Discover Releases an EMV Plan That Echoes Key Deadlines from Visa, MasterCard

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Discover Financial Services on Thursday became the third major payment card network to announce an initiative to bring so-called EMV chip card payments to the U.S. Discover’s plan shares some key elements with the recent EMV initiatives from Visa Inc. and MasterCard Inc., but a Discover executive says his company’s effort differs from the bigger networks’ plans by dictating as little as possible.

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The core of Discover’s plan is that merchant acquirers, acquiring processors, and Discover’s merchants with direct connections into its network (typically large, national merchants) by April 2013 must be certified as able to support the network data needed in contact and contactless EMV chip card transactions, according to Farhan Ahmad, global head of emerging payments. Discover calls its EMV payment specification “D-PAS.” The mandate applies not only in the U.S., but also in Canada and Mexico.

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And in October 2015, a liability shift will take effect that assigns liability for a fraudulent transaction to the party on the acquiring or issuing side that has done the least to enable EMV payments.

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Discover’s key dates also mirror the dates set by No. 1 payment network Visa last August in its U.S. EMV plan and endorsed by MasterCard, the second-largest network, in its “road map” for EMV that it disclosed in late January.

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Discover, however, isn’t saying if it will waive annual validation with the Payment Card Industry data-security standard (PCI) for merchants that generate transactions from EMV point-of-sale terminals. That’s one of the most popular parts of Visa’s plan, which MasterCard copied. A spokesperson says only that Discover “will consider doing so if it benefits a merchant.”

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With Visa and MasterCard, which together account for about 73% of U.S. credit card dollar volume, anointing the EMV chip as the designated successor to the 40-year-old, fraud-prone magnetic stripe on U.S. cards, No. 3 network American Express Co. and No. 4 Discover would seemingly be forced to get with the EMV program, like it or not.

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Ahmad confirms that Discover is perfectly happy to collaborate with acquirers, merchants, and processors as they work to implement the Visa/MasterCard EMV initiatives. Discover has recruited about 125 bank card acquirers to sell Discover acceptance to small and mid-size merchants, which means its partners already are making EMV preparations. “We want to make sure we are helping the people who are doing this by doing all the networks at the same time,” he says.

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Yet Ahmad also notes that Discover is no stranger to EMV. “We’ve been doing EMV for three years, and have 1 million [EMV] cardholders around the world,” he says. Discover’s EMV transactions come mostly from Diners Club cards issued by licensees of the Discover-owned Diners Club International network. Discover currently is working on about 100 EMV projects involving the Discover and Diners Club networks and the Discover-owned Pulse electronic funds transfer network. Discover in January processed its first U.S. EMV transactions at some locations of Wal-Mart Stores Inc., which is D-PAS certified in the U.S. and Canada.

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EMV card payments are up and running or being rolled out in most of the world, the U.S. being by far the biggest exception. A few American credit card issuers have started issuing EMV chip cards to frequent international travelers so that they don’t have payments problems abroad. Discover hasn’t yet done that.

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While its EMV plan has similarities with those of the bank card networks, Discover says it is distinguishing itself by giving its partners as much leeway as possible. “We’ve taken a very considerate and collaborative approach,” Ahmed says.

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And on a related note, “Our approach is very universal and choice-centric.” What that means is that Discover won’t try to force its partners to use any one authentication method or fraud-prevention technology. Visa’s plan generated controversy because, while not banning PIN entry, it clearly downplays the PIN in favor of so-called dynamic authentication, or one-time transaction codes, despite the PIN’s popularity with merchants and EFT networks. And the early EMV chip cards from U.S. issuers use signature rather than PIN authentication.

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“We have heard very different perspectives on PIN and signature,” says Ahmed. “There are pros and cons.” For example, signatures are impractical at kiosks in Europe that sell transit passes or handle bicycle rentals, he says. But teaching Americans to enter a PIN during a credit card transaction, as is common in EMV countries, could be “a challenge,” he says.

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Thus, Discover says it will support all authentication channels with EMV, including online and offline; and all cardholder verification methods, including chip and PIN and chip and signature. It also will support contact and contactless EMV chip transactions, including those with mobile devices.

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In another contrast with the bank card plans, Discover is not including percentage-based transaction thresholds as qualifiers for its liability shift, according to Ahmed. Liability in cases of fraud will be based “depending on the level of protection around a transaction,” Ahmed says. More details will be forthcoming before October 2015.

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Asked about its EMV plans for the U.S., an AmEx spokesperson did not address the United States specifically but said by e-mail that, “American Express was an early adopter of EMV technology in 1996. Today, the American Express network is EMV-enabled globally and processes millions of EMV transactions annually.”