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Payments News Update – October 27, 2023

Posted  October 27, 2023

Legal and Regulatory Developments

SPOTLIGHT: Fed Proposes Reduction in Debit Fee Cap
Payments Dive – October 25, 2023

The Federal Reserve Board voted Wednesday in favor of a proposal that would cut a cap on the interchange fee that debit card issuers can charge merchants to process a transaction. The proposal would lower the base debit fee rate by about 30% to 14.4 cents from 21 cents, according to a proposal memo produced by the Fed’s staff last week. The proposed changes to Regulation II under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act would also change the amounts that bank card issuers subject to the rule can charge to cover fraud costs and to counter fraud losses.

“These data show that the costs incurred by covered issuers in connection with debit card transactions have changed significantly over time,” the staff memo said. “In particular, the transaction-processing costs on which the Board based the base component have nearly halved.”

With the move, the Fed also proposed to codify certain changes to the rule so that fees are updated every other year based on a review of industry data that is already required to take place every two years. The cap hasn’t been changed since it was set in 2011. . . .

The Fed’s Debit Card Interchange Proposal Isn’t Pleasing Merchants or Issuers
Digital Transactions News – October 26, 2023

The Federal Reserve Board’s proposal Wednesday to make a 31% reduction in the main component of its debit card interchange ceiling for large issuers touches on a longstanding sore point among merchants and has already sparked a spirited debate in the payments industry.

Merchant groups, long riled by debit card acceptance costs, contend the Fed’s cut doesn’t go far enough, while the banking lobby deplores the proposal as arbitrary and likely to hurt banks and consumers.

The Fed’s action, which the payments industry has been expecting for some time, comes as the nation’s banking regulator seeks to reduce its mandated cap on debit interchange for the first time since the current regulation became effective 12 years ago as part of the Durbin Amendment to the Dodd-Frank Act. The Fed says as part of its proposal that it will review the new cap every other year. . . .

Crypto Legislation Would Put US ‘Back in the Game,’ Stakeholders Say
Banking Dive – October 23, 2023

The passage of cryptocurrency legislation would put the U.S. “back in the game” in terms of competing with other nations that have already crafted frameworks to oversee digital asset activity, Sheila Warren, CEO of the Crypto Council for Innovation, said during a panel at the Money20/20 conference in Las Vegas on Sunday.

“It’s critical to get these bills across the line,” said Warren, referring to a pair of House bills, the Financial Innovation and Technology for the 21st Century Act and the Clarity for Payment Stablecoins Act of 2023, which both moved out of their respective committees this summer. “I think that the passage of both of these bills, certainly one or the other, or both of them, would be a very strong signal that the United States is not only open for business to do business with this industry and its asset class, but also has a regime in place that makes it highly competitive.”. . .

Visa Faces Remaining Litigation Exposure of up to $4B
Payments Dive – October 23, 2023

Merchants entrenched in litigation against Visa for years may still be owed as much as $4 billion, the card network company recently told analysts. In a call to discuss a share exchange offer Visa recently floated with its stockholders, Visa CEO Ryan McInerney told analysts the card giant values the unresolved claims at between $1.4 billion and $4.0 billion, according to a transcript of the Sept. 13 call. That estimated range is based on settlements already reached, he told the analysts.

Despite that billion-dollar outstanding amount, the company contended it has largely resolved the claims brought in class actions by millions of merchants over more than a decade. The merchants alleged they were overcharged for credit and debit card transactions when consumers swiped their cards to pay for goods and services. . . .

How Data Sharing Could Change Under CFPB’s Proposed New Rules
American Banker – October 23, 2023 (subscription required)

U.S. banks have shared their customers’ account data with fintechs, an activity some call “open banking,” for more than a decade. But they haven’t always done it knowingly or willingly, and it’s been a source of tension among banks, data aggregators and fintechs. Could the data-sharing rules the Consumer Financial Protection Bureau proposed last week make a difference?

The CFPB’s proposed data-sharing rules under Section 1033 of the Consumer Financial Protection Act of 2010 say banks must share transaction data for deposit and card accounts with fintechs at customers’ request, including transaction amount, date, payment type, pending or authorized status, payee or merchant name, rewards credits, fees or finance charges and account balance. Banks would have to provide at least 24 months of historical transaction data and information about upcoming payments. They also would have to provide interfaces developers can use to create pipelines that receive this data. . . .

