Payments News Update – May 14, 2021
Legal and Regulatory Developments
SPOTLIGHT: A Fed Report on Debit Costs Could Fuel a Movement to Reduce a Decade-Old Fee Cap
Digital Transactions News – May 10, 2021
Pressure may be building on the Federal Reserve to take action on a debit card interchange-fee regulation that it has left intact for 10 years despite sweeping changes in the payments business, including an onrush of e-commerce transactions over the past year.
In part, observers are reacting to a report the Fed released Friday indicating that issuers’ authorization, clearing, and settlement (ACS) costs for debit have declined dramatically over the years. In 2019, those costs came to 3.9 cents per transaction, roughly half the costs in 2009, according to the report. At the same time, the 10-year-old Fed ceiling on debit card interchange, which flows to issuers, in 2019 was greater than total ACS costs plus fraud losses for nearly 79% of covered issuers and close to 100% of covered transactions, the report says. . . .
Judge in Epic vs. Apple Case Floats Potential Compromise
MacRumors – May 12, 2021
In the ongoing legal battle between Apple and Epic Games, the two companies are this week calling up their expert witnesses to argue their points before Judge Yvonne Gonzalez Rogers, who will make a decision in the case after a three week trial.
Expert testimony is not as exciting as some of the leaked App Store documents that were highlighted last week, especially as much of what’s being discussed was shared by Epic and Apple ahead of the trial. When speaking to expert witnesses, however, Gonzalez Rogers hinted that she might aim for a compromise between Epic and Apple to solve the dispute. As outlined by Bloomberg, there was a discussion about Apple’s rules that prevent app developers from directing users to make purchases outside of the App Store, such as through the web, as an alternative to in-app purchases. . . .
Government to Cap Bank Interchange Fees for Businesses in New Law
Radio New Zealand – May 12, 2021
The government is introducing regulations to reduce the fees banks charge businesses when customers use credit or debit cards. The Commerce Commission will also be given powers to regulate and monitor the retail payments system. There will also be a disclosure and reporting requirement to enable this. In a statement, Commerce and Consumer Affairs Minister David Clark said a Retail Payments Systems Bill would be introduced later this year.
“The high cost of these fees puts added financial pressure on businesses at a time when they are dealing with the economic impacts of Covid-19. Reducing the merchant service fees that New Zealand businesses are being charged is a priority for this government, and critical to the recovery of the economy.” . . .
Retailers Seek Quick Win in Mastercard, Visa Swipe Fees Suit
Law360 – May 12, 2021 (subscription required)
Hundreds of retailers asked a tribunal on Wednesday to rule that Visa and Mastercard overcharged them to process card purchases, arguing that it is bound by a U.K. Supreme Court ruling against the credit card companies over their merchant fees.
The claimants — including high street names such as Dune Shoes and Odeon Cinemas, as well as local councils — have asked the Competition Appeal Tribunal for summary judgment on their claims that the credit card giants abused their dominant position in payment services to set unfair or exclusionary prices and trading conditions in breach of competition rules. The merchants argued in their motion that their claims are “materially indistinguishable” from the basis on which the Supreme Court and Court found Visa and Mastercard had set fees at an unlawful level that restricted competition in a case brought by some of Britain’s biggest retailers. . . .
Epic Antitrust Judge Doubts Apple Expert’s Amex Comparison
Law360 – May 12, 2021 (subscription required)
A California federal judge presiding over Epic’s high-stakes antitrust trial appeared skeptical Wednesday of a professor’s testimony that Apple’s anti-steering provisions are akin to restrictions upheld by the high court in Ohio v. American Express, noting that brick-and-mortar stores advertise various payment methods, while the virtual App Store does not.
U.S. District Judge Yvonne Gonzalez Rogers’ comments came during the examination of Apple Inc.’s expert witness, Massachusetts Institute of Technology economics professor Richard L. Schmalensee, in the second week of the California federal bench trial over Apple’s app payment-processing restrictions and its 30% commission on in-app purchases made on its iOS operating system. . . .
FDIC Chief Says Agency Wants to Know More About Digital Assets
Coindesk – May 11, 2021
“At the FDIC we have been watching [digital asset] developments closely, and plan to issue a request for information to learn more,” Jelena McWilliams said. The Federal Deposit Insurance Corp. (FDIC), one of the federal banking regulators in the U.S. and one of two entities that provide deposit insurance to federally regulated institutions, is taking a look at how banks are exploring digital currencies, its top official said Tuesday.
