The U.S. payments industry has long agreed to disagree on the way to properly route EMV debit transactions, stalling the country's shift to chip-based cards. First Data hopes its decision to support and share Visa's technology will finally break the stalemate.
To combat the debit networks' concerns that debit routing would become a competitive differentiator for the major card networks, Visa has agreed to offer its common application identifier (AID) without a licensing fee and for an extended period of time.
"This is a very long-term arrangement and it covers all of the relevant CVMs [cardholder verification methods] that use that common AID," says Barry McCarthy, president of First Data financial services. "[First Data's Star Network] will be able to use that same application ID for any future card verification methods."
Mostly, the common AID can be "a neutral specification, not intended to be a competitive tool," McCarthy adds. "It allows the networks to compete on something besides the AID, as that is common and shared between us."
The independent networks in the Debit Network Alliance, of which Star Network is a member, have long emphasized the need for a neutral specification. Networks in the alliance, which was established to create a common AID with a neutral governing body, include Pulse, NYCE, Co-op Financial Services, Jeanie and Shazam.
"I can't speak for the other networks, but First Data is proud to have paved this pathway with Visa, not only for First Data and Visa, but for the industry, consumers and merchants," McCarthy says.
Star Network hopes that MasterCard will come forward with a similar licensing arrangement for the routing of MasterCard-branded cards, McCarthy says. MasterCard has previously said its common AID meets all of the requirements of issuers and merchants.
The Visa agreement "on the surface, is a good step," says Paul Tomasofsky, executive director of the Debit Network Alliance. "The alliance has always advocated for having three CVMs processed through a common AID, and that was a sticking point for a long time and it seems like it has been resolved here."
It will be important for other networks to study the arrangement, Tomasofsky says. "You can't have a common solution unless all of the networks are in on it," he adds.
Visa is looking to keep momentum from the First Data licensing agreement moving forward with other networks.
"We continue to be in active dialogue with all of the other networks, the major ones and the smaller players," says Kimberly Lawrence, senior vice president for corporate initiatives for Visa. "I think everyone in the industry is interested in a clear path forward for this EMV solution."
No other country in the world deploying EMV technology had more than two networks. The U.S. has more than a dozen debit networks, and the Durbin amendment's routing mandate requires that merchants have a choice of networks for handling debit transactions.
The payments industry was on a path to resolving these issues until federal Judge Richard Leon complicated the issue in July, Lawrence says. Leon instructed the Federal Reserve Board to reconsider whether a choice of only two networks for routing followed the spirit of the Durbin amendment in providing merchants a choice.
"We felt we were making good progress in 2013 when Visa and MasterCard announced their common solutions, but the uncertainty that was brought about by debit regulation rulings really stalled out that progress," Lawrence says. "The recent data breaches really brought everyone's attention back to solving this debit routing issue."
Last summer, Visa and MasterCard agreed to share their common application identifier technology for EMV debit transactions to originate from a single app, while giving merchants a choice of networks for routing.
The card brands' decision came the same week in July when the Secure Remote Payment Council, whose membership later formed the Debit Network Alliance, announced it would welcome Visa and MasterCard applications on EMV chip cards. The council felt it was a significant concession because a few months earlier it had chosen Discover's technology for the common AID for independent networks.
Despite these concessions, there was never an agreement on a single common AID.
Visa still must work to appeal to the remaining debit networks, says Brian Riley, senior research director and analyst with Boston-based CEB TowerGroup.
"First Data is absolutely a logical place to start, but it's not the only game in town," Riley says. "There are other places they have to go other than First Data to really socialize this whole thing."
It's imperative for Visa and MasterCard both to "get beyond issues like this debit routing" because so many other technology advancements demand the card brands' attention, Riley says.