SRPc to MasterCard, Visa: Get behind Common Debit Solution 

Jan. 31, 2013

As the momentum to migrate the U.S. payments infrastructure to the EMV standard increased over the past 18 months, the industry identified a problem: The technological limitations of the chips in chip & PIN cards and the rules of EMVco, the organization that administers EMV standards, dictate that debit transactions automatically would run afoul of the network routing provisions of the Durbin Amendment.

Applications reside on the chip of an EMV card that enable its use as a credit or debit card. The rules established by EMVco—which is controlled by the card networks, notably market leaders Visa and MasterCard—restrict the path of a transaction after an application has been chosen to one network. Because Durbin requires that merchants have the choice of at least two networks through which to route debit transactions, issuers would have to include an application on the chip for each debit network they wanted access to. Each network application would add expense and issuers would run into limitations based on how much information could reside on the chip. Fewer applications on the chip would mean fewer choices of debit networks for merchants and consumers.

To attack the problem, several groups representing many stakeholders in the payments industry began looking for a solution that would open the EMV debit rails to any network. A working group formed about a year ago by the Secure Remote Payment Council (SRPc) brought together most of the U.S. debit and ATM networks to brainstorm solutions. The SRPc joined forces with the EMV Migration Forum, which included MasterCard and Visa, and set a Jan. 18, 2013 deadline for the creation of a framework for a common application identifier (AID).

An AID on the chip of an EMV card essentially tells a merchant’s processor which application to choose during a given transaction. Establishing a common AID open to every U.S. debit network would allow one application to route a debit transaction to the network of a merchant’s choice.

At the Jan. 18 meeting to endorse the common AID approach, however, Visa did not participate and MasterCard advanced an alternative solution: it would open an AID associated with its Maestro brand to any debit network a merchant chose. And, while making its technology available to the other debit networks is “a step in the right direction,” according to Terry Dooley, senior vice president and CIO at Iowa-based EFT network SHAZAM, an SRPc working group member, the offer could put other networks at a competitive disadvantage.

“Depending on the terms of that offer there could be some discussion,” Dooley said. But, because the solution would require all transactions to route through MasterCard first, it would put competing networks in the unenviable position of relying on MasterCard’s intellectual property and “it creates a single point of failure in transaction routing.”

Today, despite MasterCard’s offer, the SRPc reiterated its support for a common, generic AID it said would benefit merchants, issuers, consumers and other stakeholders by giving “all networks an equal voice in decisions and ownership” and “de-militariz[ing] the use of the ‘standard’ invented by EMVco as a competitive weapon.”

In an open letter to the industry , the SRPc urged MasterCard and Visa to “join the rest of the debit networks in the U.S. to resolve these issues to the satisfaction of an industry.”

MasterCard said its solution is collaborative and solves the problem with a technology that needs no additional time for development. The company spent months at the table with the organizations involved in the working group trying to come up with a new solution when it became obvious an answer already existed, according to Carolyn Balfani, group head, U.S. Product Delivery for MasterCard.

“The technology that we already have and is already deployed and perpetuated throughout the market could meet exactly the needs of what’s come to be called the U.S. AID,” Balfani said. “It was in that spirit we chose to open our technology for other debit networks across the U.S. to solve exactly the same problem. It wasn’t put forth as an alternative, it was put forth as an answer.”

Balfani said MasterCard is still engaged with others in the market communicating the benefits of its solution.

Visa, on the other hand, has remained publicly silent on the matter so far. When asked to comment, the San Francisco-based card network issued a statement via email: “We are evaluating our chip debit strategy for the U.S. and consulting with key stakeholders to determine the best way forward.”