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Payments News Update – August 13, 2020

Posted  August 13, 2020

Legal and Regulatory Developments

SPOTLIGHT: With a Compliance Deadline Looming, Technology Emerges to Ease Gas Pump EMV
Digital Transactions News – August 7, 2020

Sound Payments Inc., a multichannel technology provider that offers point-of-sale solutions for the petroleum industry, expects its partnership with National Retail Solutions, a subsidiary of IDT Corp., to accelerate adoption of EMV at in-pump card readers among independent gas stations and convenience stores. Sounds Payments argues its EMV in-pump card readers appeal to station owners because they can be retrofitted to existing pumps, which significantly reduces the cost of installation. The company’s Sound Easy Pump reader costs less than $1,000 per fueling point, or one-third of the cost of competing retrofit kits, says Bill Pittman, senior vice president for the  petro channel at Jacksonville, Fla.-based Sound Payments.

Bringing a fuel pump, which typically has four nozzles, into EMV compliance costs about $25,000 to $30,000 on average, fuel-industry experts say. The price can rise to $40,000 with the addition of loyalty, fleet card, and third-party marketing/discount programs. In comparison, a fuel pump replacement with a bare-bones EMV card reader is about $20,000. “We are looking to disrupt the space by making it more affordable to bring a gas pump into EMV compliance,” Pittman says. “One of the advantages of our solution is that gas stations don’t have to rip out and replace existing pumps, and our card readers can be installed one pump at a time, which means the station does not have to completely shut down for installation.” . . .


Appeals Court Backs Coinbase in Bitcoin Gold Fork ‘Breach of Contract’ Lawsuit
CoinDesk – August 12, 2020

A California appeals court has ruled in favor of U.S cryptocurrency exchange Coinbase over its decision not to support the Bitcoin Gold hard fork in 2017. Ruling at the state’s First Appellate Court (Division One), Judge Ethan P. Schulman agreed with the summary judgment of a prior trial court that was decided in favor of Coinbase, according to a court document filed on Monday. Plaintiff Darrell Archer first filed the lawsuit against Coinbase on March 27, 2018, alleging the exchange had violated its contract agreement with users over its stance on the Bitcoin Gold hard fork.

Coinbase told users it would not support the fork because the project would not release its code to the public and that, as such, it was considered a “major security risk,” per the filing. Archer also alleged Coinbase had retained control over the bitcoin gold (BTG) cryptocurrency resulting from the fork for its own benefit during that time. In a hard fork of this nature, a blockchain is split off to form a new chain (sometimes with new features) and a new cryptocurrency. In the case of bitcoin gold, bitcoin was forked, creating BTG tokens equal in number to those owned by holders on the original chain.
While investors are automatically awarded their new duplicate holdings if they held their bitcoin in their own blockchain wallets, exchanges decide whether to support the fork and pass new coins onto customers holding assets on their platforms. . . .


Profs Tell 2nd Circ. To Save Non-AmEx Retailers’ Steering Suit
Law360 – August 11, 2020 (subscription required)

A group of antitrust law professors are backing retailers at the Second Circuit that are looking to revive claims that ​​​​American Express’ anti-steering rules have increased the costs they incur when accepting other credit cards. Monday’s amicus brief from the professors comes as a group of retailers that do not accept AmEx cards appeals a mid-January decision from U.S. District Judge Nicholas G. Garaufis that dismissed their claims over rules that prevent AmEx merchants from steering customers to cheaper payment methods. The professors said in their brief on Monday that the case deals with so-called umbrella standing, where an antitrust violator increases its price and creates a price umbrella that other sellers can safely match.

