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Payments News Update – December 17, 2021

Posted  December 17, 2021

Legal and Regulatory Developments

SPOTLIGHT: UK Government Outlines Plans for Regulation of Buy Now Pay Later Industry
The Spectator – December 15, 2021

The buy now pay later industry has exploded in recent years, with the industry now worth $100 billion (circa £70 billion). Also known as BNPL, it is used by shoppers to delay payments on any kind of product from champagne to clothes and kitchens, and the option to pay nothing today and repay over 12 months in instalments or one lump sum, either interest-free or a little interest on top.

While the Financial Conduct Authority requires anyone offering consumer credit to be authorised, this is not currently the case with BNPL. The industry remains unregulated if customers make no more than 12 payments within 12 months or less and many other businesses are able to use this exemption including invoice financing, season tickets and white goods. But given the size of the industry and its huge presence online, the FCA has been putting measures in place to introduce regulation to BNPL. In particular, the regulator wants to raise awareness about the offers that are being promoted to customers, the role or absence of credit checks, the costs involved and understanding of the product by consumers. . . .

Regulators Open Probe Into Red Hot ‘Buy Now, Pay Later’ Industry
CNN Business – December 16, 2021

Regulators in Washington may crack down on the industry behind “buy now, pay later,” the increasingly popular method for consumers to purchase things online. The Consumer Financial Protection Bureau said Thursday that it is looking to “collect information on the risks and benefits of these fast-growing loans” from five leading BNPL companies: Affirm; Australia’s Afterpay, which is getting bought by Square owner Block; PayPal; privately held Swedish fintech Klarna; and Zip, another BNPL firm headquartered in Australia.

Shares of Affirm, which went public in January, plunged more than 10% following the CFPB news. Block (SQ) shares fell about 5%, but that drop may also have something to do with a lawsuit filed against it by tax preparer H&R Block (HRB). PayPal (PYPL) was down slightly. “Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too,” said CFPB Director Rohit Chopra in a statement Thursday. . . .

U.S. FDIC Chair Blocks Effort to Get Public Feedback on Bank Merger Rules – December 14, 2021

The chair of the U.S. Federal Deposit Insurance Corporation on Tuesday refused efforts by the regulator’s Democratic board members to solicit public feedback on bank merger rules. Republican Jelena McWilliams, chair of the FDIC, said during an open meeting that the move to include the notational vote did not follow proper procedure and was out of order. Democrats criticized her decision as “legally dubious.”

The agency’s legal division determined “that these actions did not constitute a valid circulation of an additional vote, and therefore the document cannot be added to the minutes,” McWilliams said, adding: “That motion is inappropriate.” The disagreement over the relatively minor issue was the first volley in what looks to be a protracted fight over whether the FDIC’s agenda is set by its three Democratic board members or its lone Republican chairman. . . .

Apple and Google Duopoly Limits Competition and Choice
CMA – December 14, 2021

The CMA’s interim report into mobile ecosystems suggests that users are losing out because of Apple and Google’s duopoly. Press Release From: Competition and Markets Authority | Published 14 December 2021 Firms exercising a “vice-like grip” over mobile devices. Earlier this year, the Competition and Markets Authority (CMA) launched a probe over concerns that Apple and Google have too much control over operating systems (iOS and Android), app stores (App Store and Play Store), and web browsers (Safari and Chrome) that together form their ‘ecosystems’.

When someone buys a mobile device, they essentially enter either Apple’s iOS or Google’s Android ecosystem. As a result, Apple and Google are able to control how online content, such as mobile apps and websites, is provided to users. They can also tilt the playing field towards their own services – for example, Apple does not allow any other app store than its own on iPhones and iPads, and its browser Safari comes pre-installed on those. Google’s browser, Chrome, and app store also come pre-installed on most Android devices. . . .

SEC Turning Attention to Crypto Exchanges
PYMNTS – December 13, 2021

Securities and Exchange Commission (SEC) Chairman Gary Gensler warned that cryptocurrency exchanges that don’t operate with SEC approval can expect to see more enforcement actions. “These platforms are doing a lot more than just trading,” he said at a conference on Sunday (Dec. 12), according to The Wall Street Journal, noting that aside from taking custody of clients’ tokens, “they’re also sometimes trading against their customer base.

And they’re set up technologically differently than traditional stock exchanges.” Calling trading platforms one of the two “big challenges” the SEC faces in asserting its regulatory control of the cryptocurrency industry, Gensler warned that any firm working in this field must at least come in and talk to the agency. . . .

Retail Brands Seek Compensation From Visa, Mastercard, Claiming High Fees
PYMNTS – December 12, 2021

The New York Federal Reserve launched a new innovation center on Monday that will support the central bank as it explores the possibility of a digital currency, assesses the financial risks associated with climate change and tackles other issues such as financial market infrastructure and regulation. The center, in partnership with the Bank for International Settlements (BIS) Innovation Hub, will help the central bank improve the current payments system, Fed Chair Jerome Powell said in remarks prepared for a virtual event on Monday.

“In particular, the partnership will support our analysis of digital currencies—including central bank digital currencies,” said Powell, adding that the center would focus on making cross-border payments faster and less expensive and provide new tools to help supervise financial firms. Powell did not comment on his outlook for the economy or monetary policy in his remarks. . . .

Industry Developments

SPOTLIGHT: Credit-Card Giants Aren’t Waiting to Be Disrupted When It Comes to Crypto
Financial Post – December 16, 2021

In 2019, credit-card giant Visa launched a full-time crypto product team for the first time after noticing that a new generation of fintechs were capturing the imaginations of customers with crypto-based digital wallets and exchanges.  “They were growing very quickly. There were millions of customers signing up … and they had billions of dollars of assets on their (platforms),’” Cuy Sheffield, Visa Inc.’s vice-president and head of crypto, told the Financial Post in a recent interview.

The challenge, as he put it, was that few if any merchants were directly accepting crypto, leaving much of that value outside of traditional payments channels. Like its biggest competitor, Mastercard Inc., Visa has spent the better part of the past few years rolling out new products to address that disconnect in a bid to incorporate cryptocurrencies into their more deeply into their operations. While the disruption of incumbents has been a recurring theme as new technologies have emerged, the world’s biggest credit-card companies, which run payment networks that stretch around the world linking millions of businesses and billions of consumers, appear to be fighting hard to avoid such a fate. . . .

Major UK Banks to Roll Out Shared Banking Hubs
Finextra – December 15, 2021

Major UK banks have agreed to create a network of shared banking hubs to ensure communities have fair access to cash. The agreement comes amid mounting pressure over UK bank branch closures as more people switch to mobile and online banking. According to consumer campaigning group Which?, the rate of bank branch closures has increased significantly in 2021, peaking between June and August when 298 branches closed their doors – an average of 99 per month.

In total, Which? revealed there have been 736 bank branch closures this year, with another 220 already set to close in 2022. Since January 2015, banks and building societies have closed or scheduled the closure of 4,734 branches. The retreat from the high street has led to significant concerns over access to cash for vulnerable and older people who still rely on notes and coins in their daily lives. . . .

When It Comes to Fraud Online, Merchants Need to Be Wary of Friendly Fraud Too
Digital Transactions News – December 15, 2021