Payments News Update – March 4, 2021

Legal and Regulatory Developments

SPOTLIGHT: UK Launches Antitrust Probe Into Apple
CNN Business – March 4, 2021

The United Kingdom’s competition watchdog has launched an investigation into Apple (AAPL) after app developers complained that they’re being forced to use the company’s payment systems and distribute their products via its App Store. The Competition and Markets Authority said Thursday that it will examine whether Apple is making developers agree to “unfair or anti-competitive” terms and conditions so their products can make it onto iPhones or iPads.

“Millions of us use apps every day to check the weather, play a game or order a takeaway,” CMA Chief Executive Andrea Coscelli said in a statement. “Complaints that Apple is using its market position to set terms which are unfair or may restrict competition and choice — potentially causing customers to lose out when buying and using apps — warrant careful scrutiny.” Apple charges app developers a 30% commission on all content bought via its payment system. In November, the company said it would charge a reduced 15% commission for businesses earning less than $1 million in proceeds during the previous calendar year. . . .

Retailers Accuse Mastercard of Downplaying Swipe Fee Costs
Law360 – March 3, 2021 (subscription required)

Major retailers pursuing Mastercard for damages for setting unlawfully high fees told the Competition Appeal Tribunal on Wednesday that the credit card giant cannot lessen the alleged harm to avoid a payout. Jon Turner QC, counsel for high street chains Asda, Argos and Morrisons, said at a hearing that the credit card giant is trying to downplay the damages it owes retailers for violating competition law.

The merchants are pursuing Mastercard for damages in the wake of the U.K. Supreme Court’s decision that the so-called multilateral interchange fees set by Visa and Mastercard breached European Union rules on competition. Mastercard is fighting to scale back the damages it could owe following the decision. The credit card company claims that the retailers would have been saddled with higher costs even if it had not breached competition rules. . . .

A Sales Pitch Became a Vendor’s Winning Legal Argument in Kansas Surcharge Case
PaymentsSource – March 2, 2021 (subscription required)

When CardX presented its case in Kansas District Court in defense of retailers adding a surcharge for accepting credit cards, the argument didn’t stray far from its typical pitch to merchants. Chicago-based CardX, a provider of technology that allows merchants to add a charge to credit card acceptance, wanted Kansas to join the many states that permit the practice of allowing merchants to add a fee to recoup the cost of accepting credit cards. Other courts have sided with merchants that argued a surcharge ban violated their free-speech rights to explain surcharges to consumers.

“If we could ground the case in the real-world facts about how our solution works, we knew it would benefit our case,” said Jonathan Razi, founder and CEO of CardX. “We put in screenshots of what consumers actually see in our visual presentations, and I think it made it an even stronger case. It showed that consumer transparency was at the heart of our model and it paid off for us.” That strategy paid off. Last week’s ruling in Kansas District Court leaves only three states — Colorado, Massachusetts and Connecticut — that still prohibit merchants from adding a surcharge for credit card transactions. . . .

Interac Wins Canadian Real-Time Payments Deal
Finextra – March 2, 2021

Payments Canada has picked local debit network Interac as the exchange solution provider for the country’s new real-time payments system. Payments Canada is in the midst of a multi-year, multi-system payments modernisation initiative. As part of this, it is creating a real-time payments system, called the Real-Time Rail (RTR). Late last year Mastercard-owned Vocalink was awarded the contract to build the RTR clearing and settlement infrastructure.

Now Interac has won the deal to provide an exchange solution that allows Payments Canada members participating in the RTR to send and receive payment messages, tapping into the debit network’s existing infrastructure and connectivity to nearly 300 financial institutions. Tracey Black, president and CEO, Payments Canada, says: “The Real-Time Rail will be the foundation for faster, data-rich payments and act as a platform for innovation. . . .

Why Fintech Battles Ahead Are About More Than Banks
Bloomberg – March 2, 2021

The field known as fintech was pioneered by startups dreaming of toppling financial giants and democratizing access to credit. But now many of those behemoths have joined in. JPMorgan Chase & Co. has a history running back to the days of Alexander Hamilton, but it’s also got 50,000 employees working on its technology. It’s not just banking giants getting in on the fun. Recent steps by Walmart Inc., the world’s largest retailer, to create a fintech division has sent shivers across Wall Street. In another sign of fintech’s maturity, regulators are doing as much to shape its progress as coders or dreamers. Take Ant Group Co.’s plans for a public offering in November that was projected to value the app, which moves money for 1.3 billion people, at about $280 billion. That was before the Chinese government stepped in and derailed the listing.

