Payments News Update – December 1, 2023
Legal and Regulatory Developments
SPOTLIGHT: UK Payment Sector Urged to Develop System to Bypass Dominant Card Networks
Financial Times – November 22, 2023 (subscription required)
The UK should develop ways to challenge the dominance of the big card networks and is “at risk of falling behind” other countries unless it builds an alternative to its “clunky” Faster Payment Service, according to a government-commissioned review into the competitiveness of the sector. The report, led by former Nationwide chief executive Joe Garner, called on the payment sector to use open banking technology to create new routes between customers’ bank accounts and retailers that would bypass card intermediaries to challenge the dominance of the Visa and Mastercard networks.
“When we talk and listen to merchants and retailers, they say things like, we feel trapped because we have to take card payments,” said Garner, adding that giving retailers the option to charge without using a card network would create a “healthier” market, especially as the use of cash was falling.
The findings, which were published on Wednesday alongside the chancellor’s Autumn Statement, come as card networks are facing a probe by the UK Payment Systems Regulator into cross-border interchange fees. . . .
CFPB’s Chopra Says AI Could Give ‘Enormous Control’ to Few
Law360 – November 28, 2023 (subscription required)
Consumer Financial Protection Bureau Director Rohit Chopra said Tuesday that he is worried the rise of generative artificial intelligence technology could concentrate “enormous” power within the grasp of a few companies and their top executives. Appearing at an Axios event in Washington, D.C., Chopra said policymakers should be concerned that the market for AI tools has the potential to quickly become oligopolistic and allow a small group of entrenched incumbents to wield outsize economic influence. . . .
Chopra also expressed unease with AI’s ability to “simulate human interaction,” saying it distinguishes the technology from past innovative advances like ATMs and can be exploited to “interfere with human life and perpetrate fraud, crime, abuse.” To that end, Chopra said the CFPB has done “pretty in-depth analysis” of banks’ use of customer service chatbots and wants to make sure banks take responsibility for any erroneous information provided by their chatbots to consumers.
He indicated that the agency is additionally looking at the consumer fraud implications of generative AI, noting that the use of AI-assisted techniques like voice cloning to bypass banks’ biometric authentication protocols is “going to be a problem.” . . .
Australia to Amend Law to Regulate Digital Payments Like Apple, Google Pay
Reuters – November 27, 2023
Australia’s government said on Monday it would bring Apple Pay, Google Pay and other digital payment services under the same regulatory umbrella as credit cards and other payments as part of legislation set to be introduced to parliament this week. Digital wallets from the likes of Apple, Google and WeChat developer Tencent have exploded in popularity but are not captured by Australian payments law.
The legislation, first flagged last month, will broaden the legislation that empowers the Reserve Bank of Australia to regulate payments so that it applies to new and emerging technology.
“We are modernising Australia’s payments system to ensure it meets the needs of our economy now and into the future,” Treasurer Jim Chalmers said in a statement. “We want to make sure the increasing use of digital payments occurs in a way that helps promote greater competition, innovation and productivity across our entire economy.” . . .
Credit Card Bill Battle May Slide Into 2024
Payments Dive – November 27, 2023
The battle over the proposed Credit Card Competition Act may drag into next year, despite an initial goal of winning passage this year. Nonetheless, supporters and opponents remain locked in battle. The bill, which aims to inject more competition into the industry by requiring that bank card issuers ensure at least one card network other than Visa or Mastercard is available to merchants processing payments, has bipartisan sponsors in the House and the Senate.
Still, efforts to attach it to some larger bill have been fruitless so far. It was sidelined this month as Congress members focused on passing a funding bill to avoid a shutdown of the federal government. That stopgap measure passed just before Congress recessed for the Thanksgiving Day holiday will tide U.S. funding over until next year, and negotiations over a longer-term funding solution are likely to take center stage now.
Meanwhile, Senate sponsors of the CCCA, namely Dick Durbin, a Democrat from Illinois, and Roger Marshall, a Republican from Kansas, have kept up their crusade to pass the CCCA bill, if not this year, at least in this congressional session, which wraps up at the end of 2024. . . .
