Payments News Update – April 29, 2021

Legal and Regulatory Developments

SPOTLIGHT: Visa, Mastercard Face Biggest Challenges in a Decade
Banking Dive – April 22, 2021

Regulatory, legislative and court confrontations over the card networks’ fees are ratcheting up pressure again for reform of the behemoths’ practices. Senate Majority Whip Dick Durbin was riled up when he leaned into his microphone to speak last month at an antitrust subcommittee hearing. The source of his consternation? The dominance of Visa and Mastercard. Durbin, a Democrat, recounted how he had walked into that same Senate chamber 15 years ago when the late Sen. Arlen Specter, who once chaired the Judiciary Committee, schooled him in interchange, or ‘swipe,’ fees imposed by the credit card networks.

Now, as the Judiciary chairman in a newly Democrat-controlled Senate, he still has Visa and Mastercard in his sights, and still believes their fees are out of control. “Visa and Mastercard still are so dominant in the payments market that merchants couldn’t stay in business without using their cards,” he said during the March 11 subcommittee hearing, noting U.S. retailers and merchants paid a “staggering” $62.5 billion in swipe fees last year. “All those costs are ultimately borne by consumers across America.” . . .

Tech Giants Risk Squeezing Out Banks, French Watchdog Warns
Bloomberg – April 29, 2021

Payment services run by Apple Inc., Google and Amazon.com Inc. may need monitoring as the tech giants’ largely unregulated financial products squeeze out those of banks, France’s competition authority warned. Big technology platforms “have the capacity to draw significant profits without being subject to regulatory constraints weighing on banks,” the authority said in a report on Thursday. Popular brands, the loyalty of huge numbers of existing customers and extensive data sets give Big Tech a huge potential advantage in gaining new business, it said.

Banks risk being stuck with back-end transactions with high fixed-costs and strict regulation “while being marginalized” in customer-facing services where the value lies, the report warns. Ultimately this could call into question less profitable banking services such as handling cash or checks. Regulators across the globe are ratcheting up scrutiny of powerful technology companies amid concerns that the pandemic has allowed them increase profits and expand into new businesses, such as financial services. Apple is expected to face a European Union escalation of an antitrust probe into its App Store rules for music streaming as soon as this week. . . .

PayPal’s Ambition and Uphill Battle in China
TechCrunch – April 28, 2021

At the recent Boao Forum for Asia, China’s answer to Davos, the American payments giant said its strategy for China is not to challenge the duopoly of Alipay and WeChat Pay. Instead, it wants to focus on cross-border business and provide gateways both for Chinese merchants to collect funds and for Chinese consumers to pay for overseas goods. It’s certainly a lucrative area. The market size of cross-border e-commerce in China surged from about 3 trillion yuan ($460 million) to nearly 6 trillion yuan between 2016 and 2021, according to market research firm iResearch.

But this space has also become crowded in recent years and PayPal may be late to the fray, said a China-based manager for an American tech giant, who asked for anonymity because he’s not authorized to speak to the media. On Amazon, one of the largest marketplaces for Chinese exporters to sell online, there are already established options for merchants to collect funds. Setting up a bank account in a foreign country can be difficult for a small-time Chinese exporter, not to mention the high fees for remittance, so such merchants often seek third-party payments transfer solutions such as U.S.-based Payoneer and Chinese equivalents Pingpong and Lianlian, which charge a relatively small fee to deposit merchants’ sales into their bank accounts at home. . . .

Surcharging Has Lots of Rules, but It Can Work
PaymentsSource – April 28, 2021 (subscription required)

When the Durbin Amendment first came to be, at the time it seemed clear that the emerging picture was nothing more than a small flame and a lot of hope. Merchants, on the other hand, saw something significant and fought and won. Take that momentum, a small passage in a massive bill that no one paid any attention to and add to it the rails of a Visa-approved municipal and university-based pricing model known as “service fees,” and the first version of “cash discounting” was born.