“When that happens, all customers get hurt by higher prices regardless of whether they transact directly with the defendants,” the brief said. “As a matter of law and antitrust policy, even where plaintiffs have not directly transacted with a defendant, if their injuries are proximately caused by the defendant’s antitrust violations, plaintiffs deserve the redress that Congress chose to provide them.” The U.S. Department of Justice and a contingent of state attorneys general challenged AmEx’s anti-steering rules in a case that reached the Supreme Court in 2018 as Ohio v. American Express. In that case, the high court concluded the rules benefited AmEx cardholders after finding the business had to be evaluated as a two-sided market for the potential effects of its rules not just on retailers but on cardholders, as well. . . .


Coinbase Exits Industry Lobbying Group in Protest Over Recent Unspecified ‘Decisions’
CoinDesk – August 11, 2020

Coinbase has withdrawn from industry lobbying group the Blockchain Association. The move comes a day after crypto exchange rival Binance.US joined the group. “Recent decisions made by the association and its board seem at odds with the association’s mission,” a Coinbase spokesperson told CoinDesk without elaborating on those decisions.  “We believe that decisions made now have the potential to irreparably impair the credibility of the Association and make it increasingly difficult for it to achieve its goals and those of its members,” the spokesperson said.

With the departure, Coinbase vacates its founding seat on the Blockchain Association’s eight-person board and membership in the 24-strong organization, now down to 23.  As first reported by Fortune’s Jeff Roberts, Coinbase’s Tuesday departure is closely linked to another group’s Monday arrival: Binance.US. The U.S. affiliate of international exchange powerhouse Binance competes with Coinbase for American crypto investors’ accounts. . . .


The Clearing House on the Race for Real-Time Payments in the US
PYMNTS – August 10, 2020

Real time is getting ever closer to prime time. But it might not be the Federal Reserve’s doing. You’d be forgiven for thinking that faster payments might be the purview of the U.S. Federal Reserve, where details (a roadmap, really) of FedNow, the proposed instant payment system, were released earlier this month. But with a 2023-24 timeframe to implementation, the Fed’s efforts will take a while to cross the Rubicon from concept to reality. Waiting for the Fed — and its promise of interoperability, which requires participation from the private sector — is akin to playing the (very) long game.

In the meantime, as Russ Waterhouse, executive vice president of product development and strategy at The Clearing House (TCH), told Karen Webster, there are plenty of initiatives and use cases being embraced right here and right now to move the needle on speeding payments toward real-time ubiquity, away from paper checks and even from ACH payments that take one to three days — or more — to settle and post. These efforts include TCH’s efforts to connect financial institutions’ (FIs’) core banking systems to the company’s Real-Time Payments (RTP) network, along with what card networks and FinTechs are doing to enable real-time push payments to receiver bank accounts. . . .


FedNow Looks to Pilots Starting Next Year and Sticks to Its 2023 or 2024 Launch Plan
Digital Transactions News – August 6, 2020

While the Covid-19 pandemic has raised the issue of speeding stimulus payments and other relief to consumers and businesses, The Federal Reserve system is staying with its planned 2023 or 2024 launch date for its FedNow real-time payment service, officials said Thursday in an update that comes almost exactly one year since the central bank announced the service. “We look to be on track for 2023 or 2024 but I expect over the coming year we will be able to get a little more precise about when we’ll be able to deliver the service,” said Kansas City Fed president Esther George, who spoke during a Web presentation that included Fed governor Lael Brainard and Kenneth Montgomery, the Boston Fed executive who has been heading up the FedNow effort for the past year.

FedNow, which represents the central bank’s entry into a business that has been served so far by private-sector players such as The Clearing House Payments Co., is “designing a pilot program as we speak,” Montgomery said. The goal is to recruit participants later this year for pilots that could launch early in 2021, he added. But when what the Fed is now calling FedNow Instant Payments launches, it will not include cross-border payments or a so-called alias capability that would enable, for example, peer-to-peer payments to phone or bank-account numbers, George said. Aliases will come “at a later phase,” she noted, as the Fed concentrates on launching core functionality. As for international payments, “we need to laser-focus on getting the service to function domestically,” she added. . . .


