Working out an EMV implementation strategy that preserves network routing options and still satisfies government regulations has been an ongoing vexation for the U.S. payments industry.
A new white paper presents three integrated chip card application strategies that would use BIN/card prefixes, interchange agreements or fees, or other methods to determine the routing path for online debit transaction requests — including EMV — as is the case in other countries where EMV is supported.
Importantly, two of these alternatives could prove faster and less expensive than developing an entirely new U.S. debit ICC, an approach recently suggested by the debit working committee of the EMV Migration Forum.
Deborah Spidle, director of EMV solutions at Paragon Application Systems, and Mansour Aaron Karimzadeh, managing director at SCIL USA co-authored the paper.
Spidle, who recently earned Certified Smart Card Industry Professional/Payments Certification from the Smart Card Alliance, will also discuss EMV at an integrated payments workshop during the ATMIA US conference, Feb. 19–21, in Scottsdale, Ariz.
Following are excerpts from the executive summary of the white paper, which is available for free download at the link below.
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Concerns related to EMV transaction routing
The Debit Working Committee of the EMV Migration Forum identified the business objectives of EMV migration for U.S. stakeholders. A primary requirement was that merchants, merchant acquirers, and processors "must be able to make routing choices as prescribed by Durbin" (which requires that a debit acquirer must have a choice of two ways to route a transaction to the Issuer).
To achieve this and other business objectives, the committee suggested developing a single U.S. debit integrated chip card application for all EMV cards issued in the U.S.
Typically, ICC applications are not used for EMV transaction routing; instead, routing is determined by the BIN/card prefix, interchange agreements or fees, or other methods. In addition, there are other issues related to transaction routing that a new ICC application will not resolve. And developing a new ICC application, or modifying an existing ICC application or profile, would require considerable time and expense.
Fortunately, there are several ways in which the business goals established by the committee may be achieved.
Regardless of the ICC application strategy that is selected, each issuer must be able to validate the EMV data in online transaction requests. Because the application identifier — which indicates the ICC application that was selected by the chip card and the terminal for tasks such as risk management and cardholder verification — is not carried in most online transaction request messages, it can be a challenge for the issuer's authorization system to know what key and algorithm to use to validate the EMV data.
Visa, MasterCard, Discover and American Express have announced roadmaps for EMV migration in the U.S. One concern related to U.S. EMV migration is the ICC (Integrated Chip Card) Application Selection process, mandated by EMVCo. Specifically, U.S. stakeholders are concerned that the resulting ICC application selected by the terminal would conflict with the Durbin amendment requirement that acquirers must be able to route transactions via at least two debit networks.
In most countries, there is only one national debit network and all domestic debit transactions are routed through that network. In the U.S., however, there are many debit networks and many existing transaction routing agreements. The business model for these networks centers on high transaction volumes. Similarly, financial institutions prefer to route transactions using processors with which they have negotiated the most favorable rates.
How can flexibility in transaction routing be preserved for merchants and acquirers? Because the existing ICC applications, already certified by EMVCo, are provided primarily by payment associations, there is a common misconception that transactions using those ICC applications must be routed to networks affiliated with the application-owning payment network.
This is not the case. For example, even if the card and the terminal use a MasterCard ICC application to determine cardholder verification methods, etc.; this does not mean that this ICC application (or its identifier) must be used for routing, nor does it mean that the transaction must be sent to MasterCard or a MasterCard-affiliated network. Instead, the routing path for an online debit transaction request (including EMV requests) is determined based on BIN/card prefix, interchange agreements or fees, or other methods. All networks must pass EMV data, in its original form, to the Issuer or OBO (on behalf of) party, regardless of the transaction path that is selected. Although each message format may carry the EMV data in different fields, or present the fields in a different order, all network specifications must adhere to EMVCo standards regarding the minimum data fields that must be included in the transaction request message.
The full, 20-page white paper "Finding the Best Route for EMV in the U.S." is now available from Paragon for free download.
Read more about EMV.
cover image: FutUndBeidl