Payments News Update – December 10, 2020

Legal and Regulatory Developments

SPOTLIGHT: Facebook’s Antitrust Problems Are Jeopardizing Its Plans for WhatsApp
Quartz – December 9, 2020

Facebook doesn’t make much money from WhatsApp. But CEO Mark Zuckerberg has said that forcing the company to sell the messaging app—as US prosecutors have called for in a new antitrust suit filed on Dec. 9—represents an “existential” threat to the business. That’s because Facebook has big plans for its little green app, which boasts 2 billion global users.

Both WhatsApp and Instagram are targets of the suit filed by the US Federal Trade Commission and a coalition of attorneys general, which claims that Facebook’s acquisitions make it an illegal monopoly. But losing WhatsApp would mean losing the chance to claim a piece of consumer spending in growing markets like India and Brazil, where WhatsApp rivals or surpasses Facebook in popularity and is already establishing itself as a powerful business tool. . . .

UK Moves to Regulate Big Tech With Proposed New Watchdog Group
PYMNTS – December 8, 2020

The U.K. government is moving to regulate Big Tech by establishing a new watchdog group aimed at encouraging competition within the digital sector. In recommendations issued Tuesday (Dec. 8) by the U.K.’s Competition and Markets Authority (CMA), the proposed regulatory regime is intended “harness the full potential of digital markets, driving greater competition and innovation,” according to the CMA’s statement. If implemented, the new regulatory regime will regulate large tech firms that the government has classified as having “strategic market status,” or SMS, meaning that authorities consider them to have substantial and entrenched market power.

The recommendations include the establishment of a new watchdog group, the Digital Markets Unit (DMU), which will sit within the CMA. The DMU will be part of an enhanced regulatory framework that will also oversee regulations aimed at curbing harmful online content and protecting personal data. The agencies will coordinate through the Digital Regulation Forum. Other forum members include the Office of Communications, or Ofcom; the Information Commissioner’s Office (ICO); and the Financial Conduct Authority (FCA). . . .

China Regulator Puts Country’s Fintech Giants on Notice Hinting at More Rules
CNBC – December 8, 2020

China’s top banking regulator questioned the power of the country’s large financial technology companies in areas from data privacy to market dominance. Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission (CBIRC), hinted “timely and targeted measures to prevent new systemic risks”, in a nod toward further regulation. He did not mention any specific companies but China has been drafting rules in areas from antitrust to data protection, which could affect firms like Alibaba, Tencent, Baidu and others.

China’s top banking regulator on Tuesday questioned the power of the country’s large financial technology companies and hinted at “timely and targeted measures to prevent new systemic risks.” The move appears to be a nod toward more regulations in China’s burgeoning fintech sector. Over the past few months, Chinese regulators have been growing increasingly concerned about the size of its technology giants and have proposed draft rules to regulate areas including data use and antitrust. . . .

Apple Pay’s Control of NFC Technology Is Being Revisited by Global Antitrust Regulators
Business Insider – December 8, 2020

Regulators in Australia and the Netherlands are looking into Apple’s control of the near-field communication (NFC) technology needed to enable mobile proximity payments. And this potentially threatens Apple Pay’s standing in the global payments space. Apple is facing scrutiny from regulators in Australia and the Netherlands over its control of the near-field communication (NFC) technology used in its mobile wallet offering.

Reserve Bank of Australia governor Philip Lowe raised concerns regarding mobile wallet competition. At the 2020 Australian Payments Network summit, Lowe said the current mobile wallet market has given way to complex competitive issues. He specifically brought up Apple Pay’s restrictions on the use of its NFC technology—the tech that powers contactless payments in smartphones—which he believes limits the ability of other wallet providers to compete in the same market. Lowe substantiated his concerns by pointing to increased scrutiny from global regulators on the same issue. . . .

RBA to Correct Interchange Anomaly, Backs Dual Network Cards
Banking Day – December 8, 2020

The Payment System Board is considering a tweak to the interchange rules that would lower the 15 cents cap that applies to debit card interchange when the fee is expressed in terms of cents. Reserve Bank governor Philip Lowe said the Payments System Board had identified the issue during its review of retail payment regulation. Speaking at an Australian Payments Network online event yesterday, Lowe said the PSB does not see a strong case for significant revision of the interchange rules.

However, it has identified large differences in interchange fees being paid on similar transactions, with unreasonably high fees on some low-value transactions. Currently, a 20-basis point cap applies when a debit card interchange fee is expressed in percentage terms and a cap of 15 cents when the fee is expressed in cents. Lowe said: “There has been an increasing tendency for interchange fees on transactions to be set at the 15 cent cap, particularly on transactions that are less at risk of being routed to another scheme. . . .

