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Payments News Update – March 29, 2024

Posted  March 29, 2024

Legal and Regulatory Developments

SPOTLIGHT: Visa, Mastercard Swipe Fee Deal Fails to Stem More Litigation
Bloomberg Law – March 28, 2024 (subscription may be required)

Visa Inc. and Mastercard Inc.’s $30 billion swipe fee settlement with merchants provides only temporary relief for US businesses and won’t stop additional litigation against the payment networks, critics say.

The companies this week announced an agreement to cap credit-card swipe fees and allow merchants to steer consumers to cheaper payment options in order to end multidistrict litigation dating back to 2005. Merchants are expected to save $30 billion in swipe fees, also known as interchange fees, over five years.

But others aren’t convinced the settlement does enough. Target Corp., Starbucks Corp., Foot Locker Inc. and Crate & Barrel are among the retailers that opted out of a previous $5.6 billion class action settlement with the card companies to pursue their own case. They expect to go to trial with claims accusing Visa and Mastercard of colluding on the fees after a federal judge denied the card companies’ bid to end the litigation. However, opting out of the March 26 proposal—which is focused on injunctive, rather than monetary relief—isn’t an option. . . .

Visa, Mastercard Reach Landmark Credit Card Settlement
Payments Dive – March 26, 2024

Visa and Mastercard have reached a class action settlement that will lower the fees they charge merchants for credit card transactions and cap those charges for a period of five years, the companies said Tuesday in separate press releases.

The two card network giants have been battling the merchants in court for nearly two decades, fighting billions of dollars in claims that they overcharged merchants when customers swiped their credit cards to pay for products and services. Some of the biggest retailers in the U.S. have been involved in the litigation, including Home Depot and 7-Eleven as well as merchants such as Starbucks.

At issue have been the interchange fees, also known as swipe fees, that merchants pay to bank card issuers and the networks. The plaintiffs argued they had paid too much to the networks in fees over a period of years. . . .

American Express Sued in Merchants’ Class-Action Over ‘Swipe’ Fees
Reuters – March 22, 2024

American Express has been hit with a proposed class action lawsuit in Rhode Island federal court accusing it of overcharging thousands of U.S. merchants for credit and debit card fees on consumer transactions.

Ten retail plaintiffs including a delicatessen, fine clothier, florist and furniture store filed the lawsuit on Thursday seeking a court order to block American Express policies that they said violated U.S. antitrust law.

American Express restricts competition through its use of “non-discrimination provisions” to bar merchants from encouraging customers to use payment cards with lower transaction fees, the lawsuit said. . . .

Airline, Credit Card CEOs Refuse to Testify at US Senate Hearing
Reuters – March 21, 2024 

The CEOs of American Airlines, United Airlines, Visa and Mastercard will not testify at an April 9 hearing on credit card competition, the chair of the Senate Judiciary Committee said Thursday.

Senator Dick Durbin in February invited the executives of the firms that have fought his legislation seeking to reduce fees charged by Visa and Mastercard on transactions by requiring competition, while airlines say the bill could force them to stop offering rewards credit cards that give consumers frequent flyer miles for making transactions.

“They’re just too darned busy to come and explain the major source of profits for their businesses,” Durbin said, saying killing his bill remains a top priority for opponents who have spent $51 million lobbying against his bill. . . .

EU Regulation Forces Retailers to Rethink Loyalty Programs
PYMNTS – March 18, 2024 

Read anything about the recent March 7 enforcement date for the EU’s new Digital Markets Act (DMA) and you’ll inevitably see a focus on big tech companies, potential fines and a general sense that this is a salvo in the EU’s desire to become “a digital cop.” Some of that is accurate and relevant. But when the dust settles on the DMA, the biggest and most immediate impact may be at retail.

“Buckle up, because things are about to get fascinating for coffee lovers and everyone else who enjoys seamless in-store shopping,” said Mark Beresford, who heads up the Retailer Payments Practice for London’s Edgar Dunn & Company. “The DMA forces change, and this change transfers power back to consumers and merchants. Imagine a world where your phone becomes a loyalty powerhouse. Every tap unlocks rewards — not just from one shop, but across a network of participating businesses. It is loyalty 2.0, streamlined and effortless.” . . .

Regulators Are Taking on Nonbanks — A Little Bit at a Time
American Banker – March 15, 2024 (subscription required) 

The 2008 financial crisis amply illustrated the potential for nonbank financial firms to pose a risk to the broader financial system. But the increasing growth and interconnectedness of those firms are compelling regulators to rely on the limited tools they have to check that risk.

Ian Katz of Capital Alpha Partners says regulators are keeping a watchful eye on the expanding connections between banks and the alternative asset management sector. “I think this has been building gradually for a long time,” said Katz. “More financial activity has moved outside the banking sector in recent years, and a lot of that activity isn’t under direct federal oversight.” . . .

How the CFPB’s Mobile Wallet Rule Is Raising More Questions Than Answers
Digital Transactions News – March 15, 2024 

The Consumer Financial Protection Bureau released its proposed rule on mobile wallets back in November, and comments on it closed Jan. 8, but that doesn’t mean the proposal isn’t still stirring up discussion as lawmakers, payments experts, and technology firms wrestle with its implications.

The rule, which would define so-called larger participants in the market for general-use payments apps, proposes a size cut-off at 5 million transactions per year. It also excludes any entity that can be defined as a small business according to Small Business Administration criteria. The rule’s importance is that the CFPB would regulate wallets developed by the so-called larger participants, much as it oversees products from big companies operating in other fields of financial services. . . .

