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Payments News Update – December 8, 2023

Posted  December 8, 2023

Legal and Regulatory Developments

SPOTLIGHT: Lower Credit Card Transaction Fees Coming to Small Business as Canadian Agreement Reached
Daily Hive – December 5, 2023

Canada has reached an agreement with Visa and Mastercard to lower credit card transaction fees for small businesses. This comes after businesses were allowed to pass the cost of credit card fees onto the consumer in October 2022. Now, The Government of Canada says the new agreement will see interchange fees reduced by up to 27% for small businesses. It’s expected to save businesses $1 billion over five years. . . .

The changes come into effect fall 2024, when domestic credit interchange fees for in-store transactions will be reduced to an annual weighted average of 0.95%. Consumer credit card interchange fees for online transactions will also be reduced by 10 bases points, resulting in cost reductions of up to 7%. . . .

Democratic Lawmakers Ask Payment Firms to Renew Work on Gun Code
Reuters – December 7, 2023

U.S. Senator Elizabeth Warren and 48 other Democratic lawmakers on Wednesday urged top payments companies to resume work on implementing a sales code for gun merchants, according to letters seen by Reuters, citing how states have passed conflicting requirements on the issue. In March, the payments companies Visa, Mastercard, American Express and Discover Financial said they would delay the rollout of a “merchant category code,” or MCC, meant to help detect suspicious firearms and ammunition sales to combat gun violence amid a spate of mass shootings.

The companies at the time cited legislation being passed in Republican-led states to restrict the use of the codes, which they said created legal inconsistencies. . . .  In letters to each of the four companies dated Dec. 6 and seen by Reuters, Warren and the other signatories said at least the companies should implement the code in all states where it remains legal. . . .

The Political Viewer’s Guide to Washington’s Credit Card Wars
Punchbowl News – December 5, 2023

One of Washington’s fiercest lobbying fights might reach a breaking point this winter as retailers and banks take their credit card wars to the hallways of Congress. And no one quite knows which side lawmakers will pick. The two sectors are at loggerheads over the Credit Card Competition Act, a package backed by the merchant and retail lobby that takes aim at credit card fees. Banks aren’t pleased. Card fees are among their most lucrative sources of profit. One bit of good news for the banking sector – the airline industry and several of its unions have also come out hard against credit card reform, partly due to concerns about the bill’s potential impact on reward programs.

But backers of the credit card bill hope the Senate can slide it into its already jam-packed end-of-year schedule that includes potential votes on a supplemental national security package and the NDAA. . . .  Even with dim prospects for passage right now, the banking and retail sectors are gearing up for a legislative brawl with billions of dollars on the line. Here are the key groups to watch as the credit card war plays out. . . .

Banks Warned About Risks in Offering Buy-Now, Pay-Later Products
Bloomberg – December 5, 2023 (subscription required)

A top US financial regulator is warning banks about potential risks in offering buy-now, pay-later products that have surged in popularity with consumers. Traditional lenders are joining firms like Affirm Holdings Inc., Klarna Bank AB and Afterpay Ltd. in giving customers shorter-term borrowing options. Despite their surging popularity, the arrangements can pose major challenges for big banks, according to the Office of the Comptroller of the Currency.

The OCC, part of the Treasury Department, said Tuesday the products present credit, compliance and reputation challenges for the banks. Lenders should ensure that marketing materials are clear, the regulator said. The warnings follow similar assessments by the Consumer Financial Protection Bureau and possible new government regulations. . . .

FTC to Hold January Hearing on ‘Click to Cancel’ Rule
Payments Dive – December 5, 2023

The Federal Trade Commission will hold a hearing early next year on a proposed rule aimed at making it easier for consumers to opt out of automatically renewing subscriptions, according to a Monday press release. The hearing, which is scheduled to occur online at 10 a.m. EST Jan. 16, will allow six organizations to publicly air their positions on the proposed rule: home maintenance services company Frontdoor, the Interactive Advertising Bureau, International Franchise Association, NCTA – The Internet & Television Association, the Performance Driven Marketing Institute and TechFreedom. Those organizations were among the approximately 1,100 commenters that posted over 16,000 comments on the proposed rule. . . .