Industry Developments

SPOTLIGHT: Debit Cards Dominating Retail Payments, Fueled by P2P and eCommerce
The Financial Brand – August 10, 2020

The 2020 Debit Issuer Study confirms the resilience of a mature payment method that adapts well to a digital world. Although card-present transactions still dominate, consumer use of card-on-file arrangements, mobile wallets and various account-to-account payments are all up sharply. For a product that was introduced before any Millennials were born — much less members of Gen Z — the debit card continues to show it has as many lives as the proverbial cat, adapting surprisingly well to an increasingly digital world.

Debit card transactions grew 6.5% in 2019, a healthy number in itself. However, the vast majority of that growth came from card-not-present (CNP) use. That, in turn, was driven by e-commerce transactions but also, notably, by rapid growth in a variety of account-to-account (A2A) transactions. These include person-to-person transactions from Venmo and Square Cash and other P2P apps, as well as payments made to gig economy workers such as Uber drivers. . . .

Coinbase to Offer Bitcoin-Backed Loans to US Customers
CoinDesk – August 12, 2020

Coinbase will allow U.S. retail customers to borrow fiat loans against as much as 30% of their bitcoin holdings in the fall, the San Francisco-based exchange announced Wednesday.  Coinbase is one of the largest and most regulated crypto exchanges to get into the lending business, and the exchange is setting conservative parameters on the product, capping credit lines at $20,000 per customer and offering an interest rate of 8% for bitcoin-backed loans with terms that are a year or less. Customers will not need to fill out an application or go through a credit check, however, and borrowers will be able to receive their loans in two to three days.

“Customers may use bitcoin-backed loans in different ways depending on their financial needs, including for large expenditures like home or car repairs, financing major occasions like a wedding, or helping to manage higher-interest personal loans or credit card debt,” Max Branzburg, head of product at Coinbase, said in an emailed statement. The product is available in only 17 states but Coinbase is pursuing licenses in other states and countries to be able to expand its lending service, he said. . . .


Amex in Advanced Talks to Buy Kabbage
American Banker – August 11, 2020

American Express’s small-business aspirations just took another step forward. The credit card giant is in advanced talks to buy Kabbage, a person familiar with the matter said, a deal that would make Amex a bigger lender to mom and pop shops. The company is already the largest U.S. provider of credit cards to those types of operations. Small businesses bounced back faster during the COVID-19 pandemic than other customers in Amex’s broader card portfolio, and Chief Executive Steve Squeri said last month that they were the “most resilient” through the crisis.

“Ninety days on now, we actually feel really good about the small-business portfolio,” Chief Financial Officer Jeff Campbell said last month, adding that a smaller percentage of balances in forbearance are tied to those loans. “Those numbers have come way down.” The all-cash deal could see Amex paying as much as $850 million for the closely held lender, including retention payments, according to the person, who asked not to be identified because the matter is private. An agreement might be announced as soon as this month, the person said, though talks could still fall apart. . . .


Facebook Is Getting More Serious About Becoming Your Go-To for Mobile Payments
The Verge – August 11, 2020

Haven’t tried Facebook Pay yet? Facebook wants to change that. Facebook is aiming for a more cohesive strategy around digital payments with the formation of a new division, Facebook Financial, that “will run all payments projects, including Facebook Pay,” according to Bloomberg. The unit is led by seasoned Facebook exec David Marcus, who was formerly in charge of Messenger before moving on to focus on the company’s blockchain efforts and Libra cryptocurrency.

He’ll still be overseeing that effort, but Facebook Financial will prove equally important if not more so as the company seeks to get its hugely popular apps — Facebook, Messenger, Instagram, and WhatsApp — running on the same messaging backbone. Facebook Pay lets you send money to friends / family or purchase goods across Facebook’s software platforms. In the US, it can be used in Facebook, Messenger, and Instagram, though elsewhere in the world it’s still largely limited to the core Facebook app. . . .