BIS Advances Oversight Structure for Broader Faster Payments Ecosystem
Payments Dive – October 23, 2023

Strategic alignment among jurisdictions seeking to develop a worldwide governance of interlinked faster payment systems is key, along with a long-term plan and flexibility, according to an interim report published last week by a committee of the Bank for International Settlements. The BIS Committee on Payments and Market Infrastructures delivered the Oct. 18 report in the interest of buttressing a G20 goal of improving payment rail options for transferring money between countries (the G20 is an intergovernmental group that includes 19 nations plus the European Union and African Union). The final report from the committee on the topic will be produced by the end of next year, the report said.

“Interlinking arrangements among fast payment systems (FPS) are one of the most promising solutions for enhancing cross-border payments, offering the prospect of significantly faster, cheaper, more accessible and transparent cross-border payments,” the report said. . . .

It’s Early, But the CFPB’s Open Banking Rule Is Getting an Industry Thumbs Up
Digital Transactions News – October 20, 2023

A day after the Consumer Financial Protection Bureau floated a proposed data rights rule, reaction from the payments industry has been largely positive. The rule aims at governing the practice of sharing consumer data through open banking. The proposed rule would require financial institutions to share data at a consumer’s direction with companies offering competing products. The move comes roughly a year after the CFPB announced its intention to regulate data sharing to help accelerate the shift toward open banking.

Under the Personal Financial Data Rights rule, consumers would have the power to share data associated with their checking and prepaid accounts, credit cards, and digital wallets to access competing products and services without worrying that their data might be used to serve commercial interests other than their own, according to the CFPB. Equally important, the bureau says, is that the rule ensures consumers can be “certain that their data would be used only for their own preferred purpose—and not for financial institutions or tech companies to surveil and manipulate.” . . .

Industry Developments

SPOTLIGHT: Paze’s Digital Wallet Uses a Bank-Centered Fintech Approach to E-Commerce Checkout
Digital Transactions News – October 24, 2023

Though the official launch of the Paze online wallet from Early Warning Services LLC isn’t slated until 2024, Paze executives are already demonstrating the product. As many as 150 million credit and debit cards from seven large banks could be loaded into Paze, complete with billing addresses, as Early Warning looks to address abandoned e-commerce shopping carts and reduce the manual card and address entry that can deter many consumers. Scottsdale, Ariz.-based Early Warning announced Paze in March.

“The Paze vision is ubiquity across merchants and the financial institution sides,” Matt Miller, Paze vice president of product, tells Digital Transactions News. “This is about addressing a problem in e-commerce that’s existed since the early days.” Paze is a few months away from broader public and merchant implementation. Until then, it is demoing the wallet, as Miller did Monday at Money20/20 in Las Vegas. . . .

The US Debit Card Spending – Higher and More Efficient Than Ever
The Paypers– October 25, 2023

Despite the rampant talk of rising spending via alternative payment methods, one thing is clear from the latest Federal Reserve Payments Study: debit card payments represent one of the most popular payment methods in the US. In this article, we will discuss why debit remains one of the most popular and efficient payment methods – and why nearly 10% of debit transactions between January and June 2023 occurred on cards where the issuer had changed the networks available to merchants.

According to the Federal Reserve’s 2022 Payments Study, debit cards accounted for nearly 88 billion payments – approximately 56% of all card payments in the US – in 2021. This amounts to an 800% increase in debit card transaction usage over the past two decades. While digital wallet volumes have reportedly grown substantially, it’s important to recognise that the underlying payment method for most digital wallets in the US is some form of bank account or card, most typically a debit card. For example, wallets such as Apple or Google Pay are usually card-backed, meaning the underlying payment credential is a payment card. . . .

Apple Pay Later Officially Launches in U.S. Following Early Access Period
MacRumors – October 24, 2023

Apple Pay Later appears to have officially launched for all qualifying U.S. residents today, as it is now widely available in the Wallet app on the iPhone. The feature had been available on an invite-only “early access” basis since March. Apple removed the following sentence from all Apple Pay Later support documents today: “Apple Pay Later is currently only available to customers invited to access a prerelease version.”

