Payments News Update – November 3, 2023
Legal and Regulatory Developments
SPOTLIGHT: BNPL, EWA Bills Surface at House Hearing
Payments Dive – October 26, 2023
A House Financial Services subcommittee has drafted legislative proposals related to earned wage access and the buy now, pay later market. The legislative proposals emerged at a Wednesday hearing of the Subcommittee on Digital Assets, Financial Technology and Inclusion, titled “Modernizing Financial Services Through Innovation and Competition.” During the hearing, lawmakers queried corporate, trade group and consumer advocate witnesses about the evolving payments and fintech issues, and the regulatory environment for those payments strategies . . . .
The proposed BNPL bill, called the Examining Consumer Choice in Digital Payments Act, would require the Consumer Financial Protection Bureau and the U.S. Government Accountability Office to conduct a study on BNPL services “to help determine the degree to which consumers are utilizing BNPL for retail purchases,” according to the memorandum. . . . The study would focus on disclosures offered by BNPL providers, market trends and “other factors that will provide the CFPB and the public with information to help better understand the BNPL market,” the memorandum said. The study would be required before the CFPB could issue any new rules related to buy now, pay later services, the discussion draft said. . . .
17th Annual The 10 Most Pressing Issues in E-Payments
Digital Transactions Magazine – November 1, 2023
If adversity breeds strength, as the old saying goes, then payments professionals may have plenty of opportunity to develop their strategic and tactical biceps. The industry no sooner recovered from all the ill effects of the pandemic than it found itself enmeshed in a slew of other issues, some old and familiar but some others quite surprisingly fresh.
Herewith our annual catalog of the problems we think are most alarming for payments professionals right now, ranked in order of their impact—or potential impact—on the industry. “Impact,” of course, can be a matter of degree. Some of the matters ranked below, however, may be no less pressing for being still more or less in their larval stage.
So, what do we mean by “pressing”? The term refers to the sense of urgency the issue arouses in those it affects, not so much to the size of the market that must deal with it. Some issues, on the other hand, are pressing for a substantial segment of the industry. Take our number-one issue, the Credit Card Competition Act. The bill proposes to control merchants’ acceptance costs by requiring a wider choice of networks that can carry transactions. That means merchants, networks, and banks are all affected—no small constituency. . . .
Senators Question Airline Frequent Flyer Programs, Citing Reports of ‘Unfair’ Practices
ABC News – October 31, 2023
Two senators are asking U.S. regulators to address “unfair” practices in airlines’ frequent flyer programs. In a letter sent Monday night, Dick Durbin, D-Ill., and Roger Marshall, R-Kan., asked the Department of Transportation and the Consumer Financial Protection Bureau to help “protect consumers against unfair and deceptive practices in airlines’ frequent flyer and loyalty programs.” The programs encourage customer loyalty with a system where they can accumulate points that they can then redeem for travel with the airline or other rewards.
“While these programs may have originated to incentivize and reward true ‘frequent flyers,’ they have evolved to include co-branded credit cards and now often significantly or exclusively focus on dollars spent using these co-branded credit cards,” Durbin and Marshall wrote in the letter they sent to the agencies. The letter cited reports that “airlines are engaged in unfair, abusive, and deceptive practices with respect to these loyalty programs.” . . .
The CFPB Reports on Rising Credit Card Late Fees And Rates—And Vows to Lower Them
Digital Transactions News – October 26, 2023
Last year, credit card issuers charged consumers more than $105 billion in interest and more than $25 billion in fees, $14.5 billion of which came from late fees, according to the Consumer Financial Protection Bureau’s biennial credit card market report. Credit card holders paid about 20% of their average balance in interest and fees on general purpose credit and private-label cards in 2022, according to the report, which was released late Wednesday. Many cardholders with subprime scores paid 30 to 40 cents in interest and fees per dollar borrowed. In addition, the report found that consumer credit card debt surpassed $1 trillion for the first time since it began collecting credit card data.
The biennial report is in its sixth edition since the CFPB was created in 2011. The bureau surveys the credit card market under the auspices of the Credit Card Accountability, Responsibility and Disclosure Act. . . .
Industry Developments
SPOTLIGHT: What’s an Acquirer to Do?
Digital Transactions Magazine – November 1, 2023
Merchant discontent over card-acceptance fees is nothing new, but every few years the din rises several octaves, just as it has in 2023. While merchants, card issuers, the card networks, and politicians argue over whether acceptance costs are fair, guess who’s caught in the middle? Merchant acquirers.
An integral part of card payments, acquirers often find themselves performing a difficult balancing act when it comes to card-acceptance fees. Sure, acquirers levy a fee on merchants for settling card transactions, but their fees are a small portion of overall acceptance costs, the bulk of which is composed of interchange costs. Since interchange is set by Visa and Mastercard, acquirers have little power to reduce merchants’ acceptance costs. That does not mean acquirers aren’t mindful of acceptance costs or are not taking steps to reduce those costs. Or at the very least, make those costs more predictable. “Everyone in the payment ecosystem believes there should be acceptance costs. The question is, what should those costs be?” says Greg Cohen, chief executive at Fortis Payment Systems. “Acquirers are middlemen, but they can proactively work with merchants to reduce acceptance costs.” . . .
