A new company has formed to tackle the pressing issue of routing EMV debit transactions in compliance with federal mandates, a task the payments industry has undertaken for nearly two years.
Ten PIN debit networks have formed the Debit Network Alliance LLC to provide a structure for governing, deploying and implementing an EMV debit standard that provides merchants with routing options as stipulated by the Durbin amendment of the Dodd-Frank Act.
The new alliance is an offshoot of the EMV working group of the Secure Remote Payment Council, but the establishment of the LLC allows the alliance to operate "in a company fashion" when it comes to structure, rules and ownership of application codes, says Paul Tomasofsky, who will serve as the company's executive director.
The alliance will be open to all networks that want to join, including the major card brands, Tomasofsky says.
The Secure Remote Payment Council made a similar pitch in July, welcoming other networks to provide their options for EMV routing. The council had previously announced it would use Discover's technology for EMV debit coding.
The card networks imposed an October 2015 deadline for most U.S. merchants to accept EMV-chip cards, which improve security over magnetic-stripe cards. The shift to EMV has been complicated by merchant resistance, technology struggles and a court ruling that calls into question the industry's progress on how debit transactions are routed under Durbin.
The Durbin rule mandates at least two payment network choices for routing transactions. Federal Judge Richard Leon's July ruling about the Federal Reserve Board's implementation of the Durbin rule indicated that the routing choice of two networks may not be enough.
"If Judge Leon comes back and says we have to have two PIN and two signature networks as options for merchants, then we have to future-proof our solutions," Tomasofsky says.
Such "future-proofing" would also affect technology offerings for contactless cards and ATMs, he adds.
To resolve the routing issue, some stakeholders pushed for a common application identifier for EMV debit cards. The end result through the work of the new alliance may be separate application identifiers, but "they would all look the same and harmonize with the others," Tomasofsky says. "Since last year, everyone has been trying to solve this common identifier problem, including Visa and MasterCard, and we were getting closer, but a lot of work remains."
Now, any company that owns an EMV application for debit routing can license it to the Debit Network Alliance and become a member of the group to participate in the governing process, Tomasofsky adds.
The new alliance has a vision for all networks to work together on the routing issue.
"If Visa joined, then all cards with the Visa logo would have Visa's application identifier and the two or three other networks," Tomasofsky says. "The same would hold true for MasterCard and other networks, but we would all work on it together."
The alliance wants equal access to EMV chip technology and a shared governance of common debit application identifiers, including how underlying technology is configured on the chip and point of sale terminals. It also wants to support all existing and future cardholder verification methods. The company may manage shared costs of member networks to promote, license and govern the use of shared intellectual property, according to its website.
Terry Dooley, senior vice president and chief information officer for the Shazam PIN debit network and a member of the Secure Remote Payment Council's EMV working group, says his company is ready to put in the work needed to accomplish alliance goals.
"As a founding member of the new company, Shazam was been honored to have a strong voice in the creation of a structure for the governance, deployment and implementation of the EMV debit standard," Dooley states in an e-mail.
The Debit Network Alliance is hoping for similar feedback from other networks and companies.
The industry has to get away from the bottlenecks that competing companies can create in a situation that calls for working together, Tomasofsky says.
"These companies can continue to compete with each other, but don't need to compete on a standard," he adds.
Fighting over a common application identifier for EMV debit transactions would be like "everyone fighting over the mag-stripe standard years ago," Tomasofsky says. Many companies have had great success and profits with mag-stripe technology, he adds.
The alliance's founding members include Jeanie, Pulse, Star, Shazam, NYCE, CO-OP Financial Services, ATH, AFFN, Presto and NETS.
Co-op Financial Services represent credit unions in the alliance and is happy to have a voice about the routing technology, says Michelle Thornton, manager of core products for Co-op, who will serve on the alliance's board of directors.
"Debit cardholders are at the core of what we do," Thornton says.
The new alliance shows the debit networks are committed to collaborating on the EMV issue with the goal of "making it work for everyone," Thornton says.
"We can't predict what the card networks might do [in response to the Debit Network Alliance's creation], but we can make it clear to everyone in the industry what the options are and how common governance would work," Thornton adds.
Neither MasterCard nor Visa responded to inquiries about the new alliance prior to deadline.