MAG Insights

Announcements from the MAG & Featured Articles

Letter from the CEO: Why the MAG Supports Open Payments Standards (MAG Quarterly- Volume Three, Issue Four)

By Mark Horwedel, CEO, The Merchant Advisory Group

December 8, 2015

Since the inception of the payments card business market participants and stakeholders have worked together to develop interoperable standards. Typically, their efforts were facilitated by ISO, the International Standards Organization, and the over 160 individual standards bodies of the countries that roll up to ISO. “ISO Standards are developed through a multi-stakeholder process” and are based on consensus from all stakeholders.

ISO Standards are set forth in documents “that provide requirements, specifications, guidelines or characteristics that can be used consistently to ensure that materials, products, processes and services are fit for their purpose. ISO Standards ensure that products and services are safe, reliable and of good quality. For businesses, they are strategic tools that reduce costs by minimizing waste and errors, and increasing productivity. They help companies access new markets, level the playing field for developing countries and facilitate free and fair global trade.”

ISO Standards have played an important role in the evolution of the payments. For example, ISO Standards set forth specific processes and formats for embossing and encoding magnetic stripe payment cards, as well as defining the physical properties of the cards themselves. There are also standards that define how payments systems communicate with one another and how they transmit data securely throughout the broader payments system. Adherence to these Standards provides assurance to the banks that issue payments cards that their cards will be accepted at merchant locations. They also assure merchants that their POS systems conform to the technical specifications necessary to accept payment cards.

Historically, there have been numerous attempts within the payments industry to employ proprietary technology to avoid competition and to retain existing customers. Some of these attempts have worked to enrich owners of proprietary technology at the expense of business customers (often banks and credit unions) by effectively creating artificial barriers that preclude shopping for more cost effective payments solutions. Examples of this misuse include minor tweaks of ISO Standard message formats for processing payment transactions, or use of proprietary approaches to encrypting messages or devising unique PIN validation routines. Often, there is little compelling evidence that the abuser’s proprietary technology represents a significant improvement or breakthrough. Eventually, the market catches up to these shenanigans and technology buyers insist on conformance with ISO Standards, but a lot of damage can be done before the market wakes up.

The MAG has recently begun to speak out aggressively in support of the open standards approach to payments exemplified by ISO and its U.S. chapter ANSI, the American National Standards Institute. We believe the adoption of proprietary pseudo-standards implicit in EMV card and payment device specifications as well as the use of proprietary processes for tokenization of payment transactions are bad for all stakeholders in the payments system except for the owners of the proprietary technology. Non-owner competitors to the prominent international card brands already appear to be suffering, as are merchants, payments innovators and others who are not permitted to sit at the proprietor’s table.

NOTE: Comments made by the MAG should not be attributed to the individual members.