Payments News Update – October 22, 2020
Legal and Regulatory Developments
SPOTLIGHT: UK Retailers Attack Visa and Mastercard Over Card Fees
Finextra – October 20, 2020
The latest payments survey from the British Retail Consortium (BRC) shows card use continuing to rise steadily from 54% of transactions in 2016 to 61% in 2019. At the same time, the cost to retailers of accepting payments reached £1.1 billion in 2019, of which £950m was from card payments.
While card payments account for four in every five pounds spent in retail, they also incur the largest charges with shops charged an average of 18.4p per credit card transaction (up 15% from 2016), and 5.9p for every debit card transaction (up 6% from 2016). Furthermore, businesses have received notices in the past year of new fees that will now be charged to accept payments online. The BRC says the overall increases in scheme fees – 39% in 2017 and 56% in 2018, measured as a percentage of turnover – were “clear demonstrations of an abuse of market dominance”. The BRC, together with the British Independent Retailers Association, Association of Convenience Stores, Federation of Small Business and UKHospitality have come together to call for decisive action from the Competition and Markets Authority to tackle increasing scheme fees. . . .
Digital Ruble: Russia Unveils Plans to Test Central Bank Digital Currency
Bitcoin.com – October 20, 2020
The central bank of Russia has outlined its plans to conduct an experiment using the digital ruble with a limited number of participants after public consultations, Izvestia publication reported last week. The Bank of Russia announced the development of the digital ruble and public consultations on its issuance on Oct. 13. Public comments on the issuance of the digital ruble are accepted until Dec. 31.
Five Russian banks have already expressed interest in participating in the central bank digital currency (CBDC) pilot: Credit Bank of Moscow, Promsvyazbank, Bank Zenit, Dom.RF, and Russian National Commercial Bank. The State Duma, the lower house of the Federal Assembly of Russia, expects the digital ruble experiment to start in the first half of 2021. . . .
Plaid ‘Surprised’ at TD Bank’s Lawsuit Alleging It Tricked Consumers
PYMNTS – October 19, 2020
Plaid is denying that it has used TD Bank’s logo to dupe customers into sending information it could monetize, a report from The Globe and Mail says. Plaid said it’s also disappointed that TD Bank has filed a lawsuit against it in the case, saying Plaid’s role in transactions is “made clear” to customers. Plaid’s software includes helping popular apps like Venmo, Coinbase, Square and Stripe access bank and credit card info, and the company says they “have been working with TD for quite some time, and are disappointed that they resorted to litigation and false allegations.”
“Plaid is publicly known for never selling or renting consumers’ personal information,” the company said, according to The Globe and Mail. Plaid faced a civil suit on Wednesday (Oct. 14) in a New Jersey court that accused the company of making a user interface for financial services applications that infringed on TD Bank’s logo, trademark and green color scheme. In court, TD Bank said Plaid’s actions “tricked” customers into thinking they were entering personal information into the bank’s platform. Plaid, the allegations went, had worked to monetize the data. U.S. subsidiary president Greg Braca, according to The Globe and Mail, said in a statement that Plaid’s “intentional, unauthorized use of TD’s name and branding is deceptive.” . . .
Powell Says Fed’s Digital Currency Should Complement Payments System
PaymentsSource – October 19, 2020 (subscription required)
The Federal Reserve is primarily interested in looking at a central bank digital currency that would improve the payment system, rather than one that would replace the physical dollar, said Chair Jerome Powell. “Unlike some jurisdictions, here in the United States we continue to see strong demand for cash,” he said during a panel on cross-border payments and digital currencies hosted Monday by the International Monetary Fund. “Moreover, we have robust and mature financial and banking sectors, and we have a highly banked population so that many — although not all — already have access to the electronic payments system.”
Although the Fed has not said if it will move to develop a central bank digital currency, it is among several central banks exploring the possibility, and has various ongoing research efforts to analyze the impact a nationalized digital dollar would have on the U.S. financial system. But while some countries like China and Sweden are moving toward central bank digital currencies that envision cash being phased out entirely, Powell signaled Monday that the Fed is looking at a central bank digital currency that would instead supplement the already-existing payments infrastructure in the U.S. . . .