Speaking to the Federalist Society, FDIC Chairwoman Jelena McWilliams said the federal regulator wants to hear from banks about how they are approaching the digital asset market and what role the FDIC should play. “At the FDIC, we have been watching such developments closely, and plan to issue a request for information to learn more what banks are doing, what banks are considering doing and what, if anything, the FDIC should do in this space,” she said. . . .
Regulators Take Aim At Cryptos’ ‘Wild West’ Environment
PYMNTS – May 10, 2021 (subscription required)
This past weekend, a certain someone went on a certain Saturday night comedy show, and made an offhand, derisive remark about a certain cryptocurrency. The value plummeted about 30 percent. That was Elon Musk, of course, on Saturday Night Live, where he called Dogecoin – which he’d been touting for a while through social media – a “hustle.”
Read into that comment what you will, but as the old saying goes, inside every joke lies a kernel of truth. At least some of the crypto universe is tied to hustling, even while proponents strive in earnest to create tokens and ecosystems that will represent a sidestep from the traditional financial system that is governed by central banking. . . .
Do Wells Fargo, U.S. Bancorp Investigations Signal a New Era at CFPB?
American Banker – May 7, 2021 (subscription required)
Wells Fargo and U.S. Bancorp disclosed this week that they are under investigation by the Consumer Financial Protection Bureau over conduct that may have harmed their customers.
The disclosures, which came in quarterly securities filings, do not make clear whether the investigations began under Presidents Trump or Biden, and in Wells Fargo’s case, the probe involves business practices that first attracted public scrutiny in 2019. Still, the timing of the disclosures raises questions about whether a shift is taking place at the agency charged with protecting consumers from financial abuses. . . .
PayPal’s Digital Payments Boom Could Invite Antitrust Probes, Say Experts
Verdict – May 7, 2021
PayPal’s success is inviting regulators to launch more antitrust probes into payment processing giants to give fintech startups a fighting chance, according to market stakeholders and analysts.
The fintech behemoth, founded by the fabled so-called “PayPal Mafia” that included the tech tycoon Elon Musk and investor Peter Thiel in 1999, is riding high on a mounting wave of digital payments after Covid-19 caused online shopping and contactless payments to surge. The company has just had its best first quarter ever, with its revenue jumping by 31% to $6.03bn on the back of processing $285bn in transactions over the period, up 50% from 2020. . . .
The Future of Fintech Is Regtech
PaymentsJournal – May 7, 2021
The rise of digital commerce has led to bold proclamations that the future of technology and the future of finance are increasingly intertwined: Forbes has described “How Fintech Is Eating The World”, while leading venture firm Andreessen Horowitz has predicted “Every Company Will Be a Fintech Company.” Although advances in technology have created novel possibilities in finance and banking, progress has been slower than many experts have predicted for one fundamental reason: regulatory overhead.
How can startups—given the complexity of post-crisis financial regulation—compete and innovate in finance and banking? That was the biggest question I faced when I founded CardX in 2013, and my founding thesis was that the most innovative fintech companies of the next decade would be those startups that tackle regulatory challenges head-on. . . .
Industry Developments
SPOTLIGHT: TikTok Is Reportedly Pulling a Facebook and Adding in-App Shopping
The Verge – May 11, 2021
TikTok’s next move to compete with Facebook might be to add an in-app shopping feature, according to a new report from Bloomberg. The publication writes that TikTok is testing in-app sales in Europe by partnering with several brands, including UK-based streetwear company Hype.
TikTok’s made some shopping moves in the past, like giving creators the ability to sell merchandise through an integration with Teespring, partnering with Shopify, and reportedly working on some kind of live-video informercial product. This new prototype sounds more like how shopping’s been integrated on Instagram, with a separate shopping tab under a brand’s account that lists products with images and prices, Bloomberg writes. . . .
Big US Banks Extending Credit to People Without Scores
PYMNTS – May 13, 2021
JPMorgan Chase, Wells Fargo and U.S. Bancorp are among the big U.S. banks working on a government initiative to get credit into the hands of people with no or low credit scores, The Wall Street Journal reported on Thursday (May 13), citing sources. In order to get a clearer picture of how financially responsible people, the banks indicated that they will exchange customer deposit data from checking and savings accounts and extend credit to people who are responsible with their money but have low or no credit scores.
There are about 53 million adults in the country that don’t have regular credit scores, according to Fair Isaac Corp., the company behind FICO credit scores, per the Journal. A report from the Consumer Financial Protection Bureau indicated that Black and Hispanic adults are more likely than other groups to lack credit scores. . . .
Facebook-Backed Crypto Project Diem to Launch US Stablecoin
CNET – May 12, 2021