Mastercard Removes Some Ads for Customer Transaction Data
American Banker – November 1, 2023 (subscription required)
Mastercard is removing some of its advertisements for transaction data from certain online data marketplaces. The elimination of the ads comes amid scrutiny from data-privacy advocates, but Mastercard explained the move as a business decision. The listings, which showcase detailed spending trends derived from the purchases of Mastercard users, “weren’t aligned to our strategic objectives,” the company said in a statement.
Mastercard is one of many U.S. companies that sell anonymized information about consumers’ spending habits. It’s also the second-largest payment processor in the world, so its data practices are subject to more scrutiny than those of a smaller business. . . .
Mastercard’s sale of transaction data recently drew criticism from the U.S. Public Interest Research Group, which advocates for stricter data privacy policies. An analysis by the group found that Mastercard maintained listings on at least seven online data marketplaces in recent months. . . .
The World Needs a Better Cross-Border Payments Network
Financial Times – October 31, 2023 (subscription required)
In recent decades, the world has witnessed a remarkable surge in cross-border payments, driven by the globalisation of trade, capital and migration flows. Global payments are expected to rocket from $190tn in 2023 to a staggering $290tn by 2030, according to one study.
Despite such spectacular growth, cross-border payments remain prohibitively expensive and sluggish, leaving the most vulnerable behind. Fees for international payments currently average 1.5 per cent for corporates and as much as 6.3 per cent for remittances. And it can take up to several days for these payments to reach their recipient.
This raises three pressing issues. The first is the impact on economic integration. Costly and slow payments hinder integration and growth. The costs and complexity of cross-border payments have been shown to deter many small and medium-sized enterprises from expanding across borders. . . .
Consumers Expect to Use Fewer Digital Wallets: Report
Payments Dive – October 30, 2023
Consumers are seeking to carry fewer digital wallets on their devices, according to a report published earlier this month by global consulting firm McKinsey. The report presented findings from an August survey of about 1,800 U.S. consumers.
In responses, 31% of consumers said they expected to rely on a single digital wallet such as those created by tech giants Apple, Google and Samsung. That’s up from 21% in 2021. And the share of consumers expecting to maintain three or more digital wallets dropped to 20% from 30% over the same period.
That change in expectation is due to digital wallets being more widely accepted by retail merchants, McKinsey Senior Partner Marie-Claude Nadeau, one of the authors of the report, said in a Friday interview. “The breadth of acceptance now has tipped to a point where people will expect the [digital] wallet to be accepted everywhere,” Nadeau said. . . .
Chase’s JPM Coin: With $1 Billion in Daily Volume, It May Come to Retail Payments
Digital Transactions News – October 30, 2023
More than four years after it began testing its own blockchain-based stablecoin, JPMorgan Chase & Co. is processing $1 billion in transaction volume per day for JPM Coin, Takis Georgakopoulos, JPMorgan’s global head of payments, told Bloomberg News during an interview.
Created in 2019 and launched in 2020, JPM Coin is pegged to the U.S. dollar to facilitate instant payments between the bank and large companies. It’s based on Quorum, a protocol used in a private blockchain network. In 2023, JPMorgan added support for the Euro to JPM coin.
During the interview, Georgakopoulos said the next step in the JPM Coin’s evolution is to create a retail version of the token to address major problems in the payments sector, including speed of payments, especially cross-border payments, and transaction reconciliation. . . .
Visa: Battle With Payments Fraudsters May Be Won With AI
PYMNTS – October 27, 2023
Paul Fabara, chief risk officer at Visa, told PYMNTS in a recent interview that the shift to online channels during the pandemic — and afterward — meant analog businesses became digital overnight.
And with the great pivot to card-not-present and other types of online commerce, fraudsters have been fine-tuning their efforts to compromise credentials, hijack payments themselves and find new areas of vulnerability.
The threats “created a wave of new technologies that evolved quickly,” Fabara said, “and generative AI [artificial intelligence] may be among the technologies that are ‘the next frontier’ in terms of protection for transactions and the payments ecosystem.” AI has gotten good enough, by way of example, to find when a URL has been “contaminated” and may in fact pose a threat to legitimate consumers. . . .
This Apple App Store Billing Policy Can Lead to Overdraft Fees, Budget Woes: ‘It’s a Bizarre Practice,’ Developer Says
CNBC – October 27, 2023
For many purchases, once you swipe your debit or credit card or click “buy now,” that transaction swiftly shows up as pending on your account. But that’s not always the case if you’re shopping in Apple’s App Store.
Apple is known to do something called “bundled billing,” where it groups purchases made within a certain period into a single charge. The tech giant has used the practice since the early days of the iTunes Music Store in 2003, and it often means users can purchase apps, subscriptions, books and music without having the funds charged to their account until several days later.
It may seem like a small difference in timing, but Apple’s practice of delaying and combining charges can lead some consumers to face budgeting challenges and hefty overdraft fees as they grapple with the unpredictability of when expenses will hit their accounts. . . .