Payments News Update – April 16, 2021

Legal and Regulatory Developments

SPOTLIGHT: Insider’s Report On Payments: Interchange in the Crosshairs
The Green Sheet – April 12, 2021

The major card brands are on the hot seat. Under pressure from Sen. Dick Durbin, D-Ill.,Visa and Mastercard postponed for a year interchange rate changes that were slated for April 2021. This followed news that the financial software giant Intuit is suing the two brands in federal court, alleging price fixing, and that the U.S. Department of Justice launched an investigation into whether Visa is stifling competition in the debit card market.

Visa confirmed the DOJ investigation following a Wall Street Journal report that antitrust investigators are gathering information to determine whether Visa is limiting merchants’ ability to route debit card transactions over less expensive regional PIN debit networks, like NYCE and Shazam. The primary focus is online transactions but not to the exclusion of how in-store transactions are routed, according to sources quoted by the Wall Street Journal.

The Durbin Amendment to the 2010 Dodd-Frank Act, which ushered in regulation of debit card interchange, also requires that merchants be able to choose from two unaffiliated networks, such as Visa and the Shazam regional ATM/POS network, for routing debit card payments. . . .

Digital Money Can Reshape Cross-Border Payments and Remittances, IMF Says
The National News – April 15, 2021

Advances made in digital money can help reshape cross-border payments and remittances making them “easier, faster and cheaper”, Kristalina Georgieva, managing director of the International Monetary Fund, said. Divergences in access to vaccines, in recoveries from the pandemic and access to a digital future are challenges the world must address, Ms Georgieva said at a virtual workshop on how digital money can facilitate remittances.

Remittances have played a key role in improving the lives of people in developing economies and supporting economic activity, and can benefit from the “revolution” in digital money, she said. “We need to use every tool we can to support those most affected by the pandemic. And with the risk of a growing digital divide between rich and poor countries, we must also ensure that all countries can benefit from the latest innovations in digital money and payments, particularly remittances,” Ms Georgieva said. . . .

Hawley Goes After Big Tech With Aggressive Antitrust Bill
PYMNTS – April 13, 2021

Sen. Josh Hawley of Missouri has introduced the Trust-Busting for the Twenty-First Century Act, which a press release stated would take back control from big businesses and “return it to the American people” through cracking down on mergers and mega-acquisitions. The bill looks to strengthen antitrust enforcement “to pursue the breakup of dominant, anticompetitive firms,” according to the release.

The bill would ban all mergers and acquisitions for companies with over $100 billion in values, the release stated. It would let the Federal Trade Commission (FTC) set up a new way for recognizing “dominant digital firms” that are exercising power in particular internet markets, and those would be prohibited from buying out competitors. Dominant digital firms would also be prohibited under the bill from “privileging their own search results over those of competitors without explicit disclosure,” according to the release. . . .

Italian Cos. Urge CAT to Apply English Law in Swipe Fee Suits
Law360 – April 12, 2021 (subscription required)

Nearly 40 Italian companies have told the Competition Appeal Tribunal that they should be able to rely on English law in their damages claims against Visa and Mastercard over swipe fees. Kassie Smith QC, counsel for several retailers seeking damages from Visa and Mastercard, told the tribunal Monday that her Italian clients are entitled to choose English law to govern their lawsuits. The companies accuse the credit card behemoths of violating European Union and national competition law by forcing businesses to pay inflated merchant service charges. The firms are fighting a challenge from the credit card companies that could cut the size of the claims.

The claims, brought by both U.K. and Italian companies, are focused on the complex way that Visa and Mastercard set multilateral interchange fees, or MIFs. The fees, also known as swipe fees, are bank-to-bank charges paid from a merchant’s lender to a card-issuing bank when a purchase is processed and have been at the heart of several actions against the credit card companies. . . .

More Than a Year Into the Pandemic, Concerns Are Still Swirling About Bans on Cash
Digital Transactions News – April 12, 2021

More than a year after the Covid-19 pandemic hit, igniting fears that the virus could be spread by handling currency, a group of three financial associations and a Chicago-based cash-in-transit and money-protection service sent a letter Monday to members of Congress, governors, and state legislators around the country warning about the harmful economic and social effects of prohibiting cash payment for goods and services.

The letter, signed the by Secure Cash Transport Association, Independent Armored Car Operators Association, ATM Industry Association, and Chicago-based money-security services provider Davis Bancorp, asked Congressional and state leaders to support legislation that protects payment choice, including cash. The intent of the letter—which comes on the heels of a letter sent earlier this year by legislators to President Biden urging that payment choice be guaranteed—is to ensure that a war on cash does not break out as merchants adopt contactless payments or in some cases move away from cash acceptance. . . .

Alibaba Shrugs off $2.75 Billion Antitrust Fine, Shares Rally
Reuters – April 11, 2021

Alibaba Group Holding Ltd BABA.N does not expect any material impact from the antitrust crackdown in China that will push it to overhaul how it deals with merchants, its CEO said on Monday, after regulators fined the e-commerce giant $2.75 billion for abusing market dominance. U.S.-listed shares of Alibaba jumped 8.6% and were set for their best day since July last year as a key source of uncertainty for the company was removed, and on relief the fine and steps ordered were not more onerous.

