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Payments News Update – October 16, 2020

Posted  October 16, 2020

Legal and Regulatory Developments

SPOTLIGHT: 10 Ways Fintech, Payments Are on the Ballot in the 2020 House Election
PaymentsSource – October 11, 2020

As the House of Representatives enters the 2020 election season, the outcome stands to encourage or rein in a group of technology companies that are encroaching deeper into financial services. The representatives voters send to Congress in 2021 will play a role in deciding how much of a “bank” big technology companies like Facebook can be, and how much power Amazon and Google can have over data, marketing and digital commerce. There’s a general consensus that these companies have a concerning amount of power, but Republicans and Democrats have different views on how to regulate the world’s technology giants.

The Red/Blue divide will also help determine the role government plays in enabling cash access, delivery of coronavirus stimulus, a central bank digital currency, enabling financial inclusion, cryptocurrency, cannabis and a host of other issues that guide how merchants and consumers conduct business. Unlike the presidential and Senate races, where the basic power divide hangs in the balance, there’s probably not as much drama in the overall House election. Most of the issues that affect financial services are championed by members of the House whose seats are not in immediate jeopardy. . . .


TD Sues Plaid Over Trademark Infringement, False Advertising
Banking Dive – October 15, 2020

TD Bank accused Plaid of trademark infringement and false advertising Wednesday in a lawsuit filed in the U.S. District Court for the District of New Jersey.

The bank said in a court filing the data aggregator knowingly created a user interface that features TD’s trademark, logos and green color scheme and mimics the bank’s login page in an effort to “dupe” TD customers who are linking their bank accounts to payment apps “into believing they are entering their sensitive personal and financial information in the bank’s trusted and secure platform,” American Banker and The Canadian Press reported. “In reality, however, consumers are unwittingly giving their login credentials to the defendant, who takes the information, stores it on its servers, and uses it to mine consumers’ bank records for valuable data (e.g., transaction histories, loans, etc.), which the defendant monetizes by selling to third parties.”


UK Government Outlines Plans for Retail Cashback Without a Purchase
Finextra – October 15, 2020

Brits will be able to get cashback from shops without needing to buy anything, under new proposals from the UK Government to protect the nation’s cash system. The decision follows years of campaigning from consumer advocates over the disappearance of cash from the UK’s high streets as banks abandon branches and rip out ATMs. The global pandemic has further accelerated the decline of cash, forcing the Government’s hand to introduce new rules to ensure that cash remains available for those who prefer it to digital alternatives. John Glen, economic secretary to the Treasury, says: “We know that cash is still really important for consumers and businesses – that’s why we promised to legislate to protect access for everyone who needs it.

“We want to harness the same creative thinking that has driven innovation in digital payments to maintain the UK’s cash system and make sure people can easily access cash in their local area.” The Government says Britain’s imminent exit from the EU will enable it to skirt PSD2 rules that currently label cashback without a purchase as a regulated payment service. Alongside legislating for retail cash back, the Government is also proposing to provide the Financial Conduct Authority with overall responsibility for maintaining a “well-functioning” retail cash system. At present, The Bank of England, Financial Conduct Authority, Payment Systems Regulator, and HM Treasury each have specific roles and responsibilities for oversight of the cash system. . . .


Post-PSD2: One Year On, Where Are Open Banking Payments Now?
The Paypers – October 15, 2020

Since PSD2 went ‘live’ in September 2019, a raft of Payment Initiation Service Providers (PISPs) has emerged, enabling consumers the fast, convenient option of paying straight from their bank account, as well as offering a range of benefits to merchants. Open Banking ePayments (OBeP) are now one of the fastest-growing payment methods in EMEA, where they are set to overtake both credit and debit cards in popularity by 2023. So, over the course of the first year, how have Open Banking payments shaped up – and what’s on the road ahead? It has been a bumpy journey for many involved, with a lot of APIs initially failing to deliver a simple user experience.

For example, in some cases, the OBeP process has involved numerous redirects and excessive security measures, such as requiring customers using a PISP to go through two or more Strong Customer Authentication (SCA) processes. Other banks have claimed that allowing third parties to access their apps was too complex and have instead relied on other authentication routes that offer a more stilted user experience. An intervention by the European Banking Authority has helped this situation improve, by pushing banks to ensure their process flow is more fluid, with fewer steps for consumers. . . .


