November 22, 2016
By Jim Daly
Visa Inc. disclosed Tuesday that it has modified its chip debit card transaction-routing policies in the wake of the increasing governmental scrutiny the largest payment card network’s routing practices have attracted since EMV chip cards took hold in the U.S. beginning last year.
A key change assures merchants that they may use only the so-called common application identifier (AID) on a debit card’s EMV chip to route a point-of-sale purchase transaction to the debit network of their choice. The common AID accesses not only the Visa and MasterCard Inc. networks, but also more than a dozen PIN-debit networks. In contrast, the so-called global AID will route only to Visa or MasterCard, depending on the brand on the front of the debit card. Confusion on the part of both merchants and consumers arose in recent months after POS-terminal screen prompts began giving cardholders such choices as “US Debit” or “Visa Debit.”
“For U.S. EMV-enabled debit cards, merchants have flexibility to use either the U.S. common debit AID or the Visa AID,” the new guidance from Visa says. “Merchants are never required to ask the cardholder to choose the AID for processing debit transactions. Merchants can exclusively route U.S. debit transactions using the U.S. common debit AID if they so choose. Merchants are never required to use the Visa AID to process U.S. debit transactions.”
This seemingly arcane but controversial issue springs from both legal and technological sources. The Durbin Amendment to the Dodd-Frank Act of 2010 requires each debit card to give merchants access to at least two unaffiliated debit networks for transaction routing, the idea being to spur network competition. However, the EMV chips on debit cards that began replacing traditional magnetic-stripe cards last year originally were developed for the European market and meant to access only one network. Retrofitting the chips to access the plethora of U.S. debit networks in addition to the Visa and MasterCard networks required extensive technical work and resulted in the creation of the common AID.
Merchants have filed lawsuits accusing Visa of trying to route chip debit transactions to the Visa network instead of to the merchants’ preferred PIN-debit networks by giving cardholders the routing choice when under Durbin the choice is legally the merchants’ alone. Visa disclosed last week that the Federal Trade Commission is looking into its routing practices.
And the Federal Reserve, which Congress charged with overseeing the Durbin Amendment, posted guidance on its Web site saying that a payment network would violate Durbin if it required the merchant to let the cardholder make the routing choice and the application implementing that choice routes to only one network.
As a result of Visa's changes, the FTC's Bureau of Competition sent a letter to Visa saying that it was closing its investigation. Visa said it would not comment beyond the news release it issued, which links to more information on its EMV site.
Visa said that merchants automatically prompting for PIN entry in a card-present transaction must at least offer the option of signature verification, or no cardholder verification method (CVM). In any case, Visa said, merchants can use the common AID with PIN, signature or no-CVM transactions.
The National Retail Federation, a strong supporter of PIN debit and a frequent Visa critic, somewhat sarcastically welcomed the clarifications, but said they are only the first step.
“We’re glad to see that once again they recognize that they’ve violated the laws of the U.S.,” Mallory Duncan, senior vice president and general counsel for the Washington, D.C.-based trade group, tells Digital Transactions News. “It’s a shame, however, that it took two federal agencies to help make that clear. Now the real question is whether or not Visa will do the right thing and clear up the mess they’ve created.”
What Duncan calls a “mess” refers to chargebacks to which merchants may be exposed if their POS terminals continue to display the contested screen prompts now that the policies have been changed but their terminals haven’t yet been reprogrammed. In addition, merchants should not be subject to chargebacks if any new POS terminals they install do not comply with the Fed’s Durbin Amendment routing regulations, Duncan says.
“There ought to be an effort by Visa to make sure the equipment doesn’t default [to the global AID],” he says. “We don’t know all the elements of that.”
Terry Dooley, executive vice president and chief information officer of Johnston, Iowa-based Shazam Inc., which not only is a PIN-debit network but also a merchant acquirer, processor, and card issuer, says he’s happy to see the Visa change affirming use of the common AID, but says there are more questions to be answered.
“That’s a good clarification from Visa,” Dooley tells Digital Transactions News. “However, that was really allowed before.”
Acquirers may still need further clarification on routing to the common AID in certain cases involving no CVM, Dooley says.
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