Australian Regulator Calls for New Competition Laws for Digital Platforms
Reuters – November 27, 2023
Australia’s competition watchdog said on Monday new competition laws were required in response to the rapid expansion of digital platforms such as Amazon, Apple, Google, Meta and Microsoft in the country. The Australian Competition and Consumer Commission (ACCC) in its latest report for the Digital Platform Services Inquiry raised concerns that the expansion of these platforms has increased the risk of them engaging in harmful behaviour such as invasive data collection and practices that lock in customers and limit their choices.
“Our proposed reforms include a call for targeted consumer protections and service-specific codes to prevent anti-competitive conduct by particular designated digital platforms,” ACCC Chair Gina Cass-Gottlieb said.
The ACCC has not made specific findings of anti-competitive conduct, but said digital platforms with significant market power can use practices such as the bundling of products, pre-installation and default settings to limit customer choice or deter innovation at competitors. . . .
Visa Proposes New Plan for Covering Litigation Liability
Payments Dive – November 22, 2023
Visa’s board has approved letting shareholders vote on whether to pursue a share exchange program that would change how the card network covers billions of dollars in outstanding merchant claims against the company, according to a regulatory filing Tuesday. The program would eliminate some restrictions on stock sales by Class B shareholders, who are covering legal liabilities related to merchant class actions.
“Visa’s current estimate of such interchange reimbursement fees as of October 1, 2023 is approximately $49.6 billion,” the filing said.
JPMorgan Chase, Bank of America, Citibank and Wells Fargo are the principal Class B shareholders, according to the Tuesday filing, which provides a 15-page disclosure about the program. Shareholders will vote on the proposed program in January. . . .
A New York Times Op-Ed Video Favoring the CCCA Sparks a New Tussle Over the Bill
Digital Transactions News – November 22, 2023
The Electronic Payments Coalition issued a press release late Tuesday rebuking a New York Times op-ed video that argues merchants and consumers already pay a high price for rewards cards and expresses support for the Credit Card Competition Act. In its rebuttal responding to the video, Richard Hunt, executive chairman of the EPC, describes the claims made in the video as “deceptive” and “erroneous,” and adds they have been “soundly debunked.” The EPC, which represents payments companies and networks, has lobbied against the CCCA since the bill first appeared last year. . . . The EPC’s rebuttal Tuesday argues passage of the CCCA would harm card networks’ ability to provide data security. . . .
In response, the Merchants Payments Coalition, which supports passage of the CCCA, says the information presented in the New York Times video is “straightforward, factual, and correct,” according to Doug Kantor, MPC Executive Committee member and National Association of Convenience Stores general counsel. . . . Kantor added the EPC’s claim that passage of the CCCA would harm card-network data security is not a new argument. “Data from the Federal Reserve shows that network competition lowers fraud rates and that the rate of fraud on the Visa and Mastercard networks is [eight] times higher than that of competing networks,” he says. “Networks will have better fraud protection if allowed to compete.” . . .
Industry Developments
SPOTLIGHT: Will China Be a Boon or Bust for Card Networks?
Payments Dive – November 21, 2023
Mastercard’s entrance into China’s domestic market will further reveal whether that gigantic consumer market is a huge win for U.S.-based card companies, or an ultimate loss. Mastercard said Monday that its Mastercard NUCC Information Technology joint venture with a Chinese entity had won approval from the country’s central bank, the People’s Bank of China, to clear payments domestically and offer card services in yuan-denominated transactions.
U.S.-based card companies have been angling since at least 2017, with help from the U.S. government, to gain entry to the domestic market, in the hopes of attracting Chinese banks and consumers to their services. Offering such services would supplement and complement the U.S. card companies’ existing cross-border services flowing through China.
The debit and credit market in China is valued at $17 trillion annually, according to a Monday report from analysts at the financial firm Robert W. Baird. That’s mainly by virtue of China being the second-largest country in the world after India, based on population, with the second-biggest economy, behind the U.S. Nonetheless, American card companies will have to do battle with the dominant government-backed China UnionPay to win business, specifically by attracting Chinese banks as card issuers. . . .
