Best Practices for Enhancing the Debit Chip-Card Experience
By Bryan Manka
Complexity of U.S. Rollout has Created Inconsistencies at the Point of Sale
Fraud liability for debit transactions is now owned by the party that has not adopted EMV chip technology. This shift, which took effect in late 2015, prompted a transition to chip-enabled credit and debit cards and POS terminals. As of January 2018, an estimated 91 percent of U.S. debit cards were chip-based, according to the 2018 Debit Issuer Study, commissioned by PULSE and conducted by Oliver Wyman.
While many major merchants were early adopters of the technology, smaller retailers have been slower to make the transition. The gradual transition to chip-based transactions, combined with the requirements of Regulation II implementing the Durbin Amendment and changes in cardholder verification method (CVM), have created a chip card acceptance landscape in the U.S. that varies widely from card to card, and from merchant to merchant.
In many instances, debit transactions are approved as consumers would normally expect. In other cases, cardholders may be asked to sign in a merchant environment where they would normally use their PIN, eliminating the option to receive cash back. In rare instances, the transaction may fail and the consumer will have to use another payment option. They also may be asked to choose between a global network brand and "U.S. debit” when completing chip-card transactions.
To understand what banks can do to help their customers cope with this disparity of experiences, it’s important to first understand the factors that contribute to it.
Layers of Complexity
There are several layers of complexity involved in the U.S. transition to chip cards:
- Regulation II – Among other things, this regulation requires financial institutions to enable at least two unaffiliated networks on each debit card and enables merchants to determine routing priority among the enabled networks. U.S. chip debit cards must have at least two application identifiers (AIDs) to be compliant, and to facilitate merchant routing choice: a global AID from the payment brand on the card (Discover, Mastercard or Visa) and a U.S. Common Debit AID. The common AID enables routing to any of the supported brands on the card, including unaffiliated debit networks.
- Card Network Combinations – U.S. debit cards have one of three primary card brands and at least one unaffiliated debit network (but often two or three). This means cards can have dozens of possible combinations of enabled networks.
- Enablement Order – Because most banks enabled their credit cards with chips before their debit cards, merchants made a similar choice, enabling their terminals first for chip-based credit transactions. This means they enabled the global AIDs before U.S. Common Debit AIDs, and signature authorization before PIN authorization, in many cases. Many chip-accepting merchants still have not enabled the common AIDs. Depending on where each merchant is in the implementation process, the result is a wide variety of cardholder experiences.
- CVM Options – Many debit networks now support PINless POS transactions – and in the case of PULSE, even signature transactions. This blurs the lines between PIN and signature debit and has added another layer of uncertainty to the cardholder experience with chip cards.
- Terminal Configurations – Merchants and their acquirers make a number of choices when configuring payment terminals. These include preferences for AID selection and PIN, signature or PINless verification preference.
- Network Routing Choice – Acquirers make routing decisions based on the transaction information captured by the terminal.
Suggested Best Practices for Issuers
To assist your cardholders in navigating this complex environment, we suggest the following best practices:
- If you haven’t already done so, enable a common AID on all of your debit cards as soon as possible. If you issue PIN-only cards that are not enabled on one of the primary debit networks, license a shared AID from the Debit Network Alliance for those cards.
- Encourage merchants that have retail accounts at your bank to support a U.S. Common Debit AID to help maximize their routing choices, reduce costs and improve the cardholder experience.
- Educate your cardholders about the different verification methods they are likely to encounter in different merchant environments. Let them know that some fast-food restaurants and grocery stores often opt to use PINless debit for lower-value transactions.
- Inform cardholders that they may encounter terminals that ask the consumer to choose the AID by asking them to select either "U.S. Debit” or a branded network. Suggesting the U.S. Debit option will maximize the routing options and reduce your costs.
- Help your customers understand that their experience at the terminal may vary between PIN, PINless and signature verification. Similarly, they may be asked to verify mobile payments with their fingerprint or with their fingerprint and PIN. Let them know that this variation may persist for the foreseeable future.