April 16, 2014
By Jim Daly
The Shazam Network on Wednesday reported that it had licensed Visa Inc.’s so-called common application identifier (AID), the third such announcement of a new Visa user in just over a week by a electronic funds transfer network.
The additions of Shazam and credit-union networks Co-Op Financial Services and CU24 mean that EFT networks representing about 99% of PIN-debit transactions in 2012 have now licensed Visa’s common AID, according to a Visa spokesperson. A smaller number of EFT networks have licensed MasterCard Inc.’s common AID, but industry insiders expect more networks to sign on with MasterCard too.
“What led us to using the Visa AID was the ability to get terms that allowed us to maintain choice, competition,” says Terry Dooley, chief information officer at Johnston, Iowa-based Shazam. The network has about 1,400 financial-institution members that have issued about 10 million debit cards. Dooley also says that, “We are working to come to an agreement with MasterCard.”
The Visa spokesperson says by email that the company is "providing a solution for the industry to move forward and that we’ve been able to reach a critical mass of debit networks."
The common AIDs enable PIN-debit transactions originating on Europay-MasterCard-Visa (EMV) chip cards to meet the routing requirements of the Dodd-Frank Act’s Durbin Amendment at the point of sale. Under Durbin, a debit card must present the accepting merchant with a choice of at least two unaffiliated networks for transaction routing. Such operations are relatively simple with magnetic-stripe cards but much harder with EMV cards, which will soon will be much more common as the U.S. embarks on a massive conversion plan that will bring it in step with most of the rest of the world. Visa, MasterCard and other international networks own the EMV technology, and, operationally, EMV chips weren’t designed to support multiple networks.
Those ownership and operational issues pitted Visa and MasterCard on the one side and the EFT networks on the other into negotiations for nearly two years. The Debit Network Alliance (DNA) advocated for 10 EFT networks on a number of EMV issues, most prominently a non-proprietary EMV standard that would give the networks a strong voice in governance over chip card technology matters.
But none of the common AID network announcements over the past two months has mentioned an agreement on the governance issue, implying that the networks had broken ranks. That issue indeed is still not settled, according to Dooley. “An application that is not a proprietary application has not yet been made available to the market,” he says. “In other words, something someone could use without going through a license agreement.”
Such a non-proprietary standard would be especially useful for ATM cards or non-branded prepaid cards, he says. “We still have many, many issuers that issue these cards,” he says.
Still, the DNA has done and continues to do valuable work on many related matters, according to Dooley. “The DNA continues to exist and is very much involved with the topic,” he says.
For example, the DNA advocated for and succeeded in getting the international networks to agree to an expanded number of cardholder verification methods (CVMs) permitted with the AIDs when early plans called for just PIN-debit, he says. The EFT networks argued that they can support not just PIN-debit, but other verification methods, including PIN-less, signature, and no cardholder verification, along with variations on single and dual messaging to authorize and settle transactions. “When the conversation started there wasn’t that appreciation by the industry,” he says. “The merchants didn’t appreciate what the debit networks did.”
Montvale, N.J.-based consultant Paul Tomasofsky, who heads the DNA, says “the continued announcement of networks adopting solutions that provide for common processing of EMV transactions for debit is a good thing. It allows those networks to continue processing like they would in the competitive nature of the mag-stripe world.”
When asked about the CVM issue, Tomasofsky wouldn’t go into details about negotiations with Visa and MasterCard. “From where we first started this effort about 18 months ago, there was some difference between what the debit networks wanted and what the international networks wanted. There was some give on both sides.”
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