Discover Financial Services was operating from a “luxurious position,” as one industry analyst describes it, when it came to revealing a timetable and requirements for acquirers and direct-connect merchants to accept EMV smartcard payments in the United States.
The luxury viewpoint comes into play because Riverwoods, Ill.-based Discover, as a private network, did not have to commit to any specifics regarding chip card standards until after Visa Inc. and MasterCard Worldwide established some ground rules.
Discover prefers to view its March 15 announcement regarding an EMV conversion plan, which also affects Canada and Mexico, as the direct result of extensive research with merchants and acquirers regarding what will best work for them as payments technology continues to rapidly change, Farhan Ahmad, Discover global head of emerging payments, tells PaymentsSource.
Discover will follow the same conversion deadlines for merchant acceptance of EMV smartcards that Visa announced last August (see story).
Visa’s timetable requires U.S. acquirer processors and subprocessor service providers to support merchant acceptance of chip transactions no later than April 1, 2013. In addition, the card network plans to shift U.S. fraud liability to merchant acquirers by Oct. 1, 2015, if a consumer presents a contact chip card to a merchant who has not adopted, at a minimum, a contact chip terminal.
MasterCard Worldwide announced a similar conversion plan in January but expressed a preference for chip-and-PIN technology instead of chip-and-signature transactions (see story).
Discover’s conversion plan essentially leaves the technology decision up to the merchants, Ahmad says.
“Our plan is definitely choice-centric because we do not want to restrict any channels, and we spoke to our merchant partners about what they have to do globally and what works best for them in their markets,” Ahmad adds.
Because many aspects come into play regarding consumer preference and how businesses operate in certain markets, Discover felt it was best “to not make that call” in requiring a certain technology over another, Ahmad says.
“We could speculate all we want about what we think would be the best approach, but our merchant partners should make the decision, and we will support it, no matter what they want,” Ahmad says.
Discover will operate with the same fraud liability shift date as Visa and MasterCard, but the card brand has not established specifics about its recommendation. It plans to continue industry research about emerging technologies and continue dialogue with merchants to determine a proper liability-shift approach, Ahmad explains.
“Talk about liability shift probably should not center on just EMV chip-and-PIN or chip-and-signature,” Ahmad contends. “Online authentication and mobile payments come into play, and we want to make sure we are not just moving the puck around in a circle regarding who is liable.”
As Discover learns more about different technologies, it should be able to establish a “tiered approach” across the payments ecosystem regarding liability ground rules based on higher levels of security, he suggests.
Visa initially suggested merchants converting to EMV acceptance would eliminate the need to annually validate Payment Card Industry Data Security Standard compliance for any year in which at least 75% of the merchant’s Visa transactions originated from chip-enabled terminals.
“When you really break it down, the PCI-compliance incentive was not much of a benefit in the end” because it does not relieve merchants from PCI testing, Ahmad notes.
However, if merchants were to approach Discover with an aspect of the EMV conversion that lends itself to an incentive that is beneficial, the company is willing to listen, he adds.
Merchant-acquiring consultant Paul Martaus of Mountain Home, Ark.-based Martaus & Associates suggests the Discover network isn’t big enough to dictate EMV conversion terms.
“Whatever is happening with Visa and MasterCard is probably what Discover will have to do,” Martaus says.
Yet, Discover benefits from being in that “luxurious position” because the network has more time to determine what may or may not work and check the pulse of the merchants, Martaus suggests.
“Mandate is kind of a weird term in this situation because it may be viewed that Visa is mandating certain things,” Martaus says. “In reality, the market forces are pushing the industry toward an eventual outcome, and that outcome is moving toward mobile payments.”
In that regard, Discover is wise to wait and see what sort of liability guidelines it will establish, Martaus notes.
“We will know all of this is for real with Discover when they start to issue chip-and-PIN cards,” Martaus says. “They don’t have to deal with the banks because they issue their own cards.”
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