The debit networks and card brands have largely resolved two years of debate over routing EMV debit cards, but an ongoing court battle over debit fees and routing makes the full scope of their responsibilities unclear.
With a series of agreements announced over the past two months, the networks have licensed the common application identifiers needed to comply with the Durbin amendment's mandate that merchants have the option of at least two unaffiliated networks for routing debit card payments. These efforts were boosted by a recent legal victory won by the Federal Reserve Board, but that ruling could still be overturned in further appeals.
The Federal Reserve Board won an appeal in March over a court decision that negated its rules on debit routing and fee caps. Federal Judge Richard Leon, who issued the initial ruling, questioned whether the use of two unaffiliated networks is enough to meet the requirements of the Durbin amendment.
Even though the Fed got this ruling overturned, the case could be further appealed all the way to the Supreme Court. But the debit networks and other companies can't hold up EMV card issuing while the case continues through the courts, says Julie Conroy, senior analyst and fraud expert with Boston-based Aite Group.
"To get rid of that uncertainty, the industry is looking to make sure the application identifier would work" even if later legal decisions add demands, Conroy says.
The EMV Migration Forum and the card brands could work to create a technology that will adapt to a situation where the courts decide the debit networks need to support more routing options than they currently do, Conroy says.
The EMV Migration Forum's debit committee and its technology subcommittee are taking a lead role in the process, says Randy Vanderhoof, president of the EMV Migration Forum.
Currently, Visa and MasterCard issuers have cards with one application identifier (AID) in place for Visa and MasterCard transactions, plus a common AID for the various PIN debit networks.
However, Leon's interpretation would have required multiple routing choices for PIN transactions and, separately, multiple choices for signature transactions, Vanderhoof adds.
Unless the common AID technology is adaptable to this scenario, issuers would have to re-issue EMV debit cards if the Fed's position is overturned again on appeal.
"So, we still have the original approach to move forward with, but we have a definition or at least a framework of a definition in place for how the industry could handle the debit routing if the rulemaking changes," Vanderhoof says.
The Debit Network Alliance LLC, created in December to address the debit routing issue and promote industry collaboration, will also keep a close eye on what transpires in the court system.
The uncertainty was part of the reason the alliance was established out of the EMV working group of the Secure Remote Payment Council.
In the meantime, the alliance plans to keep busy addressing other aspects of the migration to EMV smart cards as the card brands' October 2015 EMV deadline approaches. After that date, most merchants who do not accept EMV cards would face a shift in fraud liability (fuel merchants have an extra two years before the liability shift applies to them).
"We are still alive and well," says Paul Tomasofsky, president of the Debit Network Alliance, noting his company's operation does not stop because the initial debit routing debate has been resolved.
"We are more gratified by the fact that it seems, from the public announcements, that the debit networks are getting almost all of the requirements they had initially talked about with the common AID," Tomasofsky says.
The alliance will concentrate on matters such as how to save money on certain implementations of EMV, Tomasofsky says.
Members are establishing educational webinars and materials for best practices on how to handle EMV in ATM or point of sale transactions, Tomasofsky adds. These materials also address what issuers, ATM owners and merchants should be doing now to prepare for EMV.
In addition, the alliance will address ways to strengthen payments security.
"Basically, we are being vigilant about the payments environment when it comes to the interplay of various payments types, making sure our members can help educate their constituents on important topics," Tomasfosky says.
The networks will also work closely with their constituents to prepare for the next steps of the EMV migration, says Terry Dooley, senior vice president and chief information officer for the Shazam PIN debit network. Shazam is a member of the Debit Network Alliance.
"EMV is an important next step to the security of the U.S. payments system, but it needs to be implemented correctly," Dooley says. "There are a lot of stakeholders involved, and for Shazam, it is important to prioritize the competitive and business positions of our most important stakeholders, which are our financial institution owners and the consumers they serve."
A critical first step for smaller issuers, including community banks and credit unions, is a cost-benefit analysis that takes into account the institutions current and predicted fraud risk, as well as the potential return on an EMV investment, Dooley says.
"The liability shift is just around the corner, but this is not going to impact all issuers in the same way," Dooley says.