As EMV-Debit-Durbin Problem Festers, a Solution May Be on Its Way

A knotty problem involving the EMV chip card standard, debit card transaction routing, and the Durbin Amendment may take a crucial step toward resolution next month when the country’s two largest card networks are expected to indicate whether they will support a potential solution proposed by a debit-network group, according to sources.

Complicating matters, however, is an April 1, 2013 deadline set by the major card brands for when U.S. merchant processors must be capable of handling EMV transactions. The deadline calls on processors to be capable of processing a new data field containing EMV authorization information.

Processing EMV debit transactions could be an expensive and complex affair without the proposed solution, sources say. Even with it, an extension of the deadline will likely be necessary to allow processors time to implement the solution, says one source close to the matter.

The possible solution comes from a working group of the Secure Remote Payment Council, a trade group representing electronic funds transfer networks. Representatives of 14 networks have fashioned a proposal for a so-called common application that would allow merchants to have the routing choice mandated by the Durbin Amendment and would also make it easier for issuers to switch networks or add new ones.

EMV, which refers to the Europay-MasterCard-Visa chip card standard, will be introduced in the United States over the next several years according to deadlines set by the major card brands. But unlike mag-stripe cards, the global EMV standard , which is widely deployed in Europe, Canada, and Asia, does not allow for the Durbin requirement that debit cards must offer merchants a choice of at least two unaffiliated networks on which to route transactions. Each EMV application is proprietary to a card brand, so while multiple payment methods may be available on the app, it supports only one network.

“The issue with EMV is that the technology can’t comply with U.S. law,” says Terry Dooley, senior vice president and chief information officer at the Johnston, Iowa-based Shazam Network, an SRPC member. “We need to make sure the technology complies with U.S. law.”

The proposed common app would attack this problem by specifying a method for EMV transaction data to be accepted at a merchant terminal, sent to a processor, and then processed against a table of bank identification numbers to determine which networks the issuer belongs to and which one the merchant prefers. A separate solution would address a problem involving so-called issuer portability. With EMV, issuers can’t change networks or add a new network without writing or acquiring a new application and reissuing cards, an expensive proposition when each card contains a microchip.

A further complication stems from the question of whether Visa Inc. and MasterCard Inc. will support the common app. If they don’t, it will be up to individual debit networks to support the common app on their own or an app of their own devising. That could fragment the market and make it harder for the debit networks to compete, “which is what the merchants and issuers don’t want,” says one observer who asked that his name not be used. But even if the two network giants accept the common solution, processors will have their work cut out for them in trying to deploy it by April 1, sources say.

A decision from Visa and MasterCard is expected by Jan. 18, according to sources. “It’s not inappropriate to say [the debit networks] are waiting on Visa and MasterCard,” says the observer. A spokesperson for Visa was not available to comment regarding the January deadline. MasterCard did not respond to a Digital Transactions News inquiry.

Also involved in the issue is the EMV Migration Forum, which is part of the Smart Card Alliance, a chip card trade group based in Princeton Junction, N.J. The Forum has created a debit working group, which comprises 116 individuals from 51 organizations, to address issues stemming from EMV and debit. The SRPC is working with the debit working group to craft a solution to the Durbin problem and for issuer portability. “Everyone’s acutely aware of the urgency of addressing the problem,” says Randy Vanderhoof, executive director at the Smart Card Forum. “We’re struggling to find common ground.”