I’ve been reading a lot recently about many companies wanting to use the EMV card and terminal service ‘application selection’ to facilitate different types of payments and also for so-called ‘tender steering’, but it seems that few have actually taken the time to read the manual before devising their solution. Primarly, few seem to know precisely what is application selection and therefore whether it will continue to have relevance in the potential mobile and NFC future.
In essence, a chip card issued for payments purposes may contain more than a single payment application, thus enabling a choice of payment methods for the cardholder at the moment of payment. This is very similar to the concept of a mobile wallet, where an app on the device can hold details of multiple payment instruments. However, in the card environment, the availability of applications for selection by the cardholder is dependent on what is loaded on their card, and also the ability for the merchant POS to handle it. Application selection in the cards world is therefore the method by which a cardholder is able to select which payment instrument to use at the POS.
Although only recently properly exploited, the theory of application selection has always been a bone of contention between merchants, regulators and schemes. EuroCommerce, the merchant’s association has been one of the main champions of changing application selection towards defaulting to the lowest-cost payment method.
However, their suggested changes to the application selection guidelines demonstrate the inclarity of the currently documented rules around application selection and show that this may be the achilles heel in card technology to which mobile can provide the best customer-focussed answer.
In an EMV transaction flow, application selection is the first process following insertion of the card into the terminal.
“During an EMV card session…application selection using the commands and techniques described…shall be the first process performed immediately after contact activation/reset of the card and prior to the first application function.”
There are currently two methods of physical application selection, implicit and explicit. ISO 7816 describes implicit selection, whereas EMV recommends explicit selection. Both terminal and card may hold multiple applications for the processing of transactions for different schemes. Implicit selection is where the card and terminal perform a mutual matching for each application that they hold (e.g. I have Visa, do you have Visa?), with the terminal compiling the selection list as per its own application order. Whereas in explicit selection the terminal collects a candidate list from the card and matches it against its own candidate list to compile the selection list – retaining the application priority order from the card as selected by the issuer if available. The EMV specification, however, clearly favours explicit selection:
“It is not recommended that the ICC and the terminal use implicit selection as defined in ISO 7816, as it is not useful in an interchange environment. If used, it shall be performed outside the EMV card session.”
The selection list, once created through either selection method, is displayed on the terminal prior to initialisation of the transaction (i.e. prior to input of the transaction value). Dependent on the software and hardware configuration, this list can be displayed to merchant or to the cardholder, meaning that in reality it is not always the cardholder that chooses the application. For example, if the terminal is a single, standalone device that is used for both merchant and cardholder interaction, it is usual practise for the merchant to enter the card, select the application and then enter the transaction amount. In most situations where the terminal is an integrated PIN Pad, the list is usually displayed to the cardholder.
“If a list is presented to the cardholder, it shall be in priority sequence, with the highest priority application listed first. If there is no priority sequence specified in the card, the list should be in the order in which the applications were encountered in the card, unless the terminal has its own preferred order.”
It’s worthy of note however, that limitations of the terminal hardware can play an important part in application selection. For example, if the terminal has only a 2-line display and no scrolling capability, it becomes impossible for the cardholder to select application 3 and beyond despite their potential availability in the selection list.
The choice of which applications are loaded onto the card, and therefore the order in which they appear in an explicit selection model, is determined by the card issuer, usually through contractual agreement with the cardholder as stipulated in the SEPA Cards Framework v2.1 paragraph 3.6.1:
“In accordance with Directive 2007/64EC, where several payment applications are made available by the issuer in the same card, supported by the same terminal, and are accepted by the merchant, cardholders will have through their cardholder agreement with their card issuer the choice of which payment application they will use provided the merchant accepts it and its POS equipment supports it. The agreement between the cardholder and the issuer will define the choices available to the cardholder.”
The card issuer is able to specify a priority list for these applications and if, as recommended by EMV, explicit selection has been performed by the terminal, this will be adhered to. Either way this pretty much excludes the possibility for consumers to choose something different once their card has been issued.
As you can see, application selection has been built around a passive device principle (e.g. chip card) where the terminal does most of the crunching upon reading instructions. What the mobile wallet and NFC connection do to this principle is invert it – e.g. the user chooses prior to interacting with the terminal and so avoids potential acquirer or merchant pre-decisions, but based on a dynamic process rather than one predefined by relationships.