCo’s controlling networks, most of whom have fiercely advocated against PINs because of their financial stake in signature transactions, may be preventing EMVCo from stating a clear position on the benefits of PIN,” Durbin alleges.

Durbin, who hit EMVCo with specific queries in his March letter, attaches to his latest letter a new series of questions, and asks for replies within 30 days. The latest questions concern voting rules, safeguards to ensure competition, and the need for wider stakeholder representation in setting standards for mobile payments, online authentication, and biometrics.

“We welcome the enquiries received from Sen. Durbin and the opportunity to explain further the role that we play within the payments community,” an EMVCo spokesperson tells Digital Transactions News by email. “EMVCo will be providing further information to address the follow-up questions raised.”

Durbin’s letters echo concerns expressed by both merchants and smaller debit networks about matters such as certification delays, chargebacks, and signature authentication for EMV. But the intervention of an official with the power of a U.S. Senator troubles some observers.

“It is not Durbin’s place to tell EMVCo to add merchants and ‘consumer representatives,’ i.e. activists, to thereby certainly politicize its decision-making body,” says Eric Grover, a payments consultant at Minden, Nev.-based Intrepid Ventures and a critic of Durbin’s moves to regulate the industry, in an email message. “He’s fishing for a greater government role regulating the networks, and his copying the FTC and the DOJ’s Antitrust Division can only be viewed as a threat and an invitation for the regulators to take a run at EMVCo.”