Payments News Update – April 1, 2021

Legal and Regulatory Developments

SPOTLIGHT: Retail Groups Seek to Protect Merchants in Ongoing Swipe Fee Litigation
Chain Store Age – March 31, 2021

The nation’s two largest retail trade are objecting to the scope of proposed class-action swipe fee litigation. The Retail Industry Leaders Association and the National Retail Federation are asking to intervene in longstanding multidistrict class action litigation brought by merchants against Visa and Mastercard over fees charged to process credit card transactions. In a brief filed Friday, the groups objected to the proposed certification of an overly broad class that would limit the rights of current and future retailers to challenge the card networks’ anticompetitive rules.

RILA and NRF are petitioning the U.S. District Court of the Eastern District of New York to allow the organizations to join the litigation as parties so they can object to the scope of the class proposed by court-appointed counsel. The litigation has been brought by just seven small merchants, who seek to represent tens of millions of merchants nationwide – ranging from single-store operators to the largest retailers in the country – that accept Visa and/or Mastercard.

RILA and NRF seek to represent their own interests as merchants who accept credit cards and to voice the concerns of not-yet-existent merchants who would be foreclosed from challenging the card networks if the class is certified as proposed. “The proposed class is entirely too broad and in effect would prohibit retailers from pursing their own grievances against card networks,” said Deborah White, RILA senior executive VP and general counsel. “Interchange fees are a significant expense for RILA and are often the largest expense after payroll for other U.S. retailers. Binding all retailers to the litigation strategy and settlement terms acceptable to such a small group of non-representative plaintiffs is patently unfair.” . . .

Mastercard, Rivals ‘Ran Cartel’ on Cards for the Vulnerable, UK Watchdog Says
Reuters – March 31, 2021

Mastercard is among five companies which broke the law for cartel behaviour when offering pre-paid cards to vulnerable members of society, Britain’s Payment Systems Regulator said on Wednesday. Mastercard, allpay, APS, PFS and Sulion agreed not to compete or poach each other’s customers on cards used by local authorities for welfare payments including to the homeless, victims of domestic violence and asylum seekers, the PSR said. The investigation is ongoing and the companies can make representations on the provisional findings, the PSR said.

Mastercard, allpay and PFS have admitted liability, and if the regulator ultimately concludes there is wrongdoing have agreed to pay maximum fines totaling more than 32 million pounds ($44 million), the watchdog said. The PSR alleges two infringements of Britain’s 1998 competition law. One breach took place over six years between 2012 and 2018 and involved all five firms, the PSR said. The other lasted between 2014 and 2016 and involved APS and FPS, the watchdog said. . . .

9th Circ. Revives Casino ATM Merchant’s Contract Dispute
Law360 – March 30, 2021 (subscription required)

ATM Merchant Systems provided evidence that a partner payment-processing company harmed its casino business by failing to adapt to chip technology on time, the Ninth Circuit said in a decision that largely reversed a lower-court ruling. JB Carter Enterprises, which does business as ATM Merchant Systems, provided enough evidence that Elavon Inc. may have breached its contracts and engaged in unfair dealing, the court found Monday. The unpublished opinion reversed the bulk of the Nevada district court’s decision, which had granted a win to Evalon.

ATM Merchant Systems, or ATMMS, provides ATMs, merchant payment services and a debit and credit card cash advance system for casinos and gambling, according to its website. The company sued its business partner Evalon in March 2018, accusing Evalon of breach of contract, acting in bad faith and interfering with its business relationships, court documents show. ATM Merchant Systems bought Elavon’s technology to help authenticate chip-card transactions. Elavon promised that its terminals had been prepared for the shift to chip-based payment technology known as Europay, Mastercard, Visa, or EMV, according to court documents. But the terminals could not support certain debit-card EMV transactions by the time merchants had to assume liability for disputed transactions, court filings show. . . .

Visa, Sainsbury’s Tussle Over Docs in £126m Swipe Fee Suit
Law360 – March 29, 2021 (subscription required)

Sainsbury’s PLC must disclose further information to Visa in its £126 million ($173.9 million) lawsuit over the credit card company’s unlawfully high merchant fees, a specialist London competition court said Monday in a ruling that fell short of the extent of disclosure demanded by Visa. In a mixed decision, the Competition Appeals Tribunal ordered the big supermarket chain to disclose internal discussions analyzing benefits associated with innovations in credit card technology but trimmed a clutch of Visa’s requests for additional information stemming from the long-running suit.

At a case management hearing, lawyers for Visa argued Sainsbury’s should provide further information covering whether it benefited from higher credit card fees, the extent to which fees were passed on to customers and the corporate structure of its banking subsidiary Sainsbury’s Bank. Visa had sought extended disclosure in dozens of categories of material from Sainsbury’s ahead of a 2021 trial over what damages are due to the retailer following a landmark Supreme Court judgment finding Visa and Mastercard set their fees at an unlawful level that restricted competition. . . .