Australian Central Bank Sees No Public Policy Case for Retail CBDC
Finextra – October 14, 2020

Brushing aside concerns over monetary sovereignty, the Reserve Bank of Australia says that the public policy case for issuing a general purpose or retail CBDC in Australia is still to be made. The RBA’s view, expressed by the central bank’s head of payments policy Tony Richards, kicks against a rising tide of interest in other jurisdictions about the potential of a central bank-issued digital currency as a means of counteracting waning cash usage among the general population. Earlier this month, a group of seven central banks together with the Bank for International Settlements (BIS) published a report laying out the key requirements for creation of a central bank digital currency.

The European Central Bank has also launched a public consultation on the possible creation of a digital euro, after a high-level taskforce sketched out possible scenarios that would require central banks to mint their own cryptocurrency. Says Richards: “Even though the use of cash for transactions is declining, cash is still widely available and accepted as a means of payment. In addition, Australian households and businesses are well served by a modern, efficient and resilient payments system that has undergone significant innovation in recent years, including the introduction of the New Payments Platform, which is a real-time, 24/7 and data-rich electronic payments system.” . . .


Facebook’s Libra Must Not Start Until Properly Regulated: G7 Draft
Reuters – October 12, 2020

Financial leaders of the world’s seven biggest economies will say on Tuesday that they oppose the launch of Facebook’s Libra stablecoin until it is properly regulated, a draft G7 statement showed. The draft, prepared for a meeting of finance ministers and central bankers of the United States, Canada, Japan, Germany, France, Italy and Britain, said digital payments could improve access to financial services, cut inefficiencies and costs. But such payment services had to be appropriately supervised and regulated so that they would not undermine financial stability, consumer protection, privacy, taxation or cybersecurity, the draft statement, seen by Reuters, said.

Without proper supervision, such stablecoins could be used for money laundering, terrorist and proliferation financing, could compromise market integrity, governance, and undermine legal certainty, it said. “The G7 continues to maintain that no global stablecoin project should begin operation until it adequately addresses relevant legal, regulatory, and oversight requirements through appropriate design and by adhering to applicable standards,” the draft said. Stablecoins are tied to a traditional currency or basket of assets, and used for payments or storing value. . . .


Central Banks Say Digital Fiat to Complement, Not Replace Cash
PYMNTS – October 12, 2020

The idea that digital fiat will replace coins and bills may be conventional wisdom. But there’s room for co-existence of cash and digital currencies. The recently released report by the Bank for International Settlements (BIS) offers a general framework for digital currencies. And digital money, according to the BIS, will have to take its place alongside paper bills and coins. The BIS noted of central bank digital currency (CBDC) that “a CBDC could provide a complementary central bank money to the public, supporting a more resilient and diverse domestic payment system. It might also offer opportunities not possible with cash while supporting innovation.”

The report and its objectives (with foundational principles for CBDCs) was done in collaboration between  the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, Sveriges Riksbank, the Swiss National Bank and the BIS. And at a high level, according to the publication, the BIS noted that across the far-flung efforts being explored in various countries, “common objectives allow common principles to be agreed.” These principles include that CBDC  do not impede monetary policy and  “coexist with cash and robust private money.” . . .


European Fintech Giant Revolut Is Close to Applying for a Bank Charter in California, Sources Say
CNBC – October 12, 2020

Revolut, the biggest European digital bank with 13 million users, is close to applying for a banking license in the U.S., CNBC has learned exclusively. The London-based fintech firm plans on applying for a charter with the Federal Reserve Bank of San Francisco and California’s Division of Financial Institutions within weeks, said people with knowledge of the matter. Even though Revolut’s bank charter will be with California, it will allow the lender to operate widely throughout the U.S. via interstate agreements, said one of the people, who declined to be identified speaking about the start-up’s private plans.

“It’s a huge opportunity for us if we are able to provide all the products that you need in one app, but the app is highly personalized to your needs,” Revolut CEO Nikolay Storonsky said in a July phone interview. Revolut, the biggest European digital bank with 13 million users, is close to applying for a banking license in the U.S., CNBC has learned exclusively. The London-based fintech firm plans on applying for a charter with the Federal Reserve Bank of San Francisco and California’s Division of Financial Institutions within weeks, said people with knowledge of the matter. . . .


Industry Developments

SPOTLIGHT: FedNow’s Montgomery: Gearing up for 2023-24 — and Instant Payments Competition
PYMNTS – October 12, 2020

There is no dearth of faster payments initiatives — and no certainty that there will be one faster payments scheme to rule them all. In an interview with Karen Webster, Boston Federal Reserve Chief Operating Officer and FedNow Program Executive Ken Montgomery said the central bank’s ambitious payments initiative remains on track — and will inject competition into the instant payments market.