Why Super Apps Have Yet to Take Off in the U.S.
ModernRetail – November 29, 2023
Despite the best efforts of multiple tech and e-commerce giants, no one company has yet to crack the code for building a successful super app in the U.S. Super apps offer multiple services through a single, easy-to-use interface. In some markets like China, they have become multi-billion dollar businesses that are heavily embedded into everyday life. But in 2021, spurred on by bullish economic conditions and record venture capital financing, more U.S. tech companies started to dip their toes into the super app approach. They acquired new companies and services that would allow them to add capabilities to their apps, like returns processing, live shopping or travel booking. But now, as economic conditions have worsened, companies are starting to unravel some of these acquisitions, or pare back their super app ambitions. . . .
While various U.S.-based apps have been able to offer a couple of these services, there hasn’t been any one consumer-facing app that comes close to fitting the true description of a super app. Analysts say that the U.S. — where no one app has yet to take up majority market in critical areas like payments — isn’t as conducive to encouraging the formation of super apps as other markets. But, that hasn’t stopped companies from trying. There remains a steady stream of e-commerce businesses looking to prove that their apps can be used for more than just one thing — even if, ultimately, they still look nothing like the super apps that have risen to prominence in Asia. . . .
Apple Pulls Plug on Goldman Credit-Card Partnership
The Wall Street Journal – November 28, 2023 (subscription required)
Apple is pulling the plug on its credit-card partnership with Goldman Sachs, the final nail in the coffin of the Wall Street bank’s bid to expand into consumer lending. The tech giant recently sent a proposal to Goldman to exit from the contract in the next roughly 12 to 15 months, according to people briefed on the matter. The exit would cover their entire consumer partnership, including the credit card the companies launched in 2019 and the savings account rolled out this year.
It couldn’t be learned whether Apple has already lined up a new issuer for the card.
The move would mark a swift about-face for a program that just over a year ago was extended through 2029 and was intended to serve as a pillar of Goldman’s main-street ambitions. . . .
Biometrics May Be Online Retail’s Ticket to More Sales
PYMNTS – November 24, 2023
Retailers are leveraging innovative solutions, such as biometrics, to enhance convenience, security and personalized services in their day-to-day business. Biometrics systems are gaining popularity as an authentication method for more and more digital tasks, including retail purchases. Retailers can offer customers a seamless shopping experience by using facial recognition or fingerprints. In a context of economic uncertainty and high promotional intensity, such as the upcoming holiday season, this can be a differentiating factor. Facilitating the identification and payment process for customers, providing them with more personalized offers, or targeting them with relevant adverts during the next Black Friday or Christmas sales period can translate into an increase in sales.
According to the study, “Tracking the Digital Payments Takeover: Biometric Authentication in the Age of Mobile,” a PYMNTS Intelligence research in collaboration with Amazon Web Services, nearly 60% of the U.S. consumers who made online purchases in the last month used biometric authentication to validate their transactions. Biometrics adoption is even broader when purchasing on mobile devices, with 8 in 10 consumers across every generation using this method. . . .
Payment Apps Are Making Steady Strides With Consumers, an ETA/TSG Study Shows
Digital Transactions News – November 22, 2023
Roughly a decade after Apple Pay and other digital wallets burst into the U.S. payments market, the apps seem to be well on their way toward mass adoption, according to consumer-survey results released early Wednesday by the Electronic Transactions Association and the consulting and research firm TSG.
In line with rising interest in wallets, tap-to-pay, or contactless, payment technology is also gaining steam, along with peer-to-peer payments apps, according to the research, which is included in the ETA/TSG report, entitled “2023 Consumer Holiday Spending Study.” The study is the latest in a series released each year since 2020.
Of the 1,005 consumers the ETA and TSG surveyed in late October, 30% said they used the wallet apps “frequently,” second only to the 34% registered by “tap-to-pay,” a contactless technology that can also be used with cards. Some 79% had used wallets at least once, up 14 percentage points from 2022. Overall, tap-to-pay came in a close second, with 78% having tried the technology at least once, up 11 percentage points. . . .