Unresolved questions about debit cards may stall the transition to EMV chip cards in the United States, industry experts say.
The uncertainty springs from litigation surrounding the Durbin amendment to the Dodd-Frank Act, which caps debit card interchange rates and mandates debit routing options.
Issuers dont want to make and distribute debit cards until regulations are finalized for the rates and routing, says Mansour Aaron Karimzadeh, managing director and chief technology officer of SCIL-EMV Academy, a New York-based EMV training and consulting firm.
And issuers hesitation is influencing merchants, he says.
I have talked to a couple of the very, very big merchants, and they are saying they dont know what to do, primarily because of Durbin, Karimzadeh says.
Once issuers act on EMV, merchants will too. Merchants want to accept every type of card and focus on selling their goods and services, he says.
Still, no one knows when regulations will become final, partly because of the court case over the Durbin amendment, says Deborah Spidle, director of EMV solutions at Paragon Application Systems, which makes software-testing systems for financial institutions and is based in Holly Springs, N.C.
Many are confused about how the case affects them, Spidle says. Issuers understand the litigation doesnt affect credit cards, and many are therefore preparing to issue EMV-equipped credit cards and accept those transactions, she says.
But the legal case does impact the debit side, so people are holding back and saying, I dont even want to approach debit until I know what the courts are going to do, Spidle says. Meanwhile, you have these liability shift dates, and a lot of people are very confused because they dont understand what theyre supposed to do.
How liability for fraudulent transactions will shift depends on the card brand, but Oct. 1 of 2015 and 2017 are key dates for Visa, and Oct. 1 of 2015, 2016 and 2017 are key dates for MasterCard. American Express has announced Oct. 1, 2015 for its liability shift date. Parties not adopting EMV by the relevant deadline could bear the financial consequences of fraudulent transactions.
The Durbin-related concerns that are impeding progress toward EMV come mainly from the debit networks, says Karimzadeh, but they make other stakeholders nervous, which then prevents them from thinking about what to do if and when Durbin is resolved.
Issuers dont want to choose an approach to EMV and then later have to modify it to comply with the final regulations, says Todd Freyman, vice president of the Americas for Bell ID, a Dutch-based maker of software that prepares and loads data onto EMV-based cards.
In reality, though, changes necessary for compliance will be minor, he says. The exact form of those changes has yet to be determined but could include issuers making a small software configuration change or even changing nothing about the card-issuing process.
Its something that can be handled on the routing side, on the back end at the point of sale at the time of transaction, he says. So the idea of holding off on doing this, and making it a fire drill in the end to make these 2015 liability shift deadlines doesnt make a whole lot of sense to us, Freyman says.
The important thing is that the migration is not stopping because of that, says Randy Vanderhoof, executive director of the Smartcard Alliance and director of the EMV Migration Forum. Its still moving forward. Issuers are issuing cards. Merchants are implementing EMV-compatible hardware systems.
The EMV Migration Forum has formed a group to assess technology that would support debit routing no matter what regulations are ultimately enacted, Vanderhoof says.
The issues surrounding Durbin are not simply technical, says Spidle.
We have to find a technical solution to a business problem that all the business people will be happy with and understand, she says. Thats the challenge.
One issue the industry will resolve this year relates to testing and certifying the applications loaded onto EMV-equipped terminals, Vanderhoof says. Some acquirers have expressed concern about getting all their merchants through the process before the liability shift, he says. In response, members of the EMV Migration Forum are assessing ways to streamline and accelerate testing.
Some argue that the card brands will postpone the liability date, but Vanderhoof sees no indication of that.
Freyman hopes the major brands hold fast to the deadlines, in part because fraud is increasing, but Jae Haas, president of TransNational Bankcard, a merchant services provider based in Rosemont, Ill., views the 2015 date as too early.
Certainly, if the equipment manufacturers want for that to happen, and the card issuers push cards out, then I can see that coming to fruition, Haas says. Otherwise, we have a sneaking sense that its probably going to get pushed back again.