Antitrust Trial Over Visa, Mastercard ATM Policies Delayed
Law360 – October 19, 2020 (subscription required)
ATM operator Euronet agreed Monday to push back a London trial on its antitrust claims seeking hundreds of millions of dollars from Visa and Mastercard over their fee policies to 2023, after a judge said the initial timetable was too tight. The Commercial Court trial over the alleged lawfulness of rules set by Visa and Mastercard, which is expected to run for between 10 and 12 weeks, was initially slated to start in October 2022. That has now been pushed back to February 2023 at the earliest. Euronet, which operates ATMs in several EU countries, filed its damages claim in 2019, taking aim at several rules set by Visa and Mastercard that it says are in breach of EU and U.K. competition laws. The claim concerns arrangements in Poland dating back to June 2014, Greece from May 2014, and the Czech Republic from May 2016, according to court documents.
The suit says that the schemes run by the credit card giants ban ATM operators in some EU countries from charging card holders that use their machines, or, in the countries where they do allow such charges, reduce the revenue operators can receive from interchange fees. Euronet says that both of these rules, plus another that blocks ATM acquirers and operators from treating Visa and Mastercard differently, restrict competition and are unlawful. . . .
3 Data Breaches Demonstrate Need for Legislative Action: NAFCU
Credit Union Times – October 19, 2020
Citing three recent data breaches, NAFCU has renewed its call for Congress to require retailers and other businesses to comply with the same data security standards that financial institutions must follow. “As NAFCU has previously communicated to Congress, there is an urgent need for a national data security standard for entities that collect and store consumers’ personal and financial information that are not already subject to the same stringent requirements as depository institutions,” NAFCU Vice President of Legislative Affairs Brad Thaler wrote in a letter to House and Senate leaders.
He cited recent data breaches at Barnes and Noble bookstores, Dickey’s Barbecue Pit and fintech company Robinhood Markets as evidence that such a standard is needed. Credit union trade groups have long pushed for a data security standard for retailers and others. It appears that the 116th Congress will adjourn without legislative action on legislation. The issue has often become bogged down on intramural squabbles on Capitol Hill. For instance, the House Financial Services Committee has sided with credit unions, stating that retailers should be subject to the same rules as financial institutions. Those standards are contained in the Gramm-Leach-Bliley Act. The House Energy and Commerce Committee has opposed that effort, so any legislative effort has stalled. . . .
Samsung Sued for Infringing Contactless Payment Patents
Law Street Media – October 19, 2020
RFCyber Corp. filed a complaint for patent infringement against defendants Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. on Friday in the Eastern District of Texas, alleging that Samsung infringed its contactless payment method via its Samsung Pay service on its mobile devices. The patents-in-suit are United States Patent Nos. 8,118,218 (the ’218 Patent); 8,448,855 (the ’855 Patent); 9,189,787 (the ’787 Patent); 9,240,009 (the ’009 Patent); and 10,600,046 (the ’046 Patent). The asserted patents, “generally cover apparatus and methods for enabling secure contactless payment with a portable device.”
According to the plaintiff, Samsung has infringed at least claim 1 of the ’218 patent by having products with an “e-purse,” allegedly using the plaintiff’s patented method. The “method comprising: providing a portable device including or communicating with a smart card pre-loaded with an emulator configured to execute a request from an e-purse applet and provide a response the e-purse applet is configured to expect, the portable device including a memory space loaded with a midlet that is configured to facilitate communication between the e-purse applet and a payment server over a wireless network, wherein the e-purse applet is downloaded and installed in the smart card when the smart card is in communication with the payment server…” furthermore, the e-purse applet and the payment server communicate over a network to create a secure channel for various operations. . . .
No Overhaul Likely After House Antitrust Tech Report
Law360 – October 16, 2020 (subscription required)
A House panel released its findings earlier this month from a yearlong investigation into Amazon, Apple, Facebook and Google with a report from Democrats calling for sweeping legislative changes aimed at loosening the grip they found dominant tech platforms wield over the economy. But reactions to the report suggest more subtle shifts might have a better chance of moving ahead. Members of the U.S. House antitrust subcommittee dropped three reports on Oct. 6, including a 450-page volume with more than 2,500 footnotes from the staff of the panel’s Democratic majority largely devoted to dissecting the companies, the markets they operate in and the ways in which they achieved their positions. The report concluded that each tech giant has become dominant in certain sectors of the digital economy and that they use their power to thwart competition and grow even larger.
