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Payments News Update – November 5, 2020

Posted  November 5, 2020

Legal and Regulatory Developments

SPOTLIGHT: Justice Department Files Antitrust Lawsuit Challenging Visa’s Planned Acquisition of Plaid

Wall Street Journal – November 5, 2020 (subscription required)

The Justice Department filed an antitrust lawsuit Thursday that seeks to block Visa Inc.’s V 2.65% $5.3 billion deal to acquire Plaid Inc., a key player in the financial-technology space. The department brought the case in a Northern California federal court, alleging the deal would eliminate the nascent but significant competitive threat that Plaid poses to Visa in the online debit market. The acquisition would allow Visa to unlawfully maintain a monopoly in online debit, leading to higher prices, less innovation and higher entry barriers for online debit services, the department alleged. Visa and Plaid didn’t immediately respond to requests for comment. The Justice Department had been scrutinizing the deal since early this year. The Wall Street Journal reported last week that the transaction was facing legal jeopardy, with the department making preparations for potential litigation.

Visa is the largest U.S. card network, accounting for the largest dollar amount of credit, debit and prepaid transactions. It accounted for about 70% of debit and prepaid transactions during the first half the year, according to the Nilson Report, a trade publication. Plaid provides the technological infrastructure underpinning an array of next-generation financial apps, including Venmo, the digital money-transfer service owned by PayPal Holdings Inc. It has been viewed by fintech companies and merchants as a platform that could one day enable consumers to make purchases without having to rely on debit and credit cards, instead allowing for payments to be made directly from a consumer’s bank account to a merchant’s account. The San Francisco-based startup, which currently doesn’t operate a payments network, has said it provides connections between more than 11,000 banks and financial-services companies and more than 200 million consumer accounts. . . .


What China’s Clampdown on Online Microlending Means for Fintech Giant Ant Group
South China Morning Post – November 3, 2020

China’s financial regulators have drafted rules that clamp down on a booming microlending market in the world’s second-largest economy, a move that could curb the profits of the country’s fintech giants and stem the flow of funds to small businesses. The publication of the consultation paper on Monday coincided with a meeting between Chinese financial regulators, led by the relatively conservative People’s Bank of China (PBOC), and top executives of Ant Group, China’s largest online provider of microfinance services.

“This is a strong regulatory tightening signal,” Shujin Chen and Alfred He, equity analysts at brokerage Jefferies, said in a report for investors. The draft rules could dam liquidity flowing to parts of the economy that need it the most. China is recovering from the economic pain inflicted by coronavirus-related lockdowns this year, but small business owners and individuals are still struggling to obtain loans from traditional banks. While regulators are seeking to reduce debt in the financial system, the draft rules could also crimp microlenders’ profits by piling on compliance costs, slashing the size of individual loans and requiring online platforms to contribute a larger share of loans instead of relying on traditional lenders’ balance sheets, analysts said. . . .


How Each Us Presidential Candidate Could Impact the Fintech Industry
Business Insider – November 3, 2020

We looked into how a Trump or Biden administration could impact the fintech industry. Biden would focus on consumer protection and increasing regulatory oversight, while President Trump would continue to dismantle financial regulation. In light of the US election, we looked into how a Trump or Biden administration could impact the fintech industry. Of note, neither candidate has announced specific fintech plans, but we can infer a lot from their distinct politics. We expect the US fintech industry to continue to thrive under either administration. We think Biden would focus on consumer protection and increasing regulatory oversight, while President Trump would continue to dismantle financial regulation.

While financial regulation loosened under the Trump administration, Biden seems set to strengthen oversight and launch new initiatives for financial inclusion. President Trump has eased financial regulation over the last four years, and will likely continue to do so if re-elected. For example, under the current administration, the Consumer Financial Protection Bureau stripped a key provision for payday lenders, meaning they no longer have to check whether consumers have the ability to repay a loan. A Biden administration would likely try to rescind or rewrite those rules, as the former vice president previously stated that the decision “to loosen restrictions against predatory behavior by payday lenders is shameful by itself.” Biden has also called for the creation of a public credit reporting agency competing against the likes of Equifax and TransUnion. This initiative would aim to minimize racial disparities in credit reporting and ensure that banks aren’t taking advantage of consumers. . . .


Iran Is Pivoting to Bitcoin
Vice – November 3, 2020

Iran is hoping to sidestep US sanctions by becoming the first country in the world to use the digital currency to pay for imports. Stung by never-ending US sanctions, Iran has legalised Bitcoin as a reserve currency, and is looking at integrating the cryptocurrency into its struggling national economy. Iranian authorities say they have already handed out 1,000 Bitcoin mining licences to three power plants to provide energy for mining firms, requiring the locally mined tokens to be sold to the Central Bank of Iran to help pay for imports.

