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Payments News Update -- August 7, 2019

Posted  August 7, 2019

Legal and Regulatory Developments

SPOTLIGHT: It’s Official: The Fed Is Jumping Into Real-Time Payments With FedNow
Digital Transactions News – August 5, 2019

Ending months of speculation, the Federal Reserve confirmed Monday it will launch a real-time payments service by 2023 or 2024. The banking regulator, which also published Monday a notice in the Federal Register outlining its plan and requesting comment, will thus take what it says is its biggest move in payments since setting up 40 years ago as an operator in automated clearing house transactions.

The new service, dubbed FedNow, will reach “every bank in every community in the country,” said economist and Fed governor Lael Brainard in making the announcement in an afternoon presentation at the Federal Reserve Bank of Kansas City. Besides ubiquity, Brainard cited four other considerations favoring the service: equitable access for users, payments safety, increased competition for private-sector players, and a neutral platform for innovation. . . .

S. Korean Financial Regulator Planning to Directly Regulate Cryptocurrency Exchanges
Business Korea – August 7, 2019

The Financial Intelligence Unit (FIU) under the Financial Services Commission (FSC) has disclosed a plan to directly regulate cryptocurrency exchanges and bring them into the regulatory system. Currently, the FIU indirectly controls cryptocurrency exchanges through administrative guidance to banks.

An FIU official said on Aug. 6 that the government will enhance the transparency of cryptocurrency transactions by introducing a “cryptocurrency exchange licensing system” recommended by the Financial Action Task Force (FATF). . . .

Bitcoin’s Use In Online Payments Faces A Serious Regulatory Hurdle
Forbes – August 6, 2019

Over the past few years, the use of Bitcoin for payments has taken a backseat to the increased focus on the digital asset’s use as a store of value. However, the payments use case is now making a comeback thanks to the development of the Lightning Network, which is a secondary protocol layer that enables cheaper, instant transfers for Bitcoin users.

Apps like Bitrefill and Fold, which both help people spend their Bitcoin at major retailers, have integrated the Lightning Network in an effort to create a more user-friendly and cost-effective experience for their users. Additionally, the relatively new startup Lolli has a master plan for eventually taking Bitcoin payments mainstream. . . .

Banks Confront Fed on Faster Financial Payments
Wall Street Journal – August 4, 2019 (subscription required)

Big banks are fighting a likely U.S. government effort to speed up how money moves through its payments system, arguing this could derail a private network they have developed.

The battle is dividing financial firms and policy makers at a time when payments are becoming a potential flashpoint between banking and big tech. Facebook Inc. has announced plans to launch a cryptocurrency-based payments system on the back of its social network, while Chinese giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd. have developed digital payments systems that dominate in that country. . . .

Customers Can Sue Chase For Hidden Crypto Fees, Court Rules
Crypto Briefing – August 2, 2019

Cryptocurrency investors may proceed with a class action lawsuit against Chase Bank, after a New York federal judge decided against the bank’s motion for dismissal. Originally filed in April 2018, the plaintiffs accuse the bank of charging undisclosed fees by categorizing their crypto purchases as cash advances, which are far more expensive than standard credit card purchases. The situation persisted for 10 days, with the bank simply blocking cryptocurrency transactions afterwards.

Plaintiffs Brady Tucker, Ryan Hilton, and Stanton Smith subsequently claimed that Chase Bank USA NA breached their cardholder agreement and provided inadequate disclosure, in addition to other claims pertaining to the Truth in Lending Act (TILA). . . .

Congress Wants Capital One and Amazon to Explain Data Breach
CBS News – August 1, 2019

Leaders of House and Senate committees want Capital One and Amazon to explain to Congress how a hacker accessed personal information from more than 100 million Capital One credit card customers and applicants. The incident was the latest massive data breach at a large company.

Ohio Rep. Jim Jordan, the top Republican on the House Oversight and Reform Committee, asked for a staff-level briefing by Aug. 15 on the breach that was reported late Monday. . . .

Objectors Had No Role In $6B Swipe Fee Deal, Court Told
Law360 – August 1, 2019 (subscription required)

Merchants who secured a multibillion-dollar swipe fee settlement with Visa Inc., Mastercard Inc. and a group of banks urged a New York federal judge Wednesday not to grant legal fees to objectors to the original deal, arguing that the objectors played no part in increasing the payment amount.

The retailer and merchant objectors only contested the injunctive part of the original 2012 deal and the notice to be sent to would-be class members, the main merchant class said Wednesday, meaning the R&M objectors had nothing to do with increasing the settlement amount to roughly $6.3 billion. . . .

Industry Developments

SPOTLIGHT: Walmart Crypto Coin Patent Could Be a Back Door to Banking
PaymentsSource – August 2, 2019 

Walmart has filed a patent application for a digital currency that, like Facebook’s Libra, would be a stablecoin backed by traditional currencies. And it envisions a very specific use case where its coin could stand in for cash — or even for a bank account.

The patent mentions a hypothetical “currency micromarket,” defined as “an unattended retail environment where consumers can purchase products from open shelves, coolers, or freezers and use a self-checkout kiosk to pay for their products.” It sounds a lot like Amazon Go, a checkout-free retail concept that has been bogged down by lawmakers’ insistence that Amazon also accept cash. . . .