Alibaba has come under intense scrutiny since billionaire founder Jack Ma’s public criticism of the Chinese regulatory system in October. As part of “comprehensive rectifications” sought by regulators, Alibaba will make it easier for merchants to do business with it, Chief Executive Daniel Zhang told an online conference for media and analysts. . . .

Biden Team Eyes Potential Threat From China’s Digital Yuan Plans
Bloomberg – April 11, 2021

The Biden administration is stepping up scrutiny of China’s plans for a digital yuan, with some officials concerned the move could kick off a long-term bid to topple the dollar as the world’s dominant reserve currency, according to people familiar with the matter. Now that China’s digital-currency efforts are gathering momentum, officials at the Treasury, State Department, Pentagon and National Security Council are bolstering their efforts to understand the potential implications, the people said.

American officials are less worried about an immediate challenge to the current structure of the global financial system, but are eager to understand how the digital yuan will be distributed, and whether it could also be used to work around U.S. sanctions, the people said on the condition of anonymity. A Treasury spokeswoman declined to comment. A National Security Council spokeswoman did not reply to a request for comment. . . .

Commentary: Central Banks Are Pondering the Privacy/Transparency Balance of CBDCs
Digital Transactions News – April 8, 2021

“We are looking very carefully at the question of whether we should issue a digital dollar,” said Federal Reserve chairman Jerome Powell in testimony before the Senate banking committee. “We are the world’s reserve currency and we have a responsibility to get this right.” As digital currency moves from the outer edge of crypto to a future replacement for fiat cash, governments have had to consider a complicated range of risks and benefits in issuing central bank digital currencies (CBDCs).

From the vantage point of anti-money laundering (AML) compliance, CBCDs could offer significant advantages in identifying financial crime. Today, with fiat cash transactions, the money is mostly untrackable once outside the walls of the bank. In a hypothetical world of CBDC transactions, financial institutions, regulators, and law enforcement would, in most scenarios, have a clear view of currency use—where it goes, how it is transacted, how people are connected, and what channels they use to pay each other. . . .

Visa’s Incentives to Banks Examined In Justice Department Probe
Bloomberg Law – April 8, 2021 (subscription required)

The U.S. antitrust investigation of Visa Inc. is scrutinizing deals the company has with banks to entice them to process more online debit-card transactions over its network — spending that surged amid coronavirus lockdowns.

The Justice Department is probing incentives Visa offers banks that route more debit-card spending through its network, according to people familiar with the matter. The firm acknowledged an inquiry in a regulatory filing last month without elaborating on the specific issues at hand. Representatives for Visa and the Justice Department declined to comment. . . .

California Bill Would Create Free Banking Services for State’s Residents
Banking Dive – April 7, 2021

California lawmakers are backing a bill to create BankCal, a government program that would offer a “zero-fee, zero-penalty” consumer banking option to the state’s residents. The measure is aimed at “protecting consumers who lack access to traditional banking services from predatory, discriminatory, and costly alternatives.” Assembly Bill 1177, which lawmakers and advocates unveiled last week, would establish a Public Banking Option Board, which would partner with financial institutions to offer the free accounts. California employers with five or more employees would be required to facilitate direct deposit, when requested, into the account.

The bill is scheduled to be heard April 29 before the Assembly Banking and Finance Committee. The push among lawmakers and consumer groups for a fee-free banking service that would eliminate the need for the unbanked to turn to check cashers and payday lenders has grown in recent years. “California families are losing hundreds of millions of dollars in fees a year to payday lenders and check cashing stores that prey on the most vulnerable,” Democratic Assemblymember Miguel Santiago, lead author of the bill, said in a statement. . . .

Industry Developments

SPOTLIGHT: Patent Shows How Apple Pay Could Automatically Select a Card Based on the User’s Location
NFCW – April 9, 2021

Apple Pay users could be able to make contactless payments and other transactions with merchants or transit providers without having to manually select the correct payment, rewards or transit card or other digital credential from within their mobile wallet. Technology that would enable Apple Pay to automatically choose the stored card or credential most appropriate for a particular contactless transaction at a terminal close to a user’s location is described in a patent filed by Apple and recently granted by the US Patent and Trademark Office.

Location-based credential selection for wireless transactions describes “a method for selecting a credential from a plurality of credentials stored on an electronic device”. It says that the system could operate with stationary or mobile merchant terminals and with transit gate terminals using NFC, RFID or ultra wideband (UWB) technology.

“In essence, the patent suggests that a device like an iPhone could automatically present the correct credential or payment type for a nearby terminal,” according to Appleinsider. “It does so by detecting a nearby terminal using radio technologies, such as ultra wideband, to determine relative distance and to confirm the type of terminal being used. . . . ”

NACHA Records Booming Same-Day Results as the ACH Confronts Pandemic Concerns
Digital Transactions News – April 15, 2021