Payments News Update – March 25, 2021
Legal and Regulatory Developments
SPOTLIGHT: A DOJ Investigation of Visa Is the Latest Chapter in a Long History of Probes Into Network Policies
Digital Transactions News – March 22, 2021
The news that the U.S. Department of Justice is probing debit card routing practices at Visa Inc. follows on a long history of such investigations and could portend a more serious attitude by regulators to address longstanding merchant complaints about network routing and pricing. “This is one more heavy step in a growing footbeat of increased regulatory scrutiny in the card payment business,” says Steve Mott, principal at BetterBuyDesign, a Stamford, Conn.-based payments consultancy, in an email message.
The latest inquiry also comes as merchants, issuers, and networks are contending with the impact of a year-long pandemic that has restricted in-person shopping, driven many consumers for the first time to depend on e-commerce, and increased the urgency of such moves as contactless transactions and increased fraud scrutiny.
According to news reports Friday, the DoJ is looking into longstanding merchant complaints that Visa is frustrating the debit-routing choice merchants were given under the Durbin Amendment to the Dodd-Frank Act. The decade-old amendment capped debit card interchange for larger issuers and mandated a choice of at least two unrelated networks for merchants. The latest investigation is looking at whether Visa’s network policies are giving the network an illegal boost in market share, according to the report by The Wall Street Journal. . . .
London Court Will Decide if Class Action Suit Against Mastercard Moves Forward
PYMNTS – March 25, 2021
A class-action lawsuit against Mastercard for a record £14 billion ($19 billion) will be heard by a specialist London court on Thursday (March 25), which will decide if the case should proceed, Reuters reported. The 2016 suit, brought by former financial ombudsman Walter Merricks, could entitle every adult in Britain to about £300 pounds each. Merricks accused Mastercard of overcharging over 46 million people across nearly 16 years.
The case goes before the Competition Appeal Tribunal (CAT) for a two-day hearing after the U.K. Supreme Court last year overruled objections to it moving forward. This is Britain’s first-ever mass consumer claim, and the outcome could set the stage for other such lawsuits on deck. Quinn Emanuel, the U.S. law firm advising Merricks, accused Mastercard of overcharging retailers for credit card fees from May 1992 through June 2008. The allegations further state that those fees were then passed on to consumers via increased prices for merchandise, Reuters reported. . . .
ECB Announces CBDC Will Not Be Introduced Before 2026
The Paypers – March 24, 2021
The European Central Bank director Fabio Panetta has announced the bank is still preparing for a digital euro, yet it will take 5 years before it will be introduced. The central bank director stated this at a virtual conference of the Bank for International Settlements (BIS). According to the ECB’s director, this is due to technicalities since the introduction of a Central Bank Digital Currency (CBDC) will have a strong impact on payment transactions and the financial markets.
The ECB is currently still in the process of preparing a digital version of the common currency. In mid-2021, the Governing Council will decide whether a formal project should be launched. According to Fabio Panetta, the Governing Council should then decide whether the project will be implemented, and this implementation could also take around two to three years. Some European countries are already open to European digital currencies, such as the Dutch central bank, which declared that the country was a suitable place for a test run with a digital euro. . . .
Federal Reserve’s Digital Dollar Push Worries Wall Street
Bloomberg– March 22, 2021
The financial services industry, braced for what could be its biggest disruption in decades, is about to get an early glimpse at the Federal Reserve’s work on a new digital currency. Wall Street is not thrilled. Banks, credit card companies and digital payments processors are nervously watching the push to create an electronic alternative to the paper bills Americans carry in their wallets, or what some call a digital dollar and others call a Fedcoin.
As soon as July, officials at the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology, which have been developing prototypes for a digital dollar platform, plan to unveil their research, said James Cunha, who leads the project for the Boston Fed. A digital currency could fundamentally change the way Americans use money, leading some financial firms to lobby the Fed and Congress to slow its creation — or at least ensure they’re not cut out. . . .
‘We Don’t Want Them to Own the Payments System’: Apple, Google Face Possible New Probe
Sydney Morning Herald – March 19, 2021
Apple Pay and other digital payment systems could face a parliamentary inquiry amid fears a lack of competition may drive up fees and costs for consumers and even hurt people using dating apps. The joint committee on corporations and financial services is considering its own investigation into the app payment sector even as the federal Treasury and the Australian Competition and Consumer Commission conduct studies into emerging fintech issues.
It would follow the Morrison government’s news media bargaining code aimed at encouraging big technology companies to strike payment deals with media providers. The payments system is undergoing substantial change, not only from digital payments but also from the buy now, pay later sector, which is based largely on breakthroughs in payment technology. . . .
Regulatory Pressure Could Spur More Innovation at Buy Now/Pay Later Firms
PaymentsSource– March 18, 2021 (subscription required)
The hot point of sale credit market is drawing regulators’ attention, but that may be what the installment payment market needs to avoid a credit crunch. “We’re starting to see regulators creep into buy now/pay later,” said Bradley Riss, chief commercial officer at Checkout.com, during Card Forum: Contactless, hosted by PaymentsSource this week. “Most jurisdictions seem to be leaning toward it as being a lending product.”
Checkout.com has worked with Klarna as a payment processor. Klarna is one of the prominent players of the BNPL market, along with companies like Afterpay and Affirm. BNPL has grown exponentially over the past year, providing a way for consumers to finance larger purchases while avoiding building credit card debt. Merchants also like the product because it can increase cart size even when the financial crisis limits consumers’ cash flow. . . .
SPOTLIGHT: Visa Announces New Fee Hike to EU
FXCompared – March 23, 2021
Visa has said that it will institute new fees on payments between the EU and the UK after a cap on interchange fees between the two was lifted following of Brexit. It is understood that debit card and credit card payments will be affected as well as the costs of online transfers. The news came from an unnamed source – though Visa pointed out that it remains a relatively cheap method of placing online money transfers.
Financial services provider Visa has announced that it will be raising fees on cash sent from the UK to the EU – and vice versa – in the coming months. The financial press is reporting that “unnamed sources” at the firm confirmed that the new rate will kick in later in the year. It is believed to be expected in October and will affect fees charged for the benefit of banks. These are known as “interchange fees”.
However, the move will be broader than that. As well as affecting bank transactions, they will affect online payments and also those placed over the telephone. There, the fee will rise from 0.3% to 1.5% of the value of the payment. It will also affect debit card payments going from the UK to the EU by a significant amount. There, the rise will be from 0.2% to 1.15%. It comes as interchange fees are no longer bound by a Europe-wide cap. This change came about as a result of the Brexit vote and subsequent deal between the UK and the EU. In a statement reported in a newspaper, Visa said that it wanted to meet the needs of lots of different groups of stakeholders. . . .
Square’s Bank Will Push Retail Financial Services Deeper Into Mobile
PaymentsSource – March 23, 2021 (subscription required)