As reported in August, the Fed had announced some additional details of the 24/7 year-round interbank settlement service through a program that began to take shape in 2019, geared toward speeding processing times tied to instant payments (and featuring a clearing function). The overall goal has been to design and implement a way to eliminate the three-day settlement program for checks to clear and provide immediate access to funds.  Along the way, not surprisingly, we’ll transition more fully to digital payments across modernized (and streamlined) rails, flowing domestically and eventually across borders. . . .


Stripe Enables Cross-Border Payments for US-Based Clients
Finance Magnates – October 15, 2020

Major payment processing platform, Stripe has enabled cross-border payout services for its United States-based customers, the company announced on Wednesday. The feature is still in beta and will allow Stripe customers in the US to transfer and payout funds in local currencies to 33 other supported countries, all of which are from Europe and Asia-Pacific. Join your industry leaders at the Finance Magnates Virtual Summit 2020: Register and vote for the FMLS awards

“Cross-border payouts enable you to pay sellers, freelancers, content creators, and service providers in their local currencies,” the payments company stated. “You can transfer funds to connected accounts in other countries with your existing platform account and charge configuration.” Stripe did not specify if there is any transactional limit in the cross-border transfers. However, it pointed out that the onboarding specifications for cross-border payouts vary by the destination country. Headquartered in California, Stripe captured the payments market by facilitating payment services to individuals and businesses from their online business and many other platforms using its API-based services. . . .


The Importance of APIs in the Payments Industry
PaymentsJournal – October 14, 2020

Quite simply, the payments industry is awash in technology. Just by using apps on a smartphone, a person can conduct almost all the financial activity they want, from checking bank account balances and making purchases with a digital wallet to sending money to friends and family. These experiences are often easy and intuitive, satisfying consumers’ desire for convenience and ease of use. Technological innovation affords businesses similar benefits. Streamlining the payment process and supporting a range of payment methods improves customer satisfaction, drives revenue growth, and promotes brand loyalty. Merchants are also using technology to identify consumer habits, tailor advertising to specific customers, and improve customer service processes.

In this new era of payments, where technology reigns supreme, teams of software engineers are needed to build, maintain, and improve the apps and online services that undergird modern commercial activity. It is no exaggeration to say that software developers have become as integral to the payments industry as the bankers, credit portfolio managers, and the cadre of suit-wearing traditional professionals one envisions when thinking of the payments industry. While the importance of software developers may come as no surprise, there is one unsung hero of the payments industry (and technological progress more generally) that many readers may not be familiar with: APIs. . . .


Afterpay Goes in-Store Nationwide With Major Retailers
PYMNTS– October 13, 2020

Afterpay has announced its in-store buy now, pay later (BNPL) service is being offered by major retailers at locations across the country. “Shoppers can use Afterpay to buy items in select retail stores using their Afterpay card, a virtual, contactless card stored in their digital wallet,” the firm said in a Tuesday (Oct. 13) press release. “Just like using Afterpay online, customers can pay for their in-store purchases in four installment payments, without the need to take out a traditional loan or pay upfront fees or interest. Shoppers can use the Afterpay they know and love, with the added benefit of taking home their purchase that very same day.”

Afterpay first began offering the in-store service in 2016 in Australia and New Zealand, the company said, and it recently was piloted in the United States. Retailers Afterpay lists as offering the service across the U.S. include Forever 21, Finish Line, JD Sports, Levi’s, Skechers, Fresh, APL and Solstice Sunglasses. In addition, the company said, some DSW stores offer the service. “Just in time for the holiday shopping season, we are thrilled to roll out our in-store capabilities to all customers in the U.S. — making paying in-store more convenient, secure and contactless,” Nick Molnar, Afterpay co-founder and chief executive for North America, said in a prepared statement. “Afterpay customers can now choose either physical or online shopping to buy holiday gifts — which brings new customers and drives more sales conversion to retailers without any additional set-up or integration costs.” . . .


EMVCo Tests Consumer Mobile Devices for Contactless Acceptance
PaymentsSource – October 13, 2020 (subscription required)

EMV specifications body EMVCo has started a pilot program to evaluate consumer mobile devices for contactless payment acceptance, enabling vendors to have smartphones and tablets evaluated for possible use by merchants to accept payments without attached card readers. The Early Adopter Program is a response to payments industry requests to support merchants and acquirers who want to use commercial off-the-shelf consumer mobile devices to accept contactless payments.