CFPB Warns of ‘Dangers’ on Standards for Open Banking
Payments Dive – March 15, 2024 

As financial services companies prepare for the advent of open banking in the U.S., thanks to a pending Consumer Financial Protection Bureau rule proposal, the agency’s director, Rohit Chopra, warned of “dangers” in setting standards for the new realm.

In remarks before the Financial Data Exchange Global Summit on Wednesday, Chopra explained that standard-setting organizations will play a crucial role in setting up parameters for open banking, a new arena in which consumers can move their financial data easily, safely and privately from one financial institution to another.

“We know dangers exist when more powerful players weaponize industry standards,” Chopra said in the text of prepared remarks. “We have to be vigilant that standard-setting does not skew to benefit dominant firms and their prevailing market power.” . . .

Visa, Mastercard’s Standing Challenge Fails in Swipe Fee Case
Law360 – March 8, 2024 (subscription required)

A New York federal judge in a newly unsealed order rejected Visa and Mastercard’s bid for summary judgment that claimed that merchants suing the card companies over allegedly anticompetitive conduct lack standing to do so under U.S. Supreme Court precedent. The details of the 64-page order from U.S. District Judge Margo K. Brodie were made public Friday after the ruling was initially filed under seal last month.

In it, Judge Brodie denied Visa Inc., Mastercard Inc. and the bank defendants’ argument that the retailers suing them could not seek damages because the U.S. Supreme Court’s ruling in Illinois Brick Co. v. Illinois bars them from doing so. The 1977 decision, which was recently reaffirmed in the high court’s 2019 holding in Apple Inc. v. Pepper , determined that only “direct purchasers” can sue antitrust violators for damages, according to the order. . . .

‘Stop & Study’ Bill Introduced on Fed’s Debit Interchange Proposal – March 6, 2024

Rep. Blaine Luetkemeyer (R-MO) has introduced the Secure Payments Act (H.R. 7531), which aims to stop finalization of the Federal Reserve’s proposed debit interchange proposal, which credit unions oppose.

As has reported, the Fed’s proposal would make changes to update all three components of Regulation II’s interchange fee cap based on the latest data reported to the Fed by large debit card issuers.

H.R. 7531 would stop implementation until a study assessing the proposal’s impact on consumers’ access to low-cost or free checking accounts, fraud prevention, and merchants’ costs of accepting debit cards can be conducted. . . .

Industry Developments

SPOTLIGHT: Digital Wallets to Overtake Debit Cards in Stores: Report
Payments Dive – March 22, 2024

Digital wallet use in the U.S. is projected to overtake debit cards in transaction value for in-store payments by 2027, according to a Thursday report from merchant payments processor Worldpay.

Worldpay projects the debit percentage of point-of-sale transaction value will drop to 23% in 2027 from 28% last year, while the percentage point use of digital wallets is expected to more than double to 31% by 2027, from 15% last year.

“I think most people would be surprised at the growth rate and the penetration of digital wallets not only domestically but really globally,” Worldpay General Manager Jason Pavona said in a Tuesday interview. . . .

Thredd Enters US Debit and Credit Card Issuing Market
Finextra – March 19, 2024

Thredd, a leading modern payments processor serving clients globally, has announced its official entry into the United States debit and prepaid card issuing market with long-standing partner, B4B Payments. This strategic move underscores Thredd’s commitment to support its clients’ expansion plans in key global markets.

Banking-as-a-Service (BaaS) provider, B4B, who has operated in the US since 2021, is now migrating its card payment processing to Thredd to further extend the companies’ partnership from the UK and Europe. B4B will use Thredd to process dual-branded Visa and STAR Network cards ensuring compliance with the country’s stringent debit processing regulations. . . .

Banking Apps Fall Short on Fraud Protections: Report
Payments Dive – March 14, 2024 

Mobile apps provided by banks are not offering adequate fraud prevention measures for unauthorized credit and debit card usage or peer-to-peer scams, according to a report from Consumer Reports following a survey of industry apps by the consumer advocacy and research nonprofit.

Both large traditional banks as well as digital newcomers did not commit adequately to real-time fraud monitoring and alerting users to suspicious activity, according to the report, which was released last Thursday. And while basic fraud education was available on the banks’ websites, some did not have similar education in their apps.

“As more people rely on mobile apps as their primary method of banking and financial management, it’s crucial that banks prioritize fraud and scam prevention,” Consumer Reports Senior Director Delicia Hand said in an email. . . .

Klarna Takes Aim at Visa, Mastercard With Open Banking Push
Bloomberg – March 14, 2024 (subscription may be required)

Klarna Bank AB will begin allowing users in the UK to make payments directly from their bank accounts as part of the fintech giant’s efforts to reduce its reliance on Visa Inc. and Mastercard Inc.

Initially, the move will help Klarna cut costs because bank payments are cheaper than accepting Visa and Mastercard’s products, according to a person familiar with the matter. Longer term, though, the product will help Klarna create a stronger alternative to the payment giants’ networks, the person said, asking not to be identified discussing non-public information.

Klarna said in a statement it will give consumers who link their bank accounts to its app access to budgeting tools. The fintech will also use the bank data that consumers share to help it make underwriting decisions. . . .

JPMorgan to Launch Biometric Checkout Next Year
Payments Dive – March 11, 2024 

JPMorgan Chase is targeting early next year to broadly launch a biometric checkout service with its merchants. The big bank’s payments unit has piloted the service with food service provider Aramark in Texas, and plans to engage in more merchant pilots this year, said Prashant Sharma, executive director of biometrics and identity solutions at JPMorgan, in a recent interview.

New York-based JPMorgan has partnered with software firm PopID on its biometric checkout service. The bank’s payments division began working with the company, which offers face-pay technology, last year, Sharma said. . . .