EMV is receiving a lot of well-deserved attention. Overseas, this technology has proven its ability to create a more secure transaction and to reduce fraud. As the benefits of EMV technology continue to surface globally, so do the challenges this technology presents to the U.S. payments industry.
The challenges lie in how transactions are currently processed in the U.S. More specifically, EMV is facing hurdles in three areas:
- federal regulation, including Regulation II, or the Durbin Amendment;
- the competitive payments networks environment; and
- merchant and issuer flexibility.
In short, Regulation II mandates that merchants have a choice of at least two networks over which to route a debit transaction. The rules also stipulate that choice may not be directly or indirectly influenced by the card issuer.
This means that the merchant, or in many cases the "merchant acquirer-processor" on behalf of the merchant, must be allowed to choose the network over which to route a transaction.
Today, transaction routing is done at the merchant acquirer's host system and is a dynamic and complex algorithm. This algorithm can vary by processor and uses various attributes of the transaction. These may include items such as the device, the type of transaction, the amount of the transaction, and the merchant location.
However, unlike magnetic stripe technology, the EMV standard as written and implemented in most countries does not allow the merchant or acquirer to select a network once the transaction is in progress.
My next blog will focus on the ways in which EMV transactions currently determine the payments network. I will also detail the specific reasons why EMV will not work in the U.S. unless changes are made.
Terry is an integral part of the Shazam team, bringing more than 20 years of financial and electronic funds transfer industry experience and expertise that keeps Shazam at the forefront of EFT technology. He leads all IT strategy and development.