Payments News Update – August 16, 2024
Legal and Regulatory Developments
SPOTLIGHT: Merchants Get Another Extension to File Claims in Their Class Action Against Visa and Mastercard
Digital Transactions News – August 14, 2024
Merchants were granted a second extension late Tuesday for filing claims against Visa Inc. and Mastercard Inc. in their ongoing class-action lawsuit against the two networks over interchange costs.
U.S. District Court Judge for the Eastern District of New York Margo K. Brodie, who is presiding over the case, moved the deadline for filing a claim to Feb. 4, 2025, a 180-day extension. Earlier this year, the court extended the claim-filing deadline from May 31 to Aug. 30. . . .
The latest deadline extension comes at the behest of class administrator Epiq Class Action & Claims Solutions Inc. In a declaration filed with the court and dated Aug. 6, Loree Kovach, senior vice president for Epiq, argued that since notice of filing a claim was provided to class members in 2019, “the Class Administrator has received additional data from Visa and others” that reveals a significant number of additional class members did not receive claim forms sent in 2023. . . .
Banking Groups Sue to Thwart New Ill. Swipe Fee Restrictions
Law360 – August 15, 2024 (subscription required)
The nation’s largest bank trade association and other industry groups sued Thursday to block Illinois from implementing a new state law that prohibits financial intermediaries from charging so-called swipe fees on the sales tax and tip portions of payment card transactions, arguing it conflicts with federal law and risks broader “chaos.”
The American Bankers Association filed the challenge to the law — known as the Interchange Fee Prohibition Act — in Illinois federal court, joined by the Illinois Bankers Association, America’s Credit Unions and the Illinois Credit Union League as co-plaintiffs.
Their complaint, which names Illinois Attorney General Kwame Raoul as defendant in his official capacity, alleges the IFPA violates multiple federal laws and cannot be enforced against federal and state-chartered financial institutions or their payment card networks and service providers. . . .
EU Banks Warn About ‘Protectionist’ UK Plans to Cap Payments Fees
Financial Times – August 14, 2024 (subscription may be required)
European banks have raised “serious concerns” with the Treasury about a plan by the UK regulator to cap international digital transaction fees that generate revenue for EU banks and payment companies.
Two trade bodies — the European Banking Federation and Payments Europe — warned the proposed move was “potentially discriminatory” and a “risk to the integrity of national payments and retail banking markets in the EU.”
It particularly risks harming Fintechs and digital banks, the pair warned in a letter to City minister Tulip Siddiq and Payments Systems Regulator chair Aidene Walsh. Fintech companies do not offer lending at scale and so are more reliant on income from payment fees than larger banks. . . .
CFPB Wants to Set the Rules for How Banks Use AI
PYMNTS – August 13, 2024
The Consumer Financial Protection Bureau (CFPB) has staked out a clear position on using artificial intelligence (AI) in financial services: There are no exceptions to existing consumer protection laws for new technologies.
In an Aug. 12 comment letter to Treasury Secretary Janet Yellen, the CFPB outlined its approach to regulating AI and other emerging technologies in the financial sector. The agency emphasized that innovation must not come at the expense of consumer protection or fair competition. . . .
The agency’s position comes as financial institutions increasingly adopt AI and machine learning technologies for everything from customer service to fraud detection and credit underwriting. . . .
How Big Banks Are Gunning for Buy-Now, Pay-Later Fintechs
Forbes – August 12, 2024 (subscription may be required)
Two decades after the launch of Klarna and a decade after Affirm and Afterpay got going, the buy-now, pay-later business is facing some adult challenges, including tougher regulation and competition from big-bank credit card issuers such as JPMorgan Chase and Citibank, which are beginning to play on its turf.
With a buy-now, pay-later (BNPL) service, online shoppers opt at checkout to pay for an item over time—in its simplest form, in four easy payments, sometimes with no interest or fees, thanks to subsidies from merchants. It was initially conceived as a way to goose sales to buyers (and in particular Millennials) who weren’t ready to pay the full cost of an item upfront and either lacked credit cards or didn’t want to add to the balances on their high interest rate cards. . . .
Both the new bank competition and regulation appear to be part of a broader trend: BNPL products could be starting to feel to consumers more like credit cards than the simpler four-payment alternative Sweden’s Klarna and Australia’s Afterpay initially pitched. . . .
Industry Developments
SPOTLIGHT: Apple Is Opening the iPhone’s NFC Chip to Third-Party Apps With iOS 18.1
9to5Mac – August 14, 2024
Apple has announced that it is opening up the iPhone’s NFC chip using the Secure Element to allow for third-party contactless payments, separate from Apple Pay and Apple Wallet. This feature will debut in a future release of iOS 18.1 and will be available in Australia, Brazil, Canada, Japan, New Zealand, the U.K., and the United States.
This change comes after Apple announced it would open the NFC chip to third-party apps in the European Union in accordance with the Digital Markets Act.
In a press release announcing the news today, Apple explains that the NFC chip can be used for things like payments, car keys, student IDs, hotel keys, and much more. . . .
How Embedded Payments Are Changing the Way We Pay
Payments Dive – August 13, 2024
There was a time when ride-share company Uber’s almost imperceptible app-based payments system was an outlier. Uber’s payments process was one of the earliest forms of embedded payments, a concept that entails the streamlining of a checkout process so consumers barely know they’re hitting the ‘pay’ button. Businesses take a consumer’s payment information when that person signs up for services, and never asks for it again. Instead, the service provider charges automatically for each transaction.
Now, embedded payments are a part of a broader move toward service providers’ use of embedded finance, by which merchants and retailers offer consumers not only payments services, but also sell them other services such as insurance, bank accounts and loans.
As use of embedded payments rises, this primer is intended to give industry professionals and others a better understanding of the role this advancing technology plays in the marketplace. . . .