Post-Worldpay Deal, FIS Eyes eCom and Real-Time Payments
PYMNTS – August 6, 2019

Fidelity National Information Services (FIS) released results Tuesday (Aug. 6) that showed organic growth for FIS and recently acquired Worldpay as standalone entities and updated the outlook for the combined entity — with particular emphasis on real-time payments and eCommerce opportunities.

FIS said that in terms of its own consolidated results, revenues were $2.1 billion, roughly flat year on year (under GAAP), but added that organic revenue growth was 5 percent. . . .

Apple Card Uses NFC to Activate, but Has No NFC Built In
PaymentsSource – August 6, 2019 (subscription required)

As Apple Card’s public test begins this week with a limited number of consumers, details are emerging about how the tech giant is differentiating its product from other cards.

A key difference is the activation process for the titanium Apple Card, which contains no NFC chip. When the card arrives in the mail, customers must activate it by pairing their iPhone with an NFC chip contained in the card’s disposable packaging, according to an Apple video demonstrating the process. . . .

Apple Card Purchases Can’t Include Crypto
PYMNTS – August 4, 2019

Ahead of the launch of the Apple Card, backer Goldman Sachs said in the customer agreement it will not allow the purchase of cryptocurrencies, Reuters reported Friday (Aug. 2).

Aside from forbidding the purchase of cryptocurrencies, the agreement also indicates the card cannot be used to purchase cash advances or cash equivalents that include casino gaming chips, race track wagers or lottery tickets. . . .

Nexo Launches MasterCard-branded Crypto Credit Card
Cointelegraph – August 2, 2019

Instant crypto loans firm Nexo is launching a MasterCard-branded cryptocurrency credit card. The development was announced in a press release shared with Cointelegraph on Aug. 2.

Nexo claims the Nexo Card to be the first card in the world that enables users to spend the value of their cryptocurrency without in fact spending it. In addition, the card does not consider annual and monthly and foreign exchange fees. Describing the operational concept of the card, Nexo said: “When using the Nexo Card to purchase goods and services, you actually pay using your Nexo flexible open-ended revolving credit line that is backed with your crypto holdings and thus not selling any of them, which is giving you the freedom to spend today and sell your holdings whenever you want in the future to pay back the loan.” . . .

Risks in Credit-Push Transactions Lurk as Faster-Payment Systems Grow
Digital Transactions News – August 2, 2019

With faster-payment services growing in the U.S. and the Federal Reserve mulling whether it should assume a direct operating role in a real-time gross settlement system, banks and payment processors have not yet considered all the risks associated with the new services, according to a new report.

Those potential pitfalls are outlined in a report released in July, “The Hidden Risks of Faster Payments,” by David Walker, president of the Dallas-based Tiller Endeavors LLC consulting firm. Walker was the president and chief executive of the former Electronic Check Clearing House Organization (ECCHO), which created rules for the interbank exchange of check images. . . .

PSD2: Biometrics by Computop Allows Merchants to Takeover Two Factor Authentication From Banks
Press Release – August 2, 2019

Computop, the global payment processor, today announced Biometrics by Computop, its new PSD2 compliant biometric authentication service for online merchants and banks. With Biometrics by Computop, merchants can take over the strong customer authentication (SCA) in order to avoid banks having to run their own two factor authentication during the payment process. Computop’s biometric authentication service complies with the secure FIDO standard (Fast Identity Online) and is suitable for PSD2 compliant strong customer authentication in online retail.

PSD2, Visa and MasterCard all allow customer authentication to be trusted to third parties. Computop Biometrics enables merchants to process the biometric authentication of their customers in advance avoiding the necessity for banks to apply their own two factor authentication (2FA) during the sensitive payment process. . . .

Standardizing Chargebacks Will Boost Faster Payments
PaymentsSource PayThink – August 1, 2019

There are some matters we should account for before fully making the jump to instantaneous payments. We should anticipate that fraudsters will find a way to manipulate the situation when we move to instant payments.

Beyond that is the matter of trust, which could be compromised by increased fraud. Add to that the general confusion about chargeback processes, which themselves are a tool to ensure trust in the viability of card payments. . . .

Cardless Transactions Are Driving Debit Growth, A Trend Fraudsters Have Noted
Digital Transactions News – August 1, 2019

Consumers are making more debit card transactions without the physical card, and fraudsters are taking notice, according to a major study released Thursday.

Transactions such as e-commerce payments, push payments, and peer-to-peer transfers using the accounts backing debit cards, but not the plastic itself, are rising dramatically, according to the 14th annual Debit Issuer Study from Pulse, a major electronic funds transfer network and a unit of Discover Financial Services. Such cardless transactions soared 24% in 2018 to account for 25% of all debit card transactions, up from 20% the prior year, according to the study, which, as in prior years, was compiled in conjunction with the consulting firm Oliver Wyman. Sixty-three financial institutions representing 44% of the U.S. debit card market by cards issued participated in the study, according to Pulse. . . .