These types of devices have limitations because of integration constraints, but EMVCo believes they could still “provide a satisfactory user experience for some specific use cases,” Junya Tanaka, chair of the EMVCo executive committee, said in a Tuesday press release. “The goal of EMVCo’s initiative is to enable a good consumer experience when mobile devices are used for contactless payment acceptance.” The program is an interim step in a longer-term EMVCo initiative exploring how to adapt the terminal testing program and EMV contactless specifications for off-the-shelf mobile devices. . . .


Chase Launches Free Checking Account for Kids, Teens
PYMNTS – October 12, 2020

With Chase First Banking, built in collaboration with Greenlight, parents and kids will be able to work on managing allowances, check off chores and look at spending, the release says. Greenlight says its mission is to help parents raise fiscally-intelligent children. The app comes absent of any monthly fees and will hopefully help parents educate children on the importance of money management. To keep things simple, the application comes with parental controls for how much the children can spend and for which completed chores will cause allowance to be distributed. It will let parents determine how much kids can spend and at what sorts of stores, and control the movement of funds.

And kids will be able to use their own personal debit cards based on the controls set by their parents, allowing them to know what spending controls are applied and what chores they still have left to do. The application lets them know how much they have and when they can make purchases, and allows them to work toward a financial goal and let parents know when it’s been achieved. Allison Beer, Head of Digital for Consumer & Community Banking at J.P. Morgan Chase, said the idea was to aid parents in helping children manage finances. . . .


As a Deadline Nears, TNS Offers Deferred Payments for Installing EMV at the Pump
Digital Transactions News – October 5, 2020

With gas stations and convenience stores feeling the economic pinch from the slowdown in sales caused by the Covid-19 pandemic and uncertainty over the economy, Transaction Network Services Inc. announced a new pricing structure to help cut station owners’ telecom-network installation costs for EMV at the pump.

Transaction Networks Services (TNS) will defer monthly payments at the start of a multiyear contract for the installation of telecom systems that enable the point-of-sale system to communicate with in-pump EMV card readers. For example, a fuel retailer entering into a three-year contract with TNS may have payments deferred for the first three months of the contract. Merchants entering into a four-year contract may have payments deferred for the first four months. Under card-network rules, gas-station owners have until April to become EMV-compliant. Non-compliant owners will have to assume liability for fraudulent transactions. . . .


Billionaire-Founded Square Invests $50 Million In Bitcoin, Pushing Shares To All-Time High
Forbes – October 8, 2020

Square, the payments company founded by billionaires Jack Dorsey and Jim McKelvey, just invested $50 million in bitcoin in order to diversify its largely USD-denominated balance sheet, becoming the latest large institution plowing big money into the world’s first cryptocurrency. Square purchased approximately 4,709 bitcoins for a total purchase price of $50 million on Wednesday, the San Francisco-based firm said on Thursday morning. As part of the announcement, Square released a three-page whitepaper, akin to those commonly released for cryptocurrency products, detailing how it executed the transaction, along with how it plans to store, insure and account for the bitcoin on its financial statements.

Square stock was trading 1.6% higher on Thursday following the announcement; shares of the firm, which went public in late 2015, are now trading at an all-time high and have nearly tripled in 2020 alone. The firm made its first official foray into the bitcoin space in January 2018, when it introduced the ability for nearly all customers to buy and sell bitcoin through its mobile payments product Cash App. The investment represents approximately 2.5% of the firm’s last-reported cash on hand of nearly $2 billion on June 30; at the time, Square had net assets of about $1.9 billion. . . .


Infection Fears Could Give a Boost to a ‘Reverse ATM’ That Takes in Cash, Dispenses Cards
Digital Transactions – October 8, 2020

With cash on the outs with many pandemic-wary consumers and merchants these days, payments firms are looking for alternatives. One such option is a so-called reverse ATM, a machine that takes in cash instead of dispensing it to allow users to convert paper money into an electronic payment instrument. An example is Toronto-based XTM Inc., which on Thursday announced it will begin this month delivering its reverse ATM to venues such as sports stadiums.

The XTM machine activates and dispenses an open-loop, prepaid Mastercard-branded card loaded with the value represented by the cash inserted by the user. As a pilot, the company has deployed one of the machines at Scotia Bank Arena in Toronto and has three more on order for the venue, which hosts games for the Toronto Raptors National Basketball Association team and the Toronto Maple Leafs of the National Hockey League. . . .

 

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

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