“The effects of this significant and durable market power are costly,” the report said. “The result is less innovation, fewer choices for consumers, and a weakened democracy.” The report offered a “menu” of potential measures that could be taken to help mitigate the problems, ranging widely from mandating separation of the companies, through breakups or other means, to the overturning of problematic court decisions. . . .
SPOTLIGHT: JPMorgan Chase Takes on Square and PayPal With Smartphone Card Reader, Faster Deposits for Merchants
CNBC – October 21, 2020
JPMorgan’s new QuickAccept service lets businesses take card payments within minutes, either through a mobile app or a contactless card reader, and users will see sales hit their Chase accounts on the same day. That fast funding is offered free, unlike competitors including Square, which typically take a day or more and charge a 1.5% fee to make instant transfers. The bank designed its QuickAccept card reader, a hardware device that processes card payments via tap, dip or swipe, internally with the help of a team gained from its 2017 WePay acquisition. JPMorgan will soon migrate “a large portion” of its more than three million small business customers to the new service, said Jen Roberts, CEO of the Chase business banking unit.
JPMorgan Chase is making a play to sell more services to millions of American small business owners, pushing into an area pioneered by fintech firms including Square, PayPal and First Data, CNBC has learned. The bank is rolling out a checking account that is paired with a new fintech-inspired service called QuickAccept, according to JPMorgan executives. QuickAccept lets merchants take card payments within minutes, either through a mobile app or a contactless card reader, and users will see sales hit their Chase business accounts on the same day. . . .
PayPal to Allow Cryptocurrency Buying, Selling and Shopping on Its Network
Reuters – October 21, 2020
PayPal Holdings Inc joined the cryptocurrency market on Wednesday, allowing customers to buy, sell and hold bitcoin and other virtual coins using the U.S. digital payments company’s online wallets. PayPal customers will also be able to use cryptocurrencies to shop at the 26 million merchants on its network starting in early 2021, the company said in a statement. PayPal hopes the service will encourage global use of virtual coins and prepare its network for new digital currencies that may be developed by central banks and corporations, President and Chief Executive Dan Schulman said in an interview.
“We are working with central banks and thinking of all forms of digital currencies and how PayPal can play a role,” he said. U.S. account holders will be able to buy, sell and hold cryptocurrencies in their PayPal wallets over the coming weeks, the company said. It plans to expand to Venmo and some countries in the first half of 2021. Other mainstream fintech companies, such as mobile payments provider Square Inc and stock trading app firm Robinhood Markets Inc, allow users to buy and sell cryptocurrencies, but PayPal’s launch is noteworthy given its vast reach. . . .
Apple Pay at Six: How Consumers Are Using It at the Physical Point of Sale
PYMNTS – October 20, 2020
The launch of the Apple Pay mobile wallet has long been seen as Apple’s attempt at replacing consumers’ use of plastic cards for in-store purchases as their primary payment method. Today, Oct. 20, happens to be Apple Pay’s six-year anniversary. So, where does Apple Pay stand today? To what extent has it succeeded in changing consumers’ use of plastic cards at the point of sale (POS) in physical stores?
PYMNTS has been tracking consumers’ use and adoption of the mobile wallet ever since its launch in 2014. Our latest research shows that the use of Apple Pay for POS transactions at eligible stores has risen by 59 percent. Nearly 8 percent of consumers that have Apple Pay enabled on their phones are now using it to make payments at the physical POS at stores that accept the wallet. This is compared to the 4.9 percent of U.S. adults who reported doing the same prior to the pandemic in March 2020. . . .