Visa: Forging a ‘Network of Networks’ to Modernize B2B Payments
PYMNTS – August 11, 2020

From a lack of supplier acceptance of electronic payments to outdated infrastructure within accounts payable (AP) departments, the B2B payments ecosystem still has much room for improvement on multiple fronts. Moving the needle in the journey away from paper checks isn’t a one-sided battle, either. Indeed, solving some of the biggest AP challenges increasingly requires aa strategic focus not just on the payer, but on the supplier accepting that transaction. That’s the crux of Visa‘s and Billtrust‘s strategy behind the Business Payments Network (BPN), their collaborative B2B payments solution. Launched in 2018, the BPN tackles friction by enhancing connectivity between buyer and supplier, enabling both sides of a transaction to seamlessly execute the movement of both funds and data.

But as B2B payments digitization pressures grow as a result of the pandemic and corporates’ accelerating mindset shift to embrace modernization, it’s becoming clearer than ever that tackling friction in this arena will take a collaborative effort. Now, as Visa and Billtrust move to scale the solution, they’re doubling down on the concept of network connectivity. With the announcement that BPN is expanding to include support for ACH and wire transactions as well as card payments, Visa and Billtrust are casting a wider net of collaborators. Kevin Phalen, Visa’s head of global business payments, said the expansion isn’t only about providing greater payment choice for buyers and suppliers; it’s also about bringing in more financial institution (FI) partners. . . .


Why Kroger Finally Said Yes to NFC
PaymentsSource – August 11, 2020 (subscription required)

It took years for NFC payments to gather momentum in the U.S., with merchants initially dragging their heels to enable contactless technology at payment terminals and banks waiting until 2018 to begin the slow rollout of NFC-enabled cards. But coronavirus has made a compelling case for the contactless payments’ more hygienic approach to checking out in stores, making it tougher for merchants to continue resisting NFC. The latest to reverse course is Kroger Co., which recently announced an NFC pilot at its QFC chain of 61 stores in the state of Washington, where it’s accepting Apple Pay and Google Pay for the first time.

Kroger was one of the last large merchants—along with Walmart—still blocking NFC at checkouts in favor of promoting its own Kroger Pay QR code-based shopping-and-payments app. Kroger Pay rolled out last year as part of Kroger’s omnichannel shopping strategy to link online and in-store purchases.CVS was another laggard that waited until late 2018 to adopt NFC, while Walgreens, McDonald’s and several other national retailers have supported NFC at their stores for almost six years. But coronavirus forced Kroger’s hand in a couple of ways. Kroger’s Scan, Bag & Go app supporting in-store self-checkout, which is linked to Kroger Pay, was suspended in March because it proved too difficult to keep the keypads sanitized on the optional hand-held scanners stores provided. . . .


How Merchants Want to Shape the New Retail Landscape
PaymentsSource – August 11, 2020 

John Drechny, the CEO of the Merchant Advisory Group, talks to PaymentsSource Associate Editor David Heun about how merchants are looking beyond the coronavirus crisis — and how every choice merchants make today will have consequences that last well beyond the pandemic. Retail will never be the same, even after the coronavirus pandemic eases. A lot of merchants who resisted the shift to digital or preferred to be cash-only are finding that the only way to survive the crisis is to modernize the way they handle payments.

But it’s not as simple as buying a card reader off a shelf or building a website. Any decisions that merchants make is a choice on which digital option they support and which they do not. Are they okay with the cost of accepting mobile wallets like Apple Pay and Google Pay? Do they see the cost of EMV and NFC terminals as worth the security benefits they provide? What’s the best and most secure way to take payments online? The answers to these questions can come from anywhere, including the card networks or the technology vendors who provide the solutions, as well as industry groups like the Payment Card Industry Security Standards Council. But the merchants’ point of view is just as crucial. . . .