Bank of Japan Forms Committee to Share Details on CBDC Proof-of-Concept
The Block – March 27, 2021

The Bank of Japan said Friday that it has created a “liaison and coordination committee” intended to support its planned efforts to test a central bank digital currency (CBDC) in the coming weeks. As previously reported, Japanese central bank officials said this month that its experiments would begin in the spring. The purpose of the committee is to serve as a connecting point between the central bank and the private sector.

In a March 26 letter, the BOJ laid out its rationale for wanting to create such a committee: “While the Bank currently has no plan to issue central bank digital currency (CBDC), from the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems, the Bank will prepare thoroughly, including implementing experiments, to respond to changes in circumstances in an appropriate manner. In the course of CBDC exploration, the Bank considers it important to apply the knowledge of various stakeholders such as the private sector, experts, and relevant public authorities.” . . .

Commentary: Part Two: How Network Regulation Overseas Could Resonate Here
Digital Transactions News – March 26, 2021 (click here to read Part One)

Veteran payments practitioners will recall that, “in the beginning,” issuers paid interchange to merchants to incent them to accept credit card payments from the incipient Visa and Mastercard networks.  By the inception of electronic draft capture (circa 1980), that acceptance was growing to a critical-mass level nationwide, and by the late 1990s few merchants could afford to lose business by rejecting these cards. despite the high-fee cards paid since that time by merchants.

Toss in a host of network rules that merchants view as restricting competition and disadvantaging debit card alternatives from rival networks, and you have the formula for the escalation in the interchange wars that the marketplace has experienced over the past several months. What’s particularly noticeable now is the apparent convergence of merchant fervor with newfound regulatory zeal. The recently initiated Federal Trade Commission and Justice Department investigations of complaints that the networks are interfering with merchants’ debit-routing choice under the Durbin Amendment have clearly re-awakened long-simmering emotions over radioactive interchange policies. . . .

A Reported SEC Probe Casts a Spotlight on the Fast-Growing SPAC Trend
Digital Transactions News – March 25, 2021

News late Wednesday that the U.S. Securities and Exchange Commission is inquiring into a newly popular alternative for going public comes as payments firms increasingly turn to the method in lieu of a traditional public offering. Reuters reported late Thursday the SEC is contacting Wall Street financial institutions to ask about their activities involving blank-check firms. These so-called SPACs—special purpose acquisition companies—have acquired or announced deals with at least half a dozen payments firms since July 2019, with the largest deal involving a $9-billion acquisition of Paysafe Group expected to close this month. The most recent target is Payoneer Inc., which announced its $3.3-billion SPAC merger last month.

Citing four unnamed people “with direct knowledge of the matter” as sources for its story, the Reuters report said two of the sources indicated the SEC asked the banks to supply information voluntarily. One of the two, however, said the letters came from the agency’s enforcement division. The SEC could be concerned about the extent of due diligence conducted by SPACs and also about whether alleged “huge payouts” are clearly disclosed to investors, the report said, citing one of the sources. The inquiry asks about deal fees, volumes, and how banks are policing deals, according to one of the sources. . . .

Industry Developments

SPOTLIGHT: The Fed Drives Ahead With Payment Rail Exploration
PYMNTS – March 31, 2021

The Federal Reserve is paving the way for new payment infrastructure to drive progress in the U.S. landscape, both through an expansion of the FedNow pilot, as well as the exploration of a possible Fedcoin digital currency. But other innovators like Visa and the ACH Network are taking existing rails to drive payments speed and efficiency. The Federal Reserve’s in-progress real-time payment network, the FedNow Service, is expanding its pilot with the addition of new participants. This week, CGI revealed in a press release it will collaborate to test the service, connecting its client Vantage Bank Texas to use real-time payment capability for its own customers. CGI said it will make the integration possible through its CGI All Payments offering, a payments platform for banks to launch new payment services by accelerating network connectivity and deployment.

Also participating in the FedNow Pilot Program is Jack Henry & Associates, which similarly connects financial institutions (FIs) to technology to streamline access into new payment networks. The company’s JHA PayCenter will allow banks and credit union clients of the company to use the FedNow Service with the goal of obtaining feedback on the infrastructure as the Federal Reserve gears up for a full rollout of the real-time payments offering by 2023, according to a separate press release.

While the Federal Reserve presses ahead with its real-time payments network development, it is also exploring the opportunity in so-called Fedcoin, an electronic alternative to paper currency that is raising concerns among business leaders, according to Bloomberg Businessweek. In collaboration with the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology, the Fed is researching and developing the creation of a digital dollar platform. . . .

Visa, PayPal to Allow Customers to Pay With Cryptocurrency
Entrepreneur – March 30, 2021