What is fintech? An effort to revolutionize financial services by extending them to smartphones and applying new technologies such as artificial intelligence. It encompasses a wide range of areas from mobile payments to cryptocurrencies. . . .

Federal Reserve: 2021 Is the Year We Will Engage the Public on Digital Dollar
CoinGeek – March 1, 2021

Jerome Powell, the chair of the U.S. Federal Reserve, has revealed more details regarding the digital dollar. Powell has in the past remained tightlipped on the central bank digital currency, urging caution and claiming the Fed was monitoring the field. In a recent Congressional hearing, he said the Fed will engage with the public on the digital dollar this year. He also stated that it’s up to Congress to give the Fed ‘legislative authorization’ for the project.

Powell was responding to a question by Patrick McHenry, the representative of North Carolina’s 10th District. McHenry very recently joined Bitcoin Association Founding President Jimmy Nguyen to discuss what role lawmakers will play in the future of blockchain, digital currencies and fintech. . . .

Payments Guys Acting Badly—and Strangely
Digital Transactions Magazine – February 28, 2021

There has now been a year of pandemic, but also of regulation, litigation, and malfeasance in the payments business. What’s going on, and has anything really changed? Like everyone else in the “Time of Covid,” the people of payments woke up just about every day last year wondering what new surprise was in store for that day. Commerce was in chaos, streets were deserted, everything had moved online.

Somehow, most of the industry seemed to make it through 2020 largely unscathed—even newly resilient in spots (such as the buy now, pay later boomlet). But that’s when an otherwise unremarkable news item came through the ether at the outset of this year: Federal investigators from three agencies were probing business card sales practices by American Express Co. Why that, why now, amidst so many other concerns? . . .

Payments 3.0: A Hot Potato for the Fed
Digital Transactions Magazine – February 28, 2021

People who cover financial services got all excited when JPMorgan Chase chairman and chief executive Jamie Dimon said a bad word (which the transcript politely says is “indiscernible”) in describing his feelings, during the company’s fourth-quarter earnings call, about technology companies getting into banking. But in the midst of the pearl clutching, an important part of the call went unnoticed.

Dimon laid out why he thinks some newer entrants into the financial-services business have an unfair competitive advantage because of how regulations are written. “There are examples of unfair competition, which we will do something about eventually. People who make a lot more on debit because they operate under certain things,” Dimon said on the Jan. 15 call. Later in the call, he addresses the notion of third-party bank issuers. “If a fintech company uses a white-label bank to process their business, they’re basically a bank. And what the regulators do with that I don’t know,” Dimon said. . . .

Dutch Competition Regulators Nearing Draft Decision in Apple Investigation
Reuters – February 25, 2021

Dutch competition authorities are nearing a draft decision in a years-long investigation into Apple Inc over rules requiring software developers to use its in-app payment system, according to a letter sent this month to some of the developers involved in the case. The Netherlands Authority for Consumers and Markets, or ACM, said in 2019 here that it was investigating Apple’s requirement that developers use its payment system, which charges commissions of between 15% and 30%.

If it issues a decision soon, the ACM could become the first antitrust authority to rule on Apple’s app-store payment policies, which have long drawn complaints from app developers. The European Commission last year opened a formal investigation into the iPhone maker over some of the same practices. In letters to developers involved in the investigation sent earlier this month, which were described to Reuters by two people who received them, the regulator said it was nearing a draft decision in the case. . . .

Industry Developments

SPOTLIGHT: Interchange Adjustments Will Add a Net $889 Million to Merchants’ Costs, an Analysis Says
Digital Transactions News – March 2, 2021

With the two big payment networks set to raise by hundreds of millions of dollars the cost U.S. merchants pay for card acceptance, e-commerce merchants could see fee boosts while some segments—like travel-and-entertainment and low-ticket-value, quick-service merchants—could see some reductions. In total, rate tweaks scheduled by Visa Inc. and Mastercard Inc. for next month will generate a net $889 million more in so-called interchange costs annually. That’s according to estimates by CMSPi, a retail-payments consultancy. Interchange fees are set by the networks for acquirers, which invariably pass the costs on to merchants.

The rate changes, originally scheduled by the networks to go into effect in April and October last year, were postponed in recognition of the economic impact of the Covid-19 pandemic. Now, though, it appears both Visa and Mastercard are set to follow through on new rates for “a significant portion” of hundreds of fee categories, CMSPi’s analysis says. “It would seem all systems are go with it,” says Callum Godwin, CMSPi’s chief economist. CMSPi is based in the United Kingdom and has a U.S. office in Atlanta. . . .

Twitter Testing Shopping Card Ecommerce Feature
PYMNTS – March 4, 2021