An actual service fee was based on the Visa Government and Higher Education Payment Program, which enabled qualified merchants to accept Visa cards in all payment channels and assess a variable service fee as a separate transaction. It’s allowed in all 50 states and on all card types, but only seven merchant category codes (MCCs) can participate in the program. It was precisely this name and how it worked that became the foundation of the “hybrid cash discount” model. . . .

Analysis: China Digital Currency Trials Show Threat to Alipay, WeChat Duopoly
Reuters – April 26, 2021

In China’s commercial hub Shanghai, six big state banks are quietly promoting digital yuan ahead of a May 5 shopping festival, carrying out a political mandate to provide consumers with a payment alternative to Alipay and WeChat Pay. The banks are persuading merchant and retail clients to download digital wallets so that transactions during the pilot programme can be made directly in digital yuan, bypassing the ubiquitous payment plumbing laid by tech giants Ant Group, an affiliate of Alibaba 9988.HK, and Tencent 0700.HK. “People will realise that digital yuan payment is so convenient that I don’t have to rely on Alipay or WeChat Pay anymore,” said a bank official involved in the rollout of e-CNY for the Shanghai trial, under the guidance of China’s central bank. The official is not authorised to speak with media and declined to be identified.

China’s development of a sovereign digital currency, which is far ahead of similar initiatives in other major economies, looks increasingly poised to erode the dominance of Ant Group’s Alipay and Tencent’s WeChat Pay in online payments. That turf encroachment coincides with Beijing’s expanding effort to clamp down on anticompetitive behaviour in the internet sector, part of a wider reining in of the clout of sector heavyweights. . . .

Industry Developments

SPOTLIGHT: American Express Readies to Launch Debit Cards in China
PaymentsJournal – April 26, 2021

American Express doesn’t issue debit cards in the U.S. and sold its prepaid card issuing platform to InComm three years ago, but it is gearing up to issue debit cards in China, as PaymentsSource reported. American Express was granted the opportunity to process payment transactions in China approximately 8 months ago and wasted no time in building a platform and expanding its network of merchants in the country. China has a relatively high level of checking account penetration among its population, around 80%, and debit cards are vastly preferred to credit cards.  In 2019, there were approximate 7.4 billion debit cards in circulation.  Here’s more from the article:

“American Express’ payment processing operations in China are giving it a foundation upon which to expand its debit offering to new countries. The New York-based card brand spent eight months building a network in China after receiving the nation’s approval to do so, adding 14 million merchants in the process. Amex has built a nascent debit network that has the potential to launch in other regions. Amex is seeing the payoff in its two-plus years of pursuing a place in the Chinese market through its joint venture with Express Hangzhou Technology Service Ltd., [American Express CEO] Squeri said. . . ”

Visa Teams With Airbnb to Facilitate Faster Host Payments
PYMNTS – April 28, 2021

Visa and Airbnb are teaming up to help hosts improve their cash flow with the ability to get paid and move funds into their bank account faster. Airbnb’s use of Visa’s real-time push payments platform — Visa Direct — enables hosts to easily move money from Airbnb to a bank account associated with a Visa debit card. Ruben Salazar, SVP and global head of Visa Direct, said in a statement that giving hosts more control over their funds is a “powerful driver” to bolster recovery in local communities as the global economy rebounds from the COVID-19 pandemic. “Visa Direct capabilities on the Airbnb platform can help improve cash flow for hosts, allowing them to focus on welcoming travelers eager to explore the world again,” Salazar added.

Faster payments with Visa Direct can assist Airbnb hosts with maintaining cash flow and controlling their finances as the world reopens and people start planning getaways. More than 60 percent of U.S. respondents in Visa’s American Mood Trend survey earlier this month said they are ready to make travel plans and hit the road again after the pandemic year of lockdowns. Sam Shrauger, vice president of payments at Airbnb, said it’s among the first travel platforms to use Visa Direct and give hosts faster access to their money. . . .

Mastercard Teams With Gemini for Credit Card With Bitcoin Rewards
CNET – April 27, 2021