Apple Pay Later is a “buy now, pay later” feature that lets qualifying customers split a purchase made with Apple Pay into four equal payments over six weeks, with no interest or fees. The feature is available for eligible purchases between $75 and $1,000 made on an iPhone or iPad on most websites and apps that accept Apple Pay. . . .

Visa Pilots AR Manager to Promote Virtual Card Acceptance
PYMNTS – October 23, 2023

Visa is readying a new accounts receivable (AR) tool to make virtual card acceptance easier for merchants. The company’s AR Manager will be available for a limited pilot next month as businesses increasingly turn to virtual cards as the preferred method for processing AR, according to a Monday (Oct. 23) press release. Availability will widen next year. “[V]irtual card acceptance can be an incredibly manual, time-consuming and costly process — potentially occurring dozens of times each day and often with different protocols for each bank a merchant is receiving payments from,” the release said.

Visa AR Manager will automate virtual card transactions by retrieving card account details, initiating authorization and clearing, and then providing reconciliation data to close out invoices in the supplier’s enterprise resource planning (ERP) system. . . .

Gen Z Could Pay a Steep Price for Buy Now, Pay Later
Bloomberg – October 23, 2023  (subscription required)

As Gen Z aged into adulthood, studies emerged claiming they were the generation with the lowest levels of credit card debt. Well, of course they were: They couldn’t easily access credit cards. The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 made it significantly harder for college-aged consumers to get a credit card. Gone were the days of banks hanging out on college campuses offering to sign up 18-year-old students in exchange for a cooler, frisbee or backpack. Today, you need to be at least 21 or demonstrate that you have independent income or have a co-signer.

The new rules did help keep young adults out of consumer debt, at least for a few years. It is only recently that Gen Z’s use of credit cards is beginning to catch up to other generations. But even before credit card usage increased, a new contender arrived. Buy now, pay later services such as Klarna and Affirm Holdings Inc. have lured Gen Z into consumer debt in the same way credit cards did with millennials and Gen Xers. Unfortunately, for now no laws protect young buy now, pay later users from getting in over their head financially. And buy now, pay later options don’t come with the perk of helping young adults build a credit history when they use the cards responsibly. . . .

Pipe Dream of Payment Plumbers Springs a Leak
Financial Times – October 20, 2023

Payments for consumers are a doddle these days. Tap a card or smartphone and voila! In the background, the pipes and plumbing that make this possible have grown increasingly complicated and fragmented. Financial technology has shaken up the sector, making payments easier for customers and cheaper for merchants. The once humdrum back office banking function has become an independent sector hungry for external investment. Share prices for new entrants like Adyen of the Netherlands and Block of the US soared during the pandemic as online payments boomed.

The inevitable comedown arrived in 2022. A tech sell-off and worries about consumer weakness have dragged shares down. . . .

Payments remain an emerging theme for investors. Change is inevitable, because the basic infrastructure has changed little in the past few decades. At its core, a payment is a communication between two banks; that of the merchant (known as the acquirer bank) and that of the customer (called the issuer bank). In between the two sit the card networks, the rails that allow banks to communicate. The best-known and biggest are Visa and Mastercard. National networks exist too, like UnionPay in China. A remaining challenge for fintechs is to break the power of the duopoly of Visa and Mastercard at the heart of retail payments. . . .

JPMorgan and Mastercard Pay-By-Bank Tool Goes Live
PYMNTS – October 20, 2023

JPMorgan Chase says its Mastercard-powered pay-by-bank tool has officially gone live. The offering, which combines Mastercard’s open banking technology and J.P. Morgan Payments’ ACH capabilities, lets merchants offer customers the ability to pay directly from their bank accounts, the companies said in a news release provided to PYMNTS Friday (Oct. 20).

“We are dedicated to enabling our clients to offer their customers a variety of payment options,” said Max Neukirchen, head of payments and commerce solutions at J.P. Morgan. “Our partnership with Mastercard will allow for easy and secure payments directly from bank accounts. We are excited for the future as we have a robust pipeline of biller clients across the U.S. interested to use our Pay-by-bank offering seeking to digitize their processes and increase payments efficiency.”. . .