Transaction Pricing Levels Out, According to a New Strawhecker Report
Digital Transactions News – October 20, 2020
Last conducted in 2016, the latest Third-Party Processing Pricing Benchmark Study from The Strawhecker Group indicates that debit and credit card transaction pricing appears to have leveled off. The average value of an IP-connected front-end authorization and capture action in 2020 is $0.016 for jumbo wholesale acquirers, or those with an aggregate of more than 3 million average monthly transactions, compared with $0.015 in 2016, the last time the study was produced.
What’s behind this? It’s not one single factor. “Pricing strategy is never about a single line item, but all of the elements combined—authorization and settlement fees may be transaction-based but there are fixed, daily, and monthly fees that add to the overall cost of a transaction,” says Peter Michaud, director of consulting at Omaha, Neb.-based Strawhecker. For 2020, the report includes pricing benchmarks for the integrated channel and retail independent sales organizations. Strawhecker defines a wholesale ISO as one with a broad product offering that provides its own back-office services with direct-processor and bank-sponsorship relationships. It typically manages the risk component. A retail ISO is focused on the sale of merchant accounts, uses a third-party for all back-office support, and generally has no merchant loss or fraud liability. The study included data from 75 pricing examples. The data examines pricing for multiple transaction types across three sizes of providers. . . .
Ant’s Non-Payments Ambitions Make Alipay a Global Power
PaymentsSource – October 20, 2020
The Chinese fintech and payments colossus Ant Group is doing what likely will be the biggest IPO in history. It aims to raise a whopping $35 billion at a $250 billion valuation. Ant’s payment system Alipay launched in 2004 and built network critical mass on the world’s largest online commerce platform Alibaba. It was spun out in 2011 and rebranded Ant (Financial).
Today Alipay is China’s leading mobile-payments system, with a billion users, 711 million of whom are active monthly. In the year ended June, 2020 it did a breathtaking $17.3 trillion and $91.2 billion in payment volume domestically and abroad, respectively, from which it generated $8.049 billion, principally in merchant-acceptance fees. During the same period e-commerce phenom PayPal did $791 billion in payment volume. China’s monopoly card network China UnionPay did $14.4 trillion in purchase volume in 2019. As of the third quarter, 2019 Alipay had 54.5% and WeChat Pay 39.5% of China’s mobile payments market. But both are full-spectrum payment networks. While PayPal hasn’t successfully challenged Mastercard and Visa at the physical POS, Alipay and WeChat Pay have put CUP on its back heels at bars, cafes, grocery stores, and salons. . . .
The ACH Recorded 9% Growth in the September Quarter Even Though COVID Aid Trailed Off
Digital Transactions News – October 20, 2020
The nation’s automated clearing house network surged again in the September quarter, even with a waning of federal-assistance payments. Volume grew by double-digit percentage increases in most major categories as the network handled 6.8 billion transactions overall, up 9%, Nacha reported Tuesday. Nacha is the governing body for the network, which connects virtually every financial institution in the country. The third-quarter increase in total volume exceeded even the 7.9% growth registered in the June quarter, some of which was due to the use of the network to distribute federal relief in the wake of the Covid-19 pandemic. Nacha credits “a resurgence of commercial volume” in the latest quarter for more than offsetting the end of the pandemic-relief efforts. The dollar value of the third-quarter volume came to $15.9 trillion, up 13.1% year-over-year.
Nacha notes, however, that there was one additional banking day in the latest quarter compared to the same period in 2019. On a per-day basis, network transactions were up 7.3% year-over-year, the organization says. The latest results also continue to trace an ongoing decline in checks. Check conversions dropped fully 24% in the quarter, the second consecutive period the have fallen that much. Conversions allow paper checks to be processed as electronic transactions on the ACH. The double-digit decline is part of a trend. Nacha cites numbers from the Federal Reserve indicating the volume of commercial checks it collected in the second quarter dropped 10.7%, the biggest percentage decline since the first three months of 1994. . . .
New Real-Time Hong Kong Dollar Clearing System Handled Almost HK$10 Bln on First Day
Macau Business – October 20, 2020
The Monetary Authority of Macau (AMCM) announced today (Tuesday) that the new Hong Kong Dollars Clearing House Automated Transfer System – a real-time gross settlement system launched on October 19 – cleared some HK$9.4 billion (US$1.1 billion) in its first day of operations, with about 28 banks joining the system. According to the AMCM through this system, banks can provide their customers with safe and convenient services on an interbanking settlement and transfer of funds denominated in HKD, allowing them to reduce the time needed to carry out interbank transfers.
