Amid EMV Travails, X9 Convenes a Meeting to Investigate Standards for Debit Routing

By John Stewart

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Against a backdrop of knotty problems besetting the U.S. introduction of EMV, a financial-services standards body is investigating the potential for a set of non-proprietary chip card rules for EMV debit routing.

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News is now emerging of a December meeting organized by the Accredited Standards Committee X9 Inc. and hosted by the Federal Reserve Banks of Philadelphia and Minneapolis. Some 40-plus representatives of payments organizations tackled the vexed question of debit- transaction routing within the existing EMV standard, according to a news release issued this week by the ATM Industry Association, which was one of the participating organizations.

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The group also broke up into subgroups during the meeting, which was held Dec. 9-10 at the Philadelphia Fed, to “consider what gaps in the EMV standard could potentially be filled by an open standard,” according to the ATMIA news release.

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A number of participants also expressed concerns about the proprietary nature of EMV, which is owned jointly by MasterCard Inc. and Visa Inc. (the “M” and the “V” in EMV) and administered by EMVCo. “There was a pretty significant appetite for more open standards,” says David Tente, executive director for the U.S. at ATMIA, a trade association for ATM deployers. “We’ve been raising concerns for some time about the influence of the global networks.”

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A list of attendees at the meeting was not immediately available, nor does it appear the group reached any definitive conclusions. The ATMIA release indicates a second meeting is expected sometime early this year.

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Cindy Fuller, executive director of Annapolis, Md.-based X9, did not return phone calls from Digital Transactions News seeking comment. X9 a year ago circulated a letter to its membership asking whether there was interest in a meeting, hosted by one of the Federal Reserve Banks, to discuss the possibility of an open-standard alternative to EMV. X9 develops standards for financial services ranging from securities to payments.

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But much of the meeting last month was more narrowly focused on whether new standards might help solve the issue of routing for EMV debit transactions, according to the ATMIA release and a participant not related to ATMIA.

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“Bottom line, this [meeting] is not X9 trying to take over the EMV standard or create another standard,” says the participant, who asked not to be identified. “X9 is wondering as a standard-setting body what they could do to help move along the EMV debit situation in the U.S. It would be very beneficial to the industry to have an open standard incorporating EMV, but that’s a longer-term kind of thing.”

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Under Durbin Amendment rules, merchants must have a choice of networks when processing debit transactions. The Fed’s interpretation of this rule calls for a choice of at least two unrelated debit networks, a routing routine EMV was not designed to accommodate. Complicating matters is a federal court ruling last summer that said the Durbin language actually calls for a choice of at least two unrelated networks for each authentication method, PIN or signature.

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The need for a debit-routing solution has drawn proposed solutions from Visa, MasterCard, and a group of U.S. regional debit networks, creating a standoff between the global networks on the one hand and the regional networks on the other. Visa and MasterCard have offered to make available their proprietary solutions to the regional networks, which in turn have argued for a common standard not under the control of any particular network.

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Visa did not immediately respond to a request for comment on the meeting and on expressions of interest in open chip card standards. A MasterCard spokesperson replied by email, saying, “MasterCard is proud of the [EMV] technology and our support of it.”

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Devised 20 years ago, the EMV standard for chip-embedded cards has been implemented in much of the Western world outside of the U.S. The standard is seen as more secure than mag-stripe cards and has driven down card-present fraud in regions where it has been introduced, though card-not-present fraud has increased. Europay, the “E” in EMV, was absorbed by MasterCard in 2002.

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To implement EMV in the U.S., the major networks have set timelines calling for a shift in counterfeit card liability by October 2015 to merchants if they are not equipped to accept EMV transactions. Petroleum marketers have an extra two years. Currently, issuers bear this liability. A number of merchants have argued they are not likely meet the timeline.