New Debit Network Alliance Awaits Industry Response

The Debit Network Alliance, formed this week through the collaborative effort of ten PIN debit networks, is seeking the membership and cooperation of other industry players, including the major card brands.

If Visa and MasterCard offer a license for debit card routing technology to the new Debit Network Alliance, it would go a long way toward the company's goal of providing a common solution to meeting federal mandates about EMV-chip card routing, says Paul Tomasofsky, the alliance's executive director.

The company seeks to ease the industry's struggles with meeting the Durbin amendment's requirement of at least two network routing choices for debit transactions as the U.S. shifts to EMV-chip cards.

Visa and MasterCard agreed to a "multi-access" approach in late July, offering to share their technology with other networks. But shortly thereafter, a federal judge ruled that the Federal Reserve Board must revisit its implementation of the Durbin amendment. That decision potentially erased much of the progress the payments industry has made toward supporting EMV debit payments.

So far, the major card brands have not responded to inquiries from PaymentsSource about the debit networks' formation of the new company.  Tomasofsky says he does not know what the card brands' response will be.

Visa's position in the past has centered on "multi-access," allowing an issuer to place a single application on a card that can facilitate transaction routing to multiple networks by "personalizing" more than one application identifier on that single app.

The independent debit networks have softened their stance in using only Discover's technology for an application identifier, in hopes that a common standard could be established throughout the industry, Tomasofsky says.

"The new company is not looking to use our own technology," Tomasofsky adds. "We would use theirs [any of the major card brands], but they would be there with us to license the technology to the group and help us govern its use."

A bit of "power politics" may yet unfold as the card brands determine what to do next, says merchant acquirer consultant and industry researcher Paul Martaus, of Mountain Home, Ark.-based Martaus & Associates.

"As part of their charter, the major card brands have to continue seeking maximum revenues as a prolonged reality," Martaus says. "Their schemes, relative to EMV, have to reflect that reality."

Any networks that use the card brands' standards generally have to use the card brands' gateways, Martaus says.

Regardless of what the major card brands decide in terms of their position with the new alliance, the new company created through the debit networks is "better for the industry," says Madeline K. Aufseeser, senior analyst with Boston-based Aite Group.

"I think it is very good that they are banding together like this," Aufseeser says. "Visa and MasterCard really have nothing to worry about, as they will be the predominant signature network on the cards."

It pays dividends for all of the networks to join forces to support EMV to combat fraud, she adds.

"This new alliance should not be viewed as a threat to the card brands," Aufseeser says. "It just makes it easier for everyone to work together."

Even if it takes some time before card brands determine their stance with regards to the network alliance, issuers will only have to establish one app to cover routing of all of the debit networks, Aufseeser says.

Still, all of the networks have a lot at stake in light of the federal court machinations because, ultimately, debit cards will have to have two PIN and two signature networks as options, she adds.