The FTC first proposed the rule in March with the goal of curbing subscription renewal abuses by companies. The proposed rule would update the 1973 Negative Option Rule, and would include a “click to cancel” provision that would make it as easy to cancel recurring payments for cosmetics, newspapers and gym memberships as it is to sign up. . . .

Fast Rise of Buy Now, Pay Later Needs Close Monitoring, BIS Says
Bloomberg – December 4, 2023 (subscription required)

The growing popularity of “buy now, pay later” plans poses a potential risk both to consumers and financial stability, according to the Bank for International Settlements.

“Since BNPL platforms suffer from high delinquency rates, a sustained growth of these platforms would warrant monitoring of their direct and indirect links with the rest of the financial system,” researchers Giulio Cornelli, Leonardo Gambacorta and Livia Pancotto wrote in the BIS’s quarterly review published Monday. . . .

Industry Developments

SPOTLIGHT: Fixing the Online Checkout
Digital Transactions Magazine – December 1, 2023

E-commerce checkouts are still too clunky. Now, efforts by payments experts and at least one new network may at last solve that problem. In the battle for the e-commerce checkout—with a successful sale counting as a win—the accelerated checkout is gaining favor. One contender that’s not even available yet may have a jump on others.

In the e-commerce arena, friction is the big no-no, the one element not to introduce, strengthen, or ignore. It’s the element that keeps conversion rates—the percentage of site visitors who purchase from an online store—low and can disrupt the consumer’s checkout experience. But, new advances and approaches to the online checkout are diligently cutting away at checkout friction, and payments providers are helping. . . .

As e-commerce sales picked up during the pandemic, especially among those who had not shopped online before and among those using their smart phones more often, the impetus for a better checkout experience ballooned. The goal has been to increase the conversion rate and thereby boost revenue. Among the approaches many retailers and e-commerce platform providers have taken is to reduce surprises and widen customer choices among payment methods. The goal is to eliminate as many disruptions as possible in the checkout process. . . .

Is Early Warning’s Paze Wallet Security Pitch Enough to Woo Consumers?
American Banker – December 1, 2023 (subscription required)

Tests that Zelle owner Early Warning Services is conducting prove that Paze — the secure online payment card checkout approach the bank-owned consortium is rolling out early next year — works as promised. The question is whether consumers have any incentive to use it.

Unlike most new wallets and card products, which rely heavily on affinity or rewards to persuade consumers to sign up, Paze will try to win over users by emphasizing its security. As the wallet nears launch, there has been an unprecedented surge in payment card fraud, which some have suggested could result from criminals’ rising use of generative artificial intelligence, or gen AI. . . .

Consumers who shop with Paze must enter a six-digit verification code every time they check out. While this adds friction, it may end up being simpler than any other new layers of account verification that banks or merchants may implement to foil the card-testing, phishing and account-spoofing scams that are already accelerating with gen AI. . . .

Who’s Afraid of SoftPOS?
Digital Transactions Magazine – December 1, 2023

The technology is building momentum as merchants of all sizes displace POS terminals with commercial off-the-shelf devices. There are some issues. It wasn’t all that long ago that the idea of turning an ordinary smart phone into a point-of-sale terminal seemed like a pipe dream. But more than a decade after its introduction, software point of sale, or softPOS for short, is riding a growing wave of adoption.

Mobile and small merchants, such as in-home fitness trainers and home-services providers, are embracing the technology, as might be expected. But so are large sellers. They see the technology as a way to bring the point of sale to the point of interaction with the customer within the store. Retailers, for example, are turning to softPOS as a line buster, while restaurants are adopting the technology to enable payment at the table. Other merchants adopting the technology include food-truck operators, sellers at festivals or farmer’s markets, pop-up stores, and taxi drivers.

SoftPOS is an application that allows contactless payment cards or digital wallets to be tapped or waved on or at a smart phone to pay for a purchase. Once merchants are introduced to the technology, they quickly embrace it, payments experts say. The number of merchants using softPOS is expected to explode in the coming years to more than 34.5 million worldwide by 2027, up from 6 million in 2022, according to a report released last year by Juniper Research. . . .