Iranian banks lost access to the global banking system when Donald Trump withdrew the US from the Iran nuclear deal, and imposed further sanctions. The latest round of sanctions was imposed on the 8th of October, targeting 18 Iranian banks, and the Iranian economy has subsequently suffered from high inflation rates and further currency depreciation. As a result, ordinary Iranians turned to digital currencies to move money abroad. Authorities initially stepped in by cracking down on miners abusing highly subsidised energy in Iran. But the government has now adopted a more friendly attitude toward cryptocurrencies, after realising they allow Iran to get around banking limitations. . . .


In the CBDC Race, It’s Better to Be Last
Coindesk – November 2, 2020

Is America being left behind? China is on the verge of issuing a central bank digital currency (CBDC) while America twiddles its thumbs. America needn’t worry. While it may look like a slacker, its approach to digital currency is probably the right one. That’s because there is no first-mover advantage to issuing a central bank digital currency. With many products, being the first out the door is important to achieving brand dominance. But central bank digital currency is characterized by last-mover advantage, not first-mover advantage. Best to sit back and learn from the less-patient central banks as they struggle with their new digital projects.

Central banks currently offer digital payments, but only to banks and other financial institutions. Their interaction with the public has been limited to paper money. A central bank digital currency, or CBDC, would provide everyone with an opportunity to get access to a digital version of central bank money. You or I could hold digital Federal Reserve dollars or Bank of Japan yen in our digital wallets and use these balances to buy coffee. For years, CBDC has remained a theoretical construct of white papers and central bank thought-pieces. But recently the People’s Bank of China began to pilot a CBDC, Sweden is working on a proof of concept, and the Bahamas launched its “sand dollar” CBDC project. . . .


Reserve Bank of Australia Kicks off CBDC Project With NAB and CBA
Finextra – November 2, 2020

The Reserve Bank of Australia is collaborating with Commonwealth Bank, National Australia Bank, Perpetual and ConsenSys Software on a project to explore the potential use and implications of a wholesale form of central bank digital currency (CBDC) using distributed ledger technology (DLT). The project will involve the development of a proof-of-concept (POC) for the issuance of a tokenised form of CBDC that can be used by wholesale market participants for the funding, settlement and repayment of a tokenised syndicated loan on an Ethereum-based DLT platform. Assistant governor Michele Bullock says: “With this project we are aiming to explore the implications of a CBDC for efficiency, risk management and innovation in wholesale financial market transactions.”

Earlier this month, the RBA’s head of payments policy Tony Richards said that the public case for issuing a general purpose or retail CBDC in Australia is still to be made, but reserved judgement on applications built for bank-to-bank transactions. CBA’s group executive for Institutional Banking & Markets, Andrew Hinchliff expresses a belief that distributed ledger technology will have a “far-reaching impact” for financial services. “CBA has already seen it successfully applied many times, in instances such as stable coins, supply chain and capital markets solutions, bank guarantees, programmable money and digital assets,” he says. “CBA’s x15ventures is pleased to be part of this collaborative opportunity to advance our shared understanding of a central bank digital currency as a settlement mechanism for digital assets in an Australian context.” The project is expected to be completed around the end of 2020 and the parties intend to publish a report on the main findings during the first half of 2021.  . . .


Report: Consumer Privacy Concerns Demand Regulatory Compliance
PYMNTS – October 30, 2020

More consumers are turning to digital channels to make daily purchases as the pandemic continues. Emerging data privacy and open banking rules meant to regulate these digital transactions are thus being put to the test as consumers familiarize themselves with — and question — the standards intended to keep their personal data safe. Regulations governing the sharing of medical information appear to be of primary importance for consumers, with 70 percent of Americans noting that they would switch healthcare providers if they discovered that their data was inadequately protected. Many are also questioning how merchants and retailers are interacting with their data. Regulators as well as retailers are therefore confronting these queries, especially as changing data privacy opinions begin to influence how and where consumers are spending their time and their money.

In the latest Merchants Guide To Navigating Global Payments Regulations, PYMNTS analyzes how the pandemic is affecting consumers’ data privacy and security perceptions and opinions worldwide. The Tracker also examines how regulators are analyzing these changes and what they mean for merchants looking to keep their increasingly digital consumer bases engaged, trusting and transacting. Data privacy is gaining more attention from consumers in multiple markets, including the European Union and the United States. A study of U.S. consumers found that 87 percent feel data privacy should be considered a human right, for example. Many respondents are also wary of what businesses are doing with their information, with roughly 70 percent of consumers stating that they do not trust companies to sell their data ethically. Such trends are leading businesses and regulators to reconsider the country’s existing data privacy and security standards. . . .


The European Commission Starts Two New Studies Into the Mobile Payment Sector
Lexology – October 29, 2020 (subscription required)

The mobile payments sector is on regulatory tenterhooks following the increase in the use of mobile wallets and the entry of new competitors, including tech companies, in the sector. The European Commission (“EC”) just announced two new studies in the mobile payments sector. The sector is also subject to scrutiny at EU Member State level, while the US and Chinese antitrust regulators are closely monitoring developments. The EC is seeking to investigate the mobile payments sector by launching two tenders by the end of October for the provision of expert reports on the sector. The first tender aims to “gather informed knowledge, in the form of a report, about the state and evolution of contactless and mobile payments online and in stores in all [European Economic Area (“EEA”)] countries”. The tender call notes that the contractor is required to prove knowledge and experience in competition and payment markets.

The second tender focuses on gathering “detailed information on how merchants and payment gateways integrate certain interfaces (APIs) for the use of payment solutions for payments on apps and websites”. Expert IT knowledge as well as IT capabilities to analyse APIs and run API simulations for the implementation of payment solutions are required. As a side effect of the COVID-19 pandemic, contactless payments and the use of mobile wallets have significantly increased in recent months. In this context, EC officials are thus reflecting on the appropriate regulatory and enforcement policy mix towards the mobile payments sector. As one senior official recently put it, the “increase in the use of mobile wallets [and] the entry of Big Tech” requires “additional reflection” with a view to more regulation and enforcement. . . .


China’s Digital Yuan Will Not Compete With WeChat or AliPay
Mobile Payments Today – October 28, 2020

According to Mu Changchun, the head of the research institute for digital currency at the People’s Bank of China, the digital yuan will not compete with WeChat Pay and Alipay, according to a report in the South China Morning Post. “They don’t belong to the same dimension. WeChat and Alipay are wallets, while the digital yuan is the money in the wallet,” said Mu in the report.

However, the digital yuan is distributed through an app that some consumers may choose to use instead of private mobile wallets, according to Wang Leilei, a fintech consultant at the Shanghai-based financial industry consultancy Kapronasia. She said participants of a pilot run in Shenzhen were asked to download a specific app for the digital yuan. The central bank is currently running its first digital yuan trials with designated institutions and merchants in China’s southern tech hub of Shenzhen. The city just concluded the country’s largest test of the sovereign digital currency this month after local authorities gave out 10 million yuan (US$1.5 million) to more than 47,500 people by lottery. . . .


Industry Developments

SPOTLIGHT: Rising Digitalization Across the Globe to Fuel the Global Payment Processing Solutions Market Growth
PR Newswire – November 4, 2020 (click here for the report from Research Dive)

Research Dive has added a new report to its offering titled, “Payment Processing Solutions Market, by Payment Method (E wallet, Credit card, Debit card, Automatic clearing house and Others), Deployment Method (Cloud and On Premises), Vertical (BFSI, Government, It and telecom, Healthcare, Real estate, Retail and Others), Regional Outlook (North America, Europe, Asia-Pacific, and LAMEA): Global Opportunity Analysis and Industry Forecast, 2020–2027”. The report states that the Global Payment Processing Solutions Market is expected to surpass $176,749.5 million by 2027, growing at a CAGR of 12.6% from 2020 to 2027. As per the report, the Asia Pacific market is projected to witness remarkable growth, owing to growing government initiatives for the development and adoption of online payment methods in the region.

The market is segmented based on payment method, deployment mode, vertical, and region. Among payment method segment, the debit card sub-segment is estimated to grow at a healthy growth rate of 12.5% and hold a leading position in the market in the projected period. This is chiefly attributed to the mounting adoption of debit cards by several people owing to their benefits, like no service charges unlike credit cards and stress-free and quicker payments with no interest. Among deployment mode segment, the Cloud deployment mode sub-segment is estimated to dominate the market growth by growing at a CAGR of 13.3% during the estimated period. This is mostly because cloud platforms offer enhanced security as well as transparency in digital payments. Based on region, the Asia Pacific region market is expected to grow with a healthy growth rate of 13.5% and unlock rewarding growth opportunities for the market growth in the forecast period. This is mostly owing to the rising implementation of cutting-edge payment processing systems in numerous government institutions in the region. . . .


Onyx CEO on Blockchain, the JPM Coin and Simplifying Payments
PYMNTS – November 4, 2020

From concept to pilot to corporate payment game changer. Umar Farooq, CEO of J.P. Morgan’s Onyx, told Karen Webster that peer-to-peer (P2P) private blockchain networks can help streamline information flows tied to cross-border payments and remove the complexities tied to legacy systems. The conversation took place against the backdrop where, late last month, J.P. Morgan said it had established Onyx, a new business unit dedicated to blockchain and digital currencies. And in signs that we might be entering a new era for commercial payments done digitally, the banking giant said that for the first time it has a paying client for its JPM Coin.

None of this sprang fully formed from the head of Zeus. As Farooq noted to Webster, the pilots for the digital initiative (and commercialization) stretch back over several years. “When we started, it was literally sort of ‘on the side,’” he told Webster of the dozens of proofs of concept that took shape. “‘Let’s see if this thing has any legs. Does it go anywhere or not?’” The most readily adaptable initiative has been its blockchain-based Interbank Information Network that launched in 2017, recently rebranded as Liink, where more than 400 participants have signed up (among them the largest banks in the world) to address delays inherent in cross-border payments. The ledger, tied to blockchain, allows banks to exchange data about payments, resolve compliance inquiries and validate accounts. Liink, J.P. Morgan said last month, was folded into Onyx. . . .


The New Normal? Shifting Paradigms in Payments Before and Amid COVID-19
The Paypers – November 3, 2020

With shoppers demanding more touchless, frictionless, personalised experiences, the trend towards ‘invisible payments’ is likely to continue. What paradigm shifts have you noticed since the beginning of this year and do you expect them to continue into 2021? Digital transformation is nothing new, but COVID-19 has played an important role in accelerating the digital shift that was already underway. Consumers and businesses alike have been pushed to adapt to digital channels much faster than anticipated, because of the circumstances of the pandemic. For many merchants, this means longer term innovation strategies have been brought forward to meet immediate needs – and payments is a big part of that. Because these paradigm shifts are a rapid acceleration of existing trends, rather than a temporary change in behaviours, much of the transformation we have seen is here to stay. Here are two prime examples:

Trend 1: adoption of digital payment methods. Consumers want to pay using their preferred method – this is an expectation which has grown into demand in recent years. But now those payment methods are increasingly digital, hence by nature contactless, and increasingly diverse across different markets. For instance, Chinese consumers prefer to pay with Alipay or WeChat Pay, while Swedish shoppers would prefer to pay with Swish or Klarna. This consumer behaviour is pushing merchants all around the world to offer a broader acceptance, a trend which we think will continue in the coming years. Real-time payments have also been gaining ground. Spurred by Person-to-Person (P2P) payments, real-time payments often feature immediate clearing and even settlement. Plus, they are more cost-effective for merchants than card payments and offer consumers yet another fast, convenient, trusted digital payment method. On this basis, it is easy to see why its popularity is surging and is likely to continue that trajectory. The promise to merchants who respond to these demands is real – increased revenue, better customer satisfaction and drive for repeat business. . . .


How Visa’s Digital Services Strategy Is Coming Together
PaymentsSource – November 2, 2020 (subscription required)

As the pandemic and economic downturn take their toll on consumer spending, the card companies are relying on scale, partnerships and subsidiaries to turn consulting, security and fast technology deployment into new and sustainable revenue streams. The trend is apparent at Visa’s office in Miami, where Ruben Salazar held up an old payment terminal on a video call as testament to a relic of the past — albeit a past that’s not so distant. “If you look at this machine,” he said, pointing to it, “ten years ago the industry was very simple. You required plastic or something like this terminal,” said Salazar, the senior vice president of product and innovation for Latin America at Visa. “Today there’s authentication and security and tech projects. How are you going to make sense of all of that technology if you’re an issuer or an acquirer, if you’re going to compete in a more advanced ecosystem?”

Where CFOs might spend more time: How about strategy, automation and data analytics? Survey results reveal a sharp decline – from 40 percent in February to 9 percent May – in the time CFOs spend handling transactional processes. Visa added a cog in that effort last week, agreeing to acquire YellowPepper, which will help Visa expand tokenization and expedited payment processing in Latin America. Much like deals Visa and Mastercard made in 2019 to acquire Earthport and Transfast to quickly scale relationships with companies looking to digitize international commerce, the YellowPepper acquisition has more in mind. . . .


BAFT Launches Global Payments Industry Council
ABA Banking Journal – November 2, 2020

BAFT, ABA’s global transaction banking subsidiary, announced today it has launched a Global Payments Industry Council to drive strategy on global payments issues and to develop best practices for real-time payments participants.

The council’s other priorities over the next two years are to work with international regulators on the information traveling with funds for transparent payments and ensuring that the same standards are applied to all entities wishing to participate in real time payments systems. “The GPIC serves as the cornerstone of BAFT’s new payments strategy, which the board approved earlier this year,” said BAFT SVP Samantha Pelosi. The council will be chaired by David Kretz, head of global transaction services strategy and payments at Bank of America. Jean-François Mazure, head of cash clearing services at Societe Generale, will be vice chair. . . .


Real Deal for Real-Time
Digital Transactions News – November 2, 2020

Multiple real-time services may flourish, but don’t discount the Fed’s ability to corner volume. Over the last several decades, there has been a crescendo of interest from regulators and the industry worldwide in real-time interbank payments. Instant interbank payments displace batch automated clearing house transfers and enable new use cases, improving economic efficiency and enriching society writ large. While the United States wasn’t an early adopter, its real-time interbank-payments market is developing apace. The Clearing House Payments Co. LLC (TCH), owned by many of the nation’s biggest banks, launched its real-time payments system, RTP, in 2017.

In reaction, the Federal Reserve contends that, since there’s only one private-sector instant-payments operator, it’s imperative the Fed itself provide competition and system resiliency, as it does with ACH. The Fed has disingenuously argued that, because other instant-payment systems don’t provide interbank real-time gross settlement, they weren’t TCH competitors. If markets are defined narrowly enough you can always conjure a monopoly. The Fed’s plan is to have its FedNow real-time payments network live by 2023 or 2024. The Fed’s plan is to have its FedNow real-time payments network live by 2023 or 2024. . . .


Starbucks Says Nearly a Quarter of All Us Retail Orders Are Placed From a Phone
The Verge – October 30, 2020

Almost a quarter of all transactions at Starbucks stores in the US are mobile orders through the company’s app, an earnings document revealed yesterday. Ordering ahead through the Starbucks app is the company’s suggested way to get in and out of its locations faster during the pandemic, hopefully making it easier to maintain social distancing in the process. Starbucks launched “Mobile Order & Pay” in 2015, combining the company’s existing payment system with new online ordering features that let you order ahead for pickup at stores. This week’s new stats show how popular that feature has become, slowly growing over time until it dramatically increased over the course of 2020 — from 17 percent at the end of last year all the way to 24 percent of US retail orders last quarter.

Mobile orders are the latest entry in Starbucks’ aggressive push onto phones, a project that started in earnest with the wide launch of mobile payments and the company’s app in 2011. The move quickly proved successful: by 2013, mobile payments made up 10 percent of the company’s transactions in the US. Starbucks’ mobile payments have been so popular, they even beat out general purpose mobile payment systems. Research conducted by eMarketer in 2018 showed the Starbucks app was the most popular in-person or “proximity” mobile payment method overall, with 23 million people in the US making purchases at least once every six months. This surpassed Google and Apple’s own mobile payment options at the time. . . .


6 Ways COVID-19 Has Changed Gift Card Use
PaymentsSource – October 29, 2020 (click here for the report from Allied Market Research)

Even as the coronavirus pandemic hammers retail stores, the global gift card market was valued at $619.25 billion in 2019 and is projected to reach $1.92 trillion by 2027, growing at a CAGR of 14.9% from 2020 to 2027, according to Allied Market Research. While gift cards are often marketed as an easy way to send money to friends and family, during the pandemic they’re transforming into a more versatile tool of commerce that can overtake the use cases commonly associated with cash.

The next six charts reveal insights into the market dynamics of the gift card market and how it is evolving given the COVID-19 pandemic. The popularity of gift cards transcends most generations, as there does not appear to be a single dominant user group; although millennials are some of the heaviest buyers they still make up only 37% of the market purchases. In all, three generations — millennials, Gen X and boomers — account for the bulk of gift cards purchases, according to data from an August 2020 InComm Consumer Pulse Gift Card Study. However, Gen Z includes a large number of consumers who are still minors, and thus could not participate in the survey, according to Brian Parlotto, executive vice president at InComm. Teenage minors do buy gift cards for themselves and others, he said. If one factors in minor Gen Z buyers into the overall market, then the split is more likely to be evened out. . . .

 

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

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