The AMCM announcement cites its Department of Financial Infrastructure and Information Technology Director , Lau Kei Fong, as saying that since the use of HKD in Macau is very widespread, the number of high value transactions settled in this currency has has been quite considerable. Lau also noted that with the current pandemic progression the level of regularization and settlement of cross-border operations by Hong Kong and Macau financial systems are increasingly frequent. . . .
QR Codes Reach the Next Stage of Development for Payments: Fraud Detection
Digital Transactions News – October 20, 2020
With merchant adoption of contactless payment solutions accelerating due to the Covid-19 pandemic, Incognia, a provider of fraud-detection applications, announced an app Tuesday to detect Quick Response code fraud. The application uses location behavioral biometrics to create a digital fingerprint for the consumer’s identity. It uses the buyer’s real-time and historical location behavior to protect against the scanning of fake QR codes for payment. The app follows a consumer’s movement on a daily basis, such as between home and the gas station and the local school to validate the user’s location.
“These are movements that are difficult for a criminal to mimic,” says André Ferraz, chief executive and founder of Incognia. The digital fingerprint also protects consumers who unwittingly scan a fake QR code intended to launch malware onto their mobile device to take over a payment account or steal personal identifiable information. Since the Covid-19 pandemic hit, merchants, especially restaurants and grocery chains, have been adopting QR code payment applications to reduce the handling of credit and debit cards at the point-of-sale, says Ferraz. . . .
Amazon and Walmart’s New Checkout Systems and the Big Battle Coming at Retail Point-of-Sale
Forbes – October 19, 2020
Both Walmart WMT +0.4% and Amazon AMZN +1.4% have made announcements recently about their in-store checkout systems. Walmart is increasing the number of self-checkout and contactless lanes in over 1,000 stores in the next year. Its new Walmart+ subscription allows members to use their own mobile devices in Walmart stores to scan products, pay through their phone and walkout. Amazon has had Amazon Go AMZN +1.4% stores for almost three years where the software sees what you carry out of its stores and charges your account as you exit. Now Amazon is introducing a pay-with-your-palm system for use by other retailers; you wave your hand over a device and it charges your previously-stored payment information.
These systems are the visible part of the intense competition at retail point-of-sale that has been escalating for years as retailers try to outdo each other with greater convenience and ease of payment. But under the hood of the little box you tap, swipe or insert at checkout, is an even more intensely competitive process at retail store checkout. With the explosion in credit cards that started 60 years ago came the ability of consumers to borrow money against their credit lines when they make purchases. Banks love the business because the interest rates are 18-24% and the amount of outstanding credit card debt is now approaching $1 trillion. Now that business is shifting on account of generational change. Younger consumers are not fond of carrying credit cards and even less fond of borrowing against their credit lines as their parents did. . . .
Visa Takes Stake in U.K. Fintech Global Processing Services
Barron’s – October 19, 2020 (subscription required)
Two weeks after Mastercard invested in Marqeta, its archrival, Visa, has taken a stake in another fintech, Global Processing Services, or GPS. The financial terms were not disclosed. No shareholders exited in the deal that gave Visa (ticker: V) a minority stake, said GPS CEO Joanne Dewar. Based in Britain, Global Processing Services has been partners with Visa since 2013. In 2019, GPS became Visa’s preferred issuer processor for its “fintech fast track” program in the Asia-Pacific region. “This investment represents a deepening of that partnership as we extend it across the world,” Dewar told Barron’s.
GPS generates less than $100 million a year in revenue, a person familiar with the matter said. “GPS is an example of how we continue to invest in, and partner with, companies that provide valuable capabilities to the ecosystem and have potential to advance the payments industry,” Kevin Jacques, vice president of Visa Ventures, said in a statement. Founded in 2007, GPS is known for providing the “tech behind the tech” and is the issuer-processor that enables fintechs like Resolut and Starling to provide payments. It has roughly 130 customers. . . .