The Green Sheet Online Edition
October 12, 2015 • Issue 15:10:01
Durbin strikes again
On the fourth anniversary of the implementation debit interchange price caps imposed by the Durbin Amendment to the Dodd-Frank Act, all appears to be quiet on the Washington front. Once the law went into effect, the controversial topic did not command significant, lingering attention from lawmakers.
A few minor updates to the Dodd Frank Regulation II ruling have been made, but on the whole, the bill and its provisions have remained intact. The one exception was an amendment enacted in October 2012, adding up to one cent per transaction for issuers that met certain fraud-prevention standards.
Some sources say interchange is no longer on the minds of those in Congress. Scott Talbott, Senior Vice President, Government Affairs at the Electronic Transactions Association told The Green Sheet that Congress is currently occupied with other high-priority payment topics. "Congress is primarily focused on cybersecurity issues and chip-migration right now," he said.
A complicated mandate
However, despite the fact debit interchange concerns are no longer at the top of the congressional agenda, the industry is still experiencing residual ramifications of Durbin. Talbott alluded to another Durbin related challenge in the debit arena few would have considered at the time the Durbin legislation was enacted. In Talbott's words, "The Durbin routing and exclusivity rules have created a challenge for the industry in implementing chips on debit cards."
In short, while the Durbin Amendment is most known for its ruling pertaining to debit card interchange fee restrictions, the bill also includes language dictating the number of routing networks each debit card must be affiliated with.
These networks are recognized by universal industry application identifiers (AIDs) printed directly on the face of each card. Prior to the Durbin amendment's passage, the card issuers were required to associate and print only one network AID per card. The ruling now requires that two or more unaffiliated routing networks be assigned to each debit card.
This part of the amendment was developed to minimize exclusivity and promote healthy competition among the issuing networks by offering merchants a choice of networks through which to run debit transactions. Implementation and adherence weren't initially a problem for the industry, and thousands of new debit cards were issued with multiple network AIDs. That is, until the new Europay, MasterCard and Visa (EMV) migration priority posed a residual Durbin-driven challenge.
As card issuers began to replace consumer credit cards with chip-enabled cards, the chips were programmed uniquely according to the networks they belonged to. However, the Durbin Amendment, which had no bearing on credit cards, resulted in an industry impasse for EMV debit card issuance. Given that no two chips are alike, the process became more complex, and issuers realized enabling debit chip cards to work with multiple routing networks would require a little ingenuity, as well as a lot of collaboration.
Working together to define solutions
To the industry's credit, both the ingenuity and the collaboration occurred. Members of the issuing networks, the card brands and other industry leaders convened in a number of working groups to analyze the technological and logistical steps required to establish a common solution. As of February 2015, an agreement had been reached, and the industry pressed forward in the development of debit chips capable of utilizing a universally recognized language across every industry network.
This represents an honorable win for the industry, but the manufacturing time lost put the card brands and device manufacturers into a scramble for meeting the Oct. 1, 2015, EMV deadline. As a result, the implementation of chip-enabled debit cards has been considerably slower than initially expected, with some experts predicting a mere 25 percent debit migration rate by the liability shift deadline.
Nevertheless, Talbott commended industry leaders for taking a collegial, proactive approach to resolving a difficult implementation problem. And, he noted, it is a practice that is now being witnessed by lawmakers themselves.
Most recently, industry solidarity was exemplified at the ETA sponsored Capitol Hill Fly-In, where leaders in payments came together to offer policymakers industry-level insights on electronic commerce, fraud and EMV. "Even though we're competitors during the day, we come together to protect consumers and fight common enemies like fraud," Talbott said.
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