Will EMV debit get caught in Q4 payments rush hour?

EMV debit cards may get off to a slow start. Many changes in payment technologies are coming as retailers' busy fourth quarter selling season gets going, not to mention the debit card routing requirements. 

While the Debit Network Alliance just launched its shared application identifier (AID) for EMV debit routing, merchants will give priority to the EMV credit card transition, one that does not have the same routing regulations mandated by the government, PaymentsSource reported. At the same time, many of them will also implement new payment systems like Samsung Pay, Android Pay and, for those who are not already on board, Apple Pay.

All this will happen after the Oct. 1 fraud liability shift deadline meant to push retailers to move faster in transitioning to EMV, and when customers start rushing into the stores for their holiday shopping.

"It's a mess out there," said Tim Sloan, director of emerging technologies advisory services for Mercator Advisory Group. "I feel for merchants coming into the holiday season and having to deal with the debit AID, EMV and other things at the same time. It's really crazy."

"As we head into end of the year and the holiday season, nobody will want to be starting any ambitious projects that touch the POS systems," said Julie Conroy, research director and fraud expert, Aite Group.

Payment companies have struggled for three years over how EMV debit cards would comply with the Durbin amendment requirement that merchants be offered a choice of debit routing options. Other countries where EMV has rolled out do not mandate that multiple debit networks be linked to the same card, but the U.S. does, according to PaymentsSource.

By developing its own routing technology, the Debit Card Alliance's AID was designed to fill a gap that AIDs from MasterCard and Visa did not fill: an option for independent PIN debit networks.

"We have all of the certifications finalized and we are open for business, if you will," said Paul Tomasofsky, executive director at Debit Card Alliance. "We have both merchants and issuers that are actively working to have the alliance's AID functional, and they will be disclosed when it is all final."

The alliance's AID is for cards without national brands, such as those issued from banks that deal only with PIN debit networks, or those that have portions of card portfolios devoted to independent networks. The alliance's technology differentiaties itself by calling it a "shared" AID, reflecting the 10 major PIN debit networks making up the alliance.

Visa and MasterCard prohibit their common AIDs from being used on cards that don't carry their brands. That, in part, pushed the alliance to establish its own technology, Tomasofsky said.

MasterCard and Visa face the same challenges as the independent networks in getting EMV debit started. "Merchants will enable their terminals for credit cards first and then turn on the common AID for debit after the peak season, maybe in the next winter-to-spring time frame," said Stephanie Ericksen, Visa's VP of risk products.

As part of the Durbin amendment, retailers are not required go along with the card issuers and networks, which poses a challenge. "Merchants do not have to choose a network, they can default to one network if they want," Tomasofsky said. "It may not be a good business decision to default to one network, but a merchant doesn't have to choose to abide by Durbin."

The independent PIN debit networks may lose some transactions if merchants are slow to implement this technology—EMV credit cards are so much easier to accept, said Sarah Grotta, director of debit card advisory for Mercator. "You can have a credit card and walk into a merchant for that chip-on-chip transaction, but if you walk in with a debit card, the merchant may be set up for EMV, but not for debit.

"There are a lot of merchants who are going to have some difficulty putting together the software changes necessary for them to recognize the debit networks' AID, certainly in time for October, and probably far into next year," she said.

For more:
-See this PaymentsSource article

Related stories:
Everybody's talking 'payments'
Target ready for EMV, educating customers
The importance of pushing back the EMV fraud liability shift deadline
66% of IT execs say chip-and-signature provides insufficient security
Banks worried that retailers won't be ready for EMV

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