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
Law.com – 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

The Covid-19 pandemic has proven to be a huge boon for e-commerce, but it has come at a cost for merchants in the form of higher chargebacks. The higher level of chargebacks is not just consumers returning items for legitimate reasons, it’s also being fueled by consumers perpetrating friendly fraud.

More often than not, consumers who have successfully disputed an online purchase know their card issuer will take their side in a transaction dispute. That knowledge can embolden the customer to bilk the merchant by claiming a purchase was never received or delivered broken, and demand restitution. In these situations, consumers committing friendly fraud do so because they know the merchant will consider issuing a refund, or replacing the item, a cost of doing business. . . .

Commentary: The Time Has Come for All Merchants to Adopt Surcharging and Discounting
Digital Transactions News – December 15, 2021

There are few subjects that raise the ire of merchants more than the runaway costs of card acceptance. For years, many have grumbled about the costs but felt powerless to do anything about them. Now, as the result of a chain of court victories at the state and federal level, merchants are taking steps to either discount for cash or add a surcharge for paying with bank cards. Today, I’ve mostly encountered surcharges at small merchants with above-average ticket sizes. These include auto and boat shops, restaurants, medical providers, and veterinarians. But I suspect this practice will soon be noticed and copied by many other merchants.

There can be little doubt that discounting and surcharging are gaining momentum in most parts of the country, just as I have experienced in my backyard. I’d also bet most consumers react the way I do. They simply pay with cash or write a check. I suspect very few decide to shop somewhere else, especially after hearing the merchant explain (with very little prompting) that their 4% fee still doesn’t come close to covering all of the costs associated with accepting cards for payment. . . .

The Future Is Here: New Mastercard Study Finds Majority of Consumers Embrace Open Banking to Power Digital Financial Experiences
Business Wire – December 14, 2021

Mastercard released a new report today, The Rise of Open Banking, demonstrating the mainstream adoption of technology to power smarter, more meaningful digital experiences. Open banking puts consumers at the center of where and how their data is used to more effectively provide the services they want and need. Fintech companies and banks use this consumer-permissioned data to provide easier and more inclusive access to credit, personal financial management, digital wallets and payments services.

Open banking is already embedded in several areas of our daily lives, including personal financial management tools, linking of financial accounts and account opening. According to the report, nine in 10 consumers in the U.S. and Canada use online and mobile financial applications to manage money, with paying bills (82%) and banking (80%) as the most popular use cases. . . .

The Buy Now, Pay Later Battle That’s Brewing
PYMNTS – December 13, 2021

The invasion of 156,000 Allied Forces on the beaches at Normandy on June 6, 1944 is regarded by historians as the big turning point of World War II. The invasion that day was the result of years of meticulous planning and a strategy, Operation Bodyguard, that used deception to throw the enemy off track.

In addition to the textbook method of using double agents to leak and spread false stories, great effort went into developing plans for two landing sites that Allied military commanders had no intention of ever using for the invasion. The goal was to make these plans, and the communications about them, seem so convincing that German troops would mobilize to defend these fake sites. They did, and the rest, as they say, is history. . . .

Consumers Typically Use Debit Cards to Pay In-Store, Credit Online
PYMNTS – December 13, 2021

While consumers’ shopping and payment preferences are evolving in tandem with technological and socio-economic realities of their lives today, debit cards and credit cards remain the payment methods they most commonly use. Debit trumps credit usage when consumers shop in physical stores, while credit cards are the most popular payment method for online purchases, according to the Digital Economy Payments Report, for which PYMNTS surveyed 3,304 U.S. consumers.

More than 38% of the consumers use debit cards to pay for their purchases in physical stores, while nearly 33% use credit cards. The opposite is true when making online purchases, with 37% of consumers using credit cards to pay and 33% using debit cards. Overall, 37% of consumers used debit cards to pay for purchases, while 32% said they used credit cards. Cash, used by 13% of consumers, is the third most popular payment method. . . .

Wells And HSBC Unveil a Blockchain for Faster And Cheaper Cross-Border Transfers
Digital Transactions News – December 13, 2021

The world’s banking giants may or may not adopt cryptocurrencies at some point, but they are clearly looking to adopt the distributed-ledger technology that undergirds digital money. In the latest such move, Wells Fargo & Co. and HSBC Bank plc early Monday announced they have agreed to process cross-border transactions between the two big banks on a shared blockchain.

To start with, the technology will support transfers in U.S. dollars, the euro, the Canadian dollar, and the British pound sterling, but the banks say they plan to process more national currencies soon. The blockchain’s efficiencies will help reduce transaction-processing costs for both institutions, they say, and provide both banks with up-to-the minute indicators of settlement status. . . .

How U.S.-Russia Tensions Could Hurt Visa, Mastercard
American Banker – December 10, 2021 (subscription required)

Political tensions between the U.S. and Russia threaten to spill over into the payments world, potentially complicating the already difficult regulatory and competitive environment that American card networks and fintechs face in Russia. “We are already seeing a decoupling of payments and fintech from the U.S. payment industry and card networks in markets like Russia, India and China,” said Robert Hockett, a law professor at Cornell University. “And these hostilities will accelerate that.”

The Biden administration is weighing sanctions on Russia amid reports the Russian military has amassed 175,000 troops near the Ukrainian border. The sanctions package reportedly includes disconnecting Russia from the Society for Worldwide Interbank Financial Telecommunications (Swift), a Brussels-based organization that operates one of the world’s largest financial transaction messaging systems. . . .

Fed: US Banks Disappearing One by One
PYMNTS – December 9, 2021

The number of U.S. banks has dropped from an all-time high of 30,456 in 1921 to 4,377 at the end of 2020, a drop of 86% — and that decline isn’t likely to end, said William R. Emmons, an assistant vice president and lead economist in the Supervision Division at the Federal Reserve Bank of St. Louis. In his “On the Economy” blog post Thursday (Dec. 9), Emmons says few new banks are getting charters and others are merging. The decline, though, is nothing new, having started during the Great Depression in 1929. By the end of 1933, U.S. banks total 14,207, less than half of the 1921 total.

The decline for the next quarter-century or so was much slower and almost entirely because of mergers, Emmons wrote. The number of banks bounced back to reach 14,496 by 1984, but has dropped 70% since that time, with 10,000 banks vanishing in that time, although never 600 in one year. . . .

Visa Warns About Cashless ATM Trend Common in Cannabis Industry
High Times

Visa recently issued a memo detailing a common scheme being used by businesses in the cannabis industry—“cashless ATM” point-of-sale (POS) transactions. Cashless ATM transactions take place when a merchant takes an order, rounds up the total to an even number, and then runs a transaction, miscoded as an ATM withdrawal. While cannabis companies weren’t explicitly mentioned in Visa’s memo—there’s a good chance it was directed at such companies given the prevalence of cashless ATMs in the cannabis industry. With few options left in the cash-only industry, businesses will try just about anything to make credit and debit card purchases possible.

“Visa is aware of a scheme where POS devices marketed as ‘Cashless ATMs’ are being deployed at merchant outlets and are operating in violation of the Visa Core Rules and Visa Product and Service Rules and Plus Core Rules and Plus Product and Service Rules,” the memo reads. . . .

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Payments News Update – December 17, 2021

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