DOJ Crypto Framework Signals Escalating Enforcement
Law360 – December 7, 2020 (subscription required)

How are we to think about cryptocurrency, one of the predominant expressions of blockchain technology? Is it a banner, heralding a revolution that will transform the financial sector and other industries? Is it a car, presenting dangers that are tolerated when balanced against significant societal utility? Reading the cryptocurrency enforcement framework, published by the attorney general’s Cyber-Digital Task Force in the waning days of the present administration, one gets the impression that the U.S. Department of Justice views cryptocurrency as something more like a gun.

The introduction of the framework, which is attributed to Sujit Raman, then an associate deputy attorney general and the chair of the task force, takes a balanced tack. While emphasizing that distributed ledger technology “raises breathtaking possibilities for human flourishing” that should not be “inhibited or suppressed,” Raman also rightly warns against the role that cryptocurrencies — like any new technology, product, or system — could play “in the wrong hands” or “without appropriate safeguards and oversight.” . . .

Benefit of Interchange Fee Regulation Now Nullified by Fee Increases
EUbusiness – December 7, 2020

EuroCommerce today released a study by retail payments consultancy CMSPI and antitrust and economics advisers Zephyre on the rise since the adoption of the EU Interchange Fee Regulation (IFR) in the fees paid by merchants accepting card payments. “We have been a strong supporter of the Interchange Fee Regulation (IFR) ever since its adoption in 2015, as a means of limiting the amount paid by merchants and consumers for credit or debit card transactions. Unfortunately, as we have warned before, the large international card schemes have meanwhile raised the fees not regulated by the regulation to such an extent that all the benefits to consumers and merchants have now disappeared. We are therefore asking the Commission urgently to look at action to restore the balance originally achieved by the regulation”.

The study shows very significant increases in Visa and Mastercard scheme fees since the entry into force of the IFR. These figures are based on specific data drawn from invoices and acquirer notices received by leading merchants from their card acquirers. . . .

Apple Pay, Google Pay, You Pay: RBA Raises Virtual Wallet Competition Concerns
Brisbane Times – December 7, 2020

The Reserve Bank is making the case for an overhaul of the powers it has over the nation’s network of credit and debit cards in the face of growing technological change, warning the rise of Apple and Google-linked virtual wallets could hurt financial competition. Bank governor Philip Lowe, addressing the Australian Payments Network on Monday, said the current laws covering everything from cards to interchange fees between retailers and card providers were more than 20 years old.

The Morrison government has commissioned a review of the current system, with Dr. Lowe arguing there may be need for changes to deal with the way payments are rapidly changing. “While the powers are quite broad, in practice the bank has the ability to regulate only a fairly limited range of entities,” he said. “These regulatory powers have been used in conjunction with our ability to persuade and to help solve coordination problems in networks. . . .

Retailers Still Won’t Be Able to Charge Customers Who Use Buy Now, Pay Later, Says RBA
ABC News [Australia] – December 7, 2020

Buy now, pay later providers such as Afterpay and Zip can continue to prevent retailers imposing a surcharge when shoppers use the services, Reserve Bank governor Philip Lowe says. But he indicated that as these services grow in popularity they could be forced to play along the same rules as credit card companies, which analysts have previously warned could dent their growth. In a recent review of the sector, Australia’s corporate watchdog ASIC said one in five consumers using buy now, pay later miss payments, but stopped short of imposing new regulation on the sector.

Investors have been awaiting whether the Reserve Bank of Australia (RBA) would impose regulatory changes. Currently, the ‘no surcharge’ rules restrict the ability of merchants to pass on the costs of providing these buy now, pay later services to customers. Afterpay’s business model is built around customers not paying for the service, unless they are late and then the customer gets charged late fees. . . .

Visa-Plaid Deal Highlights Need for More Scrutiny of M&A
American Banker – December 4, 2020

As the Biden administration begins transitioning leaders into financial and enforcement agencies like the Department of Justice, they must also consider a new approach to merger enforcement with more strict, updated and concrete rules. The financial industry is a great place to start this new approach as there are a number of big-name deals pending approval.

Earlier this year Visa announced a $5.3 billion deal to acquire Plaid that would give the credit card giant a rising competitor in data aggregation. Plaid’s new debit card business would have allowed consumers to purchase online products directly from their bank accounts and mobile applications without using payment processors, such as Visa, that have been known to impose harsh transaction fees for services. This acquisition, exacerbating the spate of consolidation in the financial industry, hurts consumers and independent businesses. . . .

