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Payments News Update – December 3, 2020

Posted  December 3, 2020

Legal and Regulatory Developments

SPOTLIGHT: Visa Is Doing What Big American Companies Do to ‘Protect This Business’
The New York Times – December 2, 2020 (subscription required)

Visa dominates the lucrative business of processing debit card transactions. Merchants must choose between paying the financial services company’s fees or forgoing sales to the millions of Americans who carry cards emblazoned with Visa’s logo. A San Francisco technology start-up named Plaid threatened that dominance. The company planned to debut a rival service next year that would charge half as much as Visa. So Visa did what big American companies have learned to do: It agreed to buy the smaller company, pledging a king’s ransom to eliminate the threat of competition.

Last month, the Justice Department sued to block the deal as a violation of antitrust law. The intervention is necessary to protect the interests of merchants and consumers, and the health of the broader economy. The federal government has been far too permissive in allowing large companies to swallow potential rivals, particularly in the rapidly evolving technology sector. The Justice Department has destroyed its credibility over the past four years by prioritizing President Trump’s interests over the national interest. Antitrust enforcement is no exception. The department has pursued cases against the president’s enemies, notably investigating an agreement among four auto companies to voluntarily reduce emissions, and it has declined to pursue cases against the president’s friends, allowing T-Mobile to acquire Sprint. But in pursuing the case against Visa, the department is ending the Trump era on a relatively high note, setting an example the Biden administration ought to emulate. . . .

Facebook-Backed Digital Coin Libra Renamed Diem in Quest for Approval
Reuters – December 1, 2020

Facebook-backed cryptocurrency Libra has been rebranded “Diem” in a renewed effort to gain regulatory approval by stressing the project’s independence. Plans for Libra, first floated by Facebook last year, were slimmed-down in April after regulators and central banks raised concerns it could upend financial stability, erode control over monetary policy and threaten privacy. Tuesday’s name switch is part of a move to emphasise a simpler, revamped structure, Stuart Levey, CEO of the Geneva-based Diem Association behind the planned digital coin, said.

“The original name was tied to an early iteration of the project that received a difficult reception from regulators. We have dramatically changed that proposition,” Levey told Reuters. Diem, which means “day” in Latin, now aims to initially launch a single dollar-backed digital coin, he added. He declined to comment on timing for the launch, which the Financial Times reported last week could be as early as January, saying only that it would only go ahead after approval by the Swiss markets watchdog. Facebook, which changed the name here of its payments unit Calibra to Novi Financial in May, remains one of 27 members of the Diem Association, formerly the Libra Association. Novi’s head, David Marcus, is one of Diem’s five board members. . . .

Visa Loses Bid to Refer UK Interchange Fee Suits to ECJ
Law360 – December 1, 2020 (subscription required)

A U.K. tribunal refused Tuesday to refer more than a dozen swipe fee claims brought against Visa to the European Union, after the merchants seeking damages argued that that the credit card giant’s application to move the claims was an abuse of process. After hearing arguments, Judge Peter Roth of the Competition Appeal Tribunal dismissed Visa’s application for a referral to the European Court of Justice. He gave the judgment orally, and said the tribunal will publish its written reasons in due course.

The claims, which accuse the credit card giant of violating EU and domestic competition law, are among a string of civil actions brought against Visa and Mastercard related to the complicated system of setting so-called multilateral interchange fees, or MIFs. The fees are charges paid from a merchant’s bank to a card-issuing bank when a purchase is processed. Visa filed its application on Oct. 9, arguing that the approach to counterfactual scenarios taken by the Court of Appeal in a high-profile parallel case, which was then upheld by the U.K. Supreme Court in June, was inconsistent with a recent ruling at the ECJ in a swipe fee case involving Budapest Bank, ING Bank and four other European banks. . . .

Visa Says DOJ Papering Over Plaid Deal’s Benefits
Law360 – November 30, 2020 (subscription required)

Visa has told a California federal court that the U.S. Department of Justice is overlooking a host of major benefits arising out of its planned $5.3 billion tie-up with Plaid and wrongly focusing on the deal’s alleged antitrust implications. The DOJ’s Antitrust Division is challenging the credit card giant’s proposed deal by alleging that it’s trying to block emerging competition from an upstart financial services rival, with the government hoping to start a trial in September but Visa pressing for a faster timetable.