Deep Dive: The Pressures Pushing Banks to Modernize Their Payments Infrastructures
PYMNTS – August 10, 2020

A multitude of payments flow between businesses, government agencies, individuals and others in the U.S. The Federal Reserve recently estimated that there were 174.2 billion non-cash payments with a total value of $97.04 trillion in 2018, marking a $10.25 trillion rise from 2015. Credit and debit card payments accounted for 75.3 percent of all non-cash payments made, with debit cards being roughly twice as popular as credit cards.

Financial institutions (FIs) and payment providers are constantly looking to improve and accelerate payments for various reasons. Consumer demand for real-time payments is the most popular, with 77 percent of institutions citing this as a primary factor. Sixty-eight percent cited the need to quickly bring solutions to market and 58 percent said they need to reduce costs or maintain profit levels. The following Deep Dive explores how each of these factors is driving FIs to embrace fresh, innovative payment solutions as well as the consequences they could face if they do not. . . .


A Race to Dominate Crypto Debit Cards Has Begun
Forbes – August 10, 2020

Halfway through this year, the Wirecard scandal shocked the world. What was once a tech darling, soon became a subject of controversy within financial circles. Before the news came to light, it appeared Wirecard could emerge as a dominant player in the crypto debit card space, but now, as Wirecard’s preliminary insolvency proceedings take place, the race to dominate the crypto card market has begun. In June, Wirecard filed for insolvency admitting 1.9 billion euros ($2.1 billion) absent from its accounts was non-existent. Former CEO Markus Braun was arrested and suspected of market manipulation. Wirecard was not the first, and it is unlikely to be the last to face regulatory scrutiny of its business practices in the crypto debit card space.

In 2018, WaveCrest, a worldwide digital payment solutions provider, was ordered by Visa V +2.4% to close all Visa prepaid cards immediately they had issued. Visa’s demand led to the suspension of many customer’s prepaid cryptocurrency cards in Europe. Visa stated WaveCrest had not been following Visa’s membership regulations but did not offer specifics regarding non-compliance. During the ICO craze of 2017, Central Tech promised the development of Centra Card, which allegedly could be used at Visa and Mastercard MA +3% terminals to make payments tapping into the customer’s cryptocurrency holdings. The company employed celebrities such as boxer Floyd Mayweather and DJ Khaled to promote its ICO. Experiencing delays, Robert Farkas, co-founder of Centra Tech, pled guilty during this year for securities and wire fraud. . . .


Have We Reached a Tipping Point for Digital and Mobile Wallets?
Digital Transactions News – August 10, 2020

North American shoppers are notorious for their devotion to plastic. Credit cards remain the leading consumer payment method across the Continent today. However, mobile-payment methods are slowly revolutionizing the way they pay. In a recent consumer-behavior survey by Worldpay from FIS, 56% of respondents admitted they believed smart phones will replace debit and credit cards as the primary method of payment in five years. These figures were even more significant among Gen Z and Millennials. Moreover, recent research has found that the Covid-19 pandemic has accelerated the adoption of mobile and digital wallets.

In 2019, almost 80% of U.S. consumers indicated their preference for using a debit or credit card when shopping online, according to Worldpay’s study. The remaining 20%, however, noted their preference for digital wallets like Amazon Pay, Apple Pay, and PayPal. Digital and mobile wallets have emerged only in the last decade, and industry visionaries have consistently predicted that they will inevitably phase out their much older, plastic brethren. Yes, this shift has been on the horizon for some time now. But North Americans continue to lag behind other countries in digital- and mobile-wallet adoption. For example, in China, digital wallets like AliPay are now the leading form of e-commerce payment and are projected to surpass cash at the physical point of sale by 2023. While we’ve seen a coming tipping point for mobile-wallet use in North America, the extent to which the pandemic will accelerate that adoption remains to be seen. All signs, however, are suggesting change will come quickly in the wake of the global crisis. . . .

 

– By Kristian Soltes. For questions about this newsletter or its content, contact ksoltes@constantinecannon.com.

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