US Lawmakers Introduce Act to Make Stablecoin Issuers Get Banking Charter
Finextra – December 3, 2020

Put forward by three Democrat members of Congress – Rashida Tlaib, Jesús “Chuy” García, and Stephen Lynch – the Stablecoin Tethering and Bank Licensing Enforcement (Stable) Act, aims to ensure the issuance and related commercial activities of such currencies are strictly regulated. The lawmakers argue that digital currencies whose value is permanently pegged to or stabilised against a conventional currency like the dollar, pose new regulatory challenges while also represent a growing source of the market, liquidity, and credit risk.

They also claim that the Covid-19 pandemic has left many low and moderate income Americans shut out of traditional financial services. This has left them turning to alternative fintech options, making them vulnerable to bad actors looking to issue stablecoins. Tlaib, García and Lynch specifically cite the Facebook-backed Libra project, saying that “Facebook has attempted to take advantage of the financial exclusion and gap in the market”. Without regulation, projects like this “inherently” present a promise of the potential for “predatory inclusion,” “digital redlining,” and the “colour of surveillance”. . . .

Industry Developments

SPOTLIGHT: How the US Continues to Lag Behind in Secure Electronic Payments
Forbes – December 7, 2020

The U.S. can learn a lot from other countries when it comes to providing better security and consumer protection for electronic payment services. Now would be a great time to emulate the European Union, as it implements the revised Payment Services Directive (PSD2). Among other things, PSD2 adds a Secure Customer Authentication (SCA) mandate to Europe’s already advanced payment protection regulations and technologies. By 2021, all European digital transactions must validate customers’ payments using two-factor or multi-factor authentication (2FA/MFA).

This means EU citizens making purchases with debit or credit cards will not only have to supply a PIN but some other factor of authentication as well (like a biometric or device authentication). As a security expert, I can only fantasize about MFA requirements for electronic payments here in the U.S. In reality, we’ve only recently adopted some of the secure digital payment controls that other countries have used for decades — and we’re still well behind. . . .

Report: Millennials, Buy Now Pay Later and the Shifting Dynamics of Online Credit
PYMNTS – December 10, 2020

It has been suggested that millennials are averse to having and using credit cards. New PYMNTS research shows such assumptions are off-base, however, as is often the case with generational stereotypes.

Millennials are in fact as likely as other generations to have credit cards, with nearly nine out of 10 having at least one card, according to PYMNTS’ latest research. While credit is an important part of millennials’ shopping lives, this generation has unique spending priorities, particularly when it comes to online shopping — and these priorities are looming even larger since the pandemic shifted much of commerce online. Many millennials are looking for flexible yet responsible ways to pay for specific purchases in categories like clothing, electronics and furniture. . . .

NCR: Bank Disruption on the Horizon; Banking M&A Deals to Follow
PYMNTS – December 10, 2020

You’d be forgiven for thinking that, in banking, the deal is dead. The pandemic, after all, has obliterated “normal” business trends and caution reigns. NCR Digital Banking Senior Vice President and General Manager Doug Brown told Karen Webster there will be an acceleration of deal making on the other side of the pandemic, particularly as financial institutions (FIs) recalibrate and expand their digital efforts. The conversation came against the backdrop of a muted merger landscape. Through the summer of this year, deal making was down 70 percent from a year earlier to 40 transactions.

The pace picked up again, notably with the deal struck in the fall for BBVA to sell its U.S. operations to PNC Bank, creating the fifth-largest regional player in the U.S. As Brown told Webster, there’s been no macro slowdown impeding bank-focused strategic buys, at least from NCR’s vantage point. Merger-related activity has been keeping pace at what had been seen in prior years, he said, citing the integration of TCF and Chemical Bank over the summer, for example. In another example, First Horizon Bank has been digesting the SunTrust branches acquired in a deal finalized in July. . . .

Visa Says Frictionless B2B Payments Are the Future; Rails Must Adapt to New Use Cases
PYMNTS – December 9, 2020

In payments, speed is everything. So, it’s no surprise that in a fireside chat with PYMNTS Karen Webster, Visa’s Alan Koenigsberg, global head of new payment flows at Visa Business Solutions; and Tim Summers, vice president of Visa Direct global segments and market development, said B2B payments between buyers and suppliers are poised to pick up speed as they travel round the globe.

The conversation came against a backdrop where, at a high level, B2B payments account for $120 trillion globally on an annual basis. Faster payments schemes also number more than 50 and counting. But as companies embrace the great digital shift and revamp back-office functions, they’re examining the requirements and challenges of moving money in and out of their coffers. . . .

Facebook Hopes the Cryptocurrency It Backs Will Launch in 2021, Top Exec Says
CNBC – December 8, 2020