In a Friday filing, Visa denied numerous allegations in the DOJ’s Nov. 5 complaint while only expressly admitting some largely factual points. The card company alluded to the rarity of the government successfully pursuing a claim that companies are squashing “potential” rivals. “As plaintiff concedes, Plaid and Visa are not competitors today; instead, [the complaint] postulates that the proposed acquisition threatens competition because Plaid is supposedly a potential competitor to Visa in an alleged market for online debit transactions,” Visa said. “‘Potential competition’ theories like this one have for decades been evaluated under Section 7 of the Clayton Act … and have found almost no traction in the courts.” . . .

Merchants Get Clarity Around Compliance as Global Payment Regulations Evolve
PYMNTS – November 27, 2020

Compliance with financial regulations market-to-market around the globe is increasingly automated yet relies on the same human emotion that undergirds all forms of exchange: trust. In other words, banks and financial institutions (FIs) have an obligation to make sure you are who you claim to be. Trust. And it’s gotten much more difficult as remote onboarding spikes and cybercrooks get their hands on the hottest tech underground evildoers have to offer.

PYMNTS’ November 2020 Merchants Guide To Navigating Global Payments Regulations done in collaboration with Ekata examines issues around security and compliance as open banking continues its push across oceans and over legal hurdles and toward eventual ubiquity. “The open banking ecosystem has continued to grow and develop even as banks, FinTechs and merchants scramble to adjust to the challenges created by the ongoing COVID-19 pandemic,” the Guide states. “Many regulators are still determining what open banking looks like in their markets, debating data privacy and security standards and determining what entities have access to this information.” The Guide adds, “It is critical for merchants to take note of these trends to compete, but they also must watch what open banking developments mean for the future of digital identity.” . . .

Industry Pros Weigh in on Rumors of New Crypto Wallet Regulations
Coindesk – November 27, 2020

Recent rumors about U.S. regulation of private, self-hosted crypto wallets have some compelling context. For example, the proposal submitted last month by U.S. authorities to lower the anti-money laundering (AML) threshold for cross-border transactions (its consultation ends today, Friday), seems to support the hypothesis that outgoing Treasury Secretary Steven Mnuchin is rapidly making more rules around crypto. The Financial Crimes Enforcement Network (FinCEN) and the Federal Reserve’s rule change proposal would reduce the threshold from $3,000 to $250 for AML compliance for any transfers – in crypto or fiat – that go outside the U.S.

Concerns over user privacy in relation to that proposed change are nothing compared to the outright fear created by Coinbase CEO Brian Armstrong’s tweets about the threat to self-custodied wallets, a central tenet of crypto. It’s worth pointing out that the Notice of Proposed Rulemaking for the $250 threshold was given just a 30-day response period, when normally the industry would be granted 60 or 90 days. Another interesting rumor is that these stronger rule changes are coming directly from political appointees, rather than long-term career people at FinCEN or on the policy side. . . .

Data Breach Class Actions – Eleventh Circuit en Banc Decision Could Be Bad News for Plaintiffs
JD Supra – November 25, 2020

Takeaway:  The Eleventh Circuit has yet to address whether a future risk of identity theft is sufficient to establish standing in a data breach case.  In Muransky v. Godiva Chocolatier, Inc., 16-16486, 2020 WL 6305084, at *12 (11th Cir. Oct. 28, 2020), the en banc Eleventh Circuit held that the plaintiff failed plausibly to allege that a risk of future identity theft flowing from a violation of the Fair and Accurate Credit Transactions Act (FACTA) constituted a material risk of harm sufficient to establish Article III standing.  Although Muransky is not a data breach case, it could be bad news for data breach plaintiffs.  Muransky suggests that the Eleventh Circuit will carefully scrutinize future injury allegations and require data breach plaintiffs to satisfy a relatively high bar to establish standing. The allegations, holding, and unique procedural posture of Muransky have been discussed in numerous articles.  This article focuses on the allegations and rulings relevant to the standing issue of future injury.

Muransky received a receipt from a Godiva store that revealed the first six and last four digits of his credit card number.  FACTA prohibits merchants from printing more than the last five digits on a receipt.  Muransky filed a FACTA class action and – with the Supreme Court about to issue its standing decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) – the parties agreed to a class settlement.  But after the Supreme Court issued its ruling in Spokeo, class members objected to the settlement, including for lack of standing.  Without considering Spokeo, the district court concluded it had jurisdiction and approved the settlement.  On appeal, an Eleventh Circuit panel affirmed, finding that Muransky had satisfied Article III standing under Spokeo.  The Eleventh Circuit, however, vacated that panel decision, ordering rehearing en banc on the standing issue. . . .

Industry Developments

SPOTLIGHT: It’s Now for Buy Now, Pay Later
Digital Transactions Magazine – December 1, 2020

This versatile point-of-sale option is growing fast. Is it threatening credit and debit card traffic? Many merchants can’t say no to buy now, pay later (BNPL) options, which are arriving in force as retailers and consumers gear up for a holiday shopping season that may be busier than usual. Though BNPL programs have been around for years—think BillMeLater, which started in 2000 and later became PayPal Credit—a slew of recent entrants has propelled it to the forefront.

Point-of-sale lending is projected to account for 11% of total unsecured credit in 2021, up from 5% in 2015, according to Keefe, Bruyette & Woods, an investment firm owned by St. Louis-based Stifel Financial Corp. Indeed, the rapid growth of POS lending is expanding the “overall pie, presenting an opportunity for both incumbent and new entrants,” the KBW research note says, adding KBW expects the product to ”surpass private-label cards by 2021.” Global BNPL volume is forecasted to increase to more than $680 billion in transaction value by 2025, up from $285 billion in 2018, according to Kaleido Intelligence Ltd., a London-based research firm. “This rise is fueled not only by changing shopper habits among younger demographics, but also by the overall shift to digital spending as a result of the Covid-19 pandemic,” the firm noted in its “Digital BNPL & EPOS Financing: Market Outlook 2020” report. . . .

Growth of QR Codes Raises Need for Security Awareness
PaymentsSource – December 2, 2020 (subscription required)

Whenever a technology moves into the payments or financial data ecosystem, it alerts fraudsters to probe it more intensely — and ultimately, figure out a way to use it as an attack vector. With QR codes’ increasing popularity and use in a growing contactless payments market, the potential fraud dangers have come into focus. “QR codes have had known vulnerabilities for years, but it hasn’t received a ton of attention in North America because the use of QR at the point of sale is still relatively nascent,” said Julie Conroy, research director and fraud expert with Boston-based Aite Group. “The most common attack vector is if the QR is just a static sticker that the customer has to scan — this is vulnerable to crime rings superimposing their own sticker that leads the customer to a site that either downloads malware to the device or phishes sensitive data.”

QR code use has exploded in China through the mobile payment methods of Alipay and WeChat Pay. The technology is also the foundation of the interoperability that Brazil is seeking in its Brazil Instant Payment System, or PIX. QR codes make it far easier for digital wallets to integrate with the faster payment rails. “People are using QR codes and not being aware of how powerful they are,” said Phil Dunkelberger, CEO of Nok Nok Labs, a security vendor at the foundation of the Faster Identity Online (FIDO) Alliance that has sought to eliminate static passwords and other security weaknesses in online, mobile and physical settings. “QR codes can launch chat sessions, they can update your contact list, and a lot of other things related to onboarding,” Dunkelberger said. “Used in the wrong way, they can expose users to some malicious intent or bad code or other things.” . . .

Airline Cards Lose Luster as Coronavirus Persists
Wall Street Journal – December 3, 2020 (subscription required)

Kimberley Moore called JPMorgan Chase & Co. in October to ask if it would lower the $450 annual fee on her United Airlines Holdings Inc. credit card. A United cardholder for roughly 15 years, Ms. Moore traveled often. Then the coronavirus pandemic hit and Ms. Moore, 53 years old, scaled back her spending and canceled travel plans. Ms. Moore, a senior director at a national health care organization in Washington, D.C., decided to keep the card after JPMorgan offered her a $200 statement credit. But she has barely used the card since, and is instead mostly using debit cards. Nearly nine months into the pandemic, banks and airlines are scrambling to rescue their airline rewards cards. The companies have deployed the cards for years to win big-spending customers, but the perks they offer—like flight upgrades and airