Payments News Update – December 17, 2020
Legal and Regulatory Developments
SPOTLIGHT: Will a U.K. Class Action Case Influence Interchange Policy in the United States?
Digital Transactions News – December 14, 2020
A class of 46 million consumers in the United Kingdom cleared a major hurdle last week when the country’s Supreme Court ruled that a class-action suit brought against Mastercard Inc. for excessive interchange fees can proceed. But they still face a major challenge proving that consumers were materially harmed by Mastercard’s interchange rates. Meanwhile, merchant advocates in the United States argue the case could ultimately lay the groundwork for action against card fees that merchants pay and that, they argue, drive up consumer prices.
The lawsuit, which is seeking £14 billion ($18.5 billion) in damages, alleges that Mastercard’s U.K. interchange fees between 1992 and 2008 were excessive and forced merchants to pass the cost on to consumers. If the lawsuit is successful, members of the class could receive £300 each (nearly $400). The case emerged after Mastercard lost an appeal against a 2007 European Commission ruling that its fees were anti-competitive. The case will be sent back to Britain’s Competition Appeal Tribunal (CAT), which will determine if it can proceed to trial. . . .
Mexican Regulator Says Credit, Debit Processing Too Highly Concentrated
PYMNTS – December 16, 2020
According to Mexican regulators, the two companies in charge of the country’s credit and debit settlements represent “a near monopoly,” and big businesses need to sell shares in those companies, the Associated Press (AP) reported. The regulators have recommended that the eight private banks which own large shares of the settlement and process firms sell them, as regulators said they have an unfair advantage, according to the AP.
Because of the lack of competition, the federal Commission on Economic Competition said the processing fees have gotten too high and incentives have been lowered for investing in new systems that could be safer for handling transactions and avoiding breakdowns. In addition, Mexican payment systems often break down and make it more difficult to use cards. Fraud is also highly typical because of this, the AP reported. The high fees as well as bad service have kept customers and smaller businesses locked out of the card transaction system, the AP reported, and it often takes as long as four to six months to open a bank account there. . . .
How a Biden Administration Is Likely to Approach Bitcoin
Forbes – December 15, 2020
One opening question for the new Biden Administration is how they might deal with cryptocurrencies. It’s not going to be an issue that is central to the administration directly, yet with the emergence of the digital yuan from geopolitical competitor China, and inflationary monetary policy meant to gear a recovery in employment rates, the questions on the economy, great power competition and digital rights around the world, central themes of bitcoin, will be immediate priorities.
A Biden Administration will have to weigh its policy tools and speeches carefully in an age of emerging “great power” conflict, protest movements around the world, and the economic stagnation that has come from the COVID-19 pandemic. The theme of bitcoin and cryptocurrencies is not just one of direct regulations and laws, but rather its outsize effect on international geopolitics, finance and political relations. . . .
China Central Bank Urges Wider Acceptance of Cash as Payments Go Digital
Reuters – December 15, 2020
China’s central bank has called for wider acceptance of cash in economic activities and vowed to punish those who refuse to accept cash payments in the wake of a widening gap in access to digital services. China’s online payments via barcodes and third-party payment apps such as Ant Group’s Alipay and Tencent Holdings’ Tenpay have gained in popularity over the years on government policies to promote innovation. Some merchants and institutions have become reluctant to accept cash due to reasons such as cost control or user experience, with the trend accelerated by the COVID-19 pandemic, the People’s Bank of China (PBOC) said in a notice on Tuesday.
“Renminbi (yuan) cash is the most basic means of payment. Entities or individuals cannot refuse to accept it,” the PBOC said, adding that the central bank will investigate and punish firms or individuals that refuse to accept cash or adopt discriminatory measures against cash payments. In a separate statement, the central bank said payments of some basic public services such as medical treatment, water, electricity and gas fees have gradually migrated online. The transition has left the elderly behind, as it is more difficult for some of them to adapt to the new digital technologies compared with younger people, it said. . . .
Class Action Lessons From Top Court’s Mastercard Ruling
Law360 – December 14, 2020 (subscription required)
A decision by Britain’s court to revive a landmark consumer lawsuit against Mastercard has provided clarity for claims in the country’s growing class action regime, with lawyers noting its focus on access to justice and the potential to unlock other big antitrust actions. The lawsuit, brought by former financial ombudsman Walter Merricks, claims that 46 million British consumers paid higher prices in shops over 16 years because of excessive swipe fees charged by Mastercard Inc.
Friday’s ruling was closely watched for early lessons in the emergence of class action litigation in the U.K. The £14 billion ($18.8 billion) suit will become the biggest class-action lawsuit in British history if it is certified by the Competition Appeal Tribunal. It will also be the first major test of the collective proceedings order regime introduced in 2015 under the Consumer Rights Act to help consumers recover money lost through violations of competition law. Harry Denlegh-Maxwell, a solicitor at Covington & Burling LLP, said the decision provides clear guidance on the legal threshold that cases have to meet if they are to proceed to trial. It marks a clear lowering of the bar from that previously set by the tribunal. . . .
Two Cryptocurrency Firms Seek OCC Approval to Charter Trust Banks
American Banker – December 10, 2020 (subscription required)
Two cryptocurrency firms filed applications for bank charters with the Office of the Comptroller of the Currency this week, becoming the latest digital currency companies to try their hands at the banking system. The two companies — Paxos and BitPay — each filed applications to become national trust banks supervised by the OCC. Unlike many banks, national trusts do not require federal deposit insurance, though an institution can seek to accept deposits depending on its business model.
Paxos, a New York-based partner of PayPal that runs the cryptocurrency exchange iBit, announced its application in a blog post Dec. 9, when it described a national trust charter as the most efficient means for the company to realize its mission of enabling “the movement of any asset, any time, in a trustworthy way.” . . .
UK Govt Programme Looks to Connect Global Banks With British Fintechs
Finextra – December 10, 2020
The UK government has launched a global partnerships programme designed to help international financial institutions access British fintech. Run through the Department for International Trade (DIT), the Leading Edge programme will focus on priority markets, beginning with Singapore, Australia and the US.
The UK fintech sector is estimated to be worth £11 billion in revenue in 2019 and now accounts for around eight per cent of total financial services output, making it a priority for the government as it seeks to champion strong sectors for the economy in a post-Brexit world. Leading Edge promises to help create the right conditions for new partnerships and trade and investment opportunities, promoting the adoption of fintech, particularly of UK-grown efforts in areas such as RegTech, robotic process automation and AI. . . .
SPOTLIGHT: Report: Connected at Home: The Devices That Got Consumers Through 2020
PYMNTS – December 14, 2020 (click here for the Connected Devices research brief)
Consumers’ daily lives look very different now than they did just one year ago. So-called “office workers” no longer commute to offices or work traditional 9-to-5 jobs, and most Americans no longer spend their weekends shopping, gathering or attending leisure events as they once did. Consumers across the nation have instead hunkered down at home, working, socializing, shopping and paying online.
This new, home-centric lifestyle has gone hand in hand with a broader shift in the types of connected devices consumers need to conduct transactions. But how has their increasing reliance on these devices changed which devices they use and how they use them? In the How We Will Pay: Connected Devices research brief, a PYMNTS and Visa collaboration, we explore how the types of connected devices that consumers own are shifting as their lives continue to revolve around home. . . .
As Digital Payments Heat up, Fiserv Agrees to Acquire Card-Control Technology Provider Ondot
Digital Transactions News– December 16, 2020
Fiserv Inc. announced Wednesday an agreement to acquire, for an undisclosed sum, Ondot Systems Inc., whose technology includes so-called card controls, or tools that allow cardholders to switch usage on or off according to considerations of security or preferred usage. The deal is expected to close in the first quarter of 2021. Fiserv plans to leverage Ondot’s platform to help clients accelerate digital customer acquisition, drive digital commerce, increase card activation and usage, reduce service costs, and engage consumers on a personal level through multiple channels including card-based payments, digital banking platforms, and merchant solutions.
Other services provided through the Ondot platform include card account application through mobile devices, digital debit or credit card issuance, detailed transaction and merchant data to help consumers recognize transactions faster and reduce chargebacks, and real-time offers pushed to consumer’s mobile wallets. Fiserv sees such services as complementary to its current offerings. . . .
Wall Street Likes the Huntington-TCF Deal. Expect More Regional Bank Marriages in 2021.
Barron’s – December 15, 2020
The coming merger between Huntington Bancshares and TCF Financial generally has Wall Street cheering and expecting more regional bank tie-ups. In a deal announced late Sunday, Columbus, Ohio-based Huntington (ticker: HBAN) said it would pay roughly $6 billion for the Detroit-based TCF (TCF) in an all-stock transaction. Put together, the two banks will be one of the top 10 regional banks in the U.S. with a market value of roughly $22 billion.
That size will give the bank much-needed scale to compete in an era of low-interest rates and increasing digitization. As the third major bank deal of the year, following announced tie-ups between First Citizens BancShares (FCNCA) and CIT Group (CIT) as well as PNC Financial Services’ acquisition of BBVA ’S U.S. arm, Wall Street predicts there will be a wave of bank consolidation in the new year. . . .
Why Affirm Would Delay Its IPO Amid a Hot Market
PYMNTS – December 14, 2020
It might seem the recent huge gains by Airbnb and DoorDash on their first trading days following initial public offerings would have BNPL giant Affirm Holdings Inc. speeding up its own planned IPO. But the company is reportedly actually doing the opposite. The Wall Street Journal cited unnamed sources over the weekend as saying that Affirm decided to push its IPO off until at least January, apparently to let markets calm down and avoid the massive first-day “pops” Airbnb and DoorDash recently saw.
Airbnb’s stock soared almost 113 percent on its first trading day, closing at $144.71 after underwriters priced the IPO at $68 a share. DoorDash did almost as well, rising 86 percent to $189.51 after underwriters priced the shares at $102. Affirm is the second hot IPO candidate to reportedly put off going public following Airbnb and DoorDash’s huge first-day gains. The Journal recently quoted unnamed sources as saying that videogame maker Roblox Corp. made a similar decision in recent days. . . .
Expect a 4.1% Growth in Open-Loop Prepaid Loads Through 2024, Mercator Forecasts
Digital Transactions News – December 11, 2020
Like many industries, the open-loop prepaid card segment of payments has absorbed the impact of the Covid-19 pandemic, but the results may not be as harsh as for some other segments in payments. That’s one assessment from Mercator Advisory Group’s 17th Annual U.S. Open-Loop Prepaid Cards Market Forecast 2020-2024 Part II report. Released Thursday, the report predicts that U.S. open loop prepaid loads will grow at 4.1% through 2024, topping $466.2 billion. That bests the projection in last year’s report, in which Mercator forecasted 2% growth through 2023.
The pandemic’s impact will be felt, too, Mercator says. “The open-loop prepaid market is highly fragmented,” says Theodore Iacobuzio, Mercator’s vice president and managing director for research. “While the impact of the virus is felt by each of the segments, each segment is going to react in a different way. For instance, campus is taking a nose dive. On the other hand, government disbursements will continue to grow.” . . .
What Is Diem? (Formerly Facebook’s Libra Project) – a Detailed Analysis
Securities.io – December 10, 2020
One of the most controversial cryptocurrency projects ever, Libra, is now back as a less-threatening version – Diem. Last year, the entire crypto market felt ripples of excitement when the American social media giant, Facebook, Inc announced plans to enter the industry. At that time, the platform sought to make a bold entrance with its permissioned blockchain-based payment system and stablecoin dubbed Libra. The move would have revolutionized money transfer and positioned Facebook and its partners on the ground floor of the blockchain-based digital payments sector.
However, the project turned out to be a little bit more than politicians and lawmakers were ready to accept. Libra saw immediate regulatory push-back for a variety of reasons. Regulators voiced a myriad of concerns regarding the effects of for-profit tech firms issuing currencies. Some lawmakers believed that this maneuver would give them too much power by injecting these platforms into global economics and geopolitics. . . .
Big E-Commerce Processor Worldpay Agrees to Enable Visa Tokens and Click to Pay
Digital Transactions News – December 10, 2020
In the midst of a boom in online commerce, one of the biggest e-commerce transaction processors globally has agreed to support both a Visa Inc. service that masks users’ card credentials and a streamlined online checkout technology offered by all four major card networks. FIS Inc. said Thursday its Worldpay processing unit will switch on Click to Pay, a so-called common buy button that allows users of Visa, Mastercard, Discover, and American Express cards to check out without entering details such as card and shipping data. FIS acquired Worldpay last year in a deal valued at $43 billion.
In a related move, Worldpay will enable access to Visa’s token-management service, which replaces actual card account credentials with strings of data that would be meaningless if intercepted by hackers. The processor said the tokenization service will be available to all clients internationally via a single integration and will handle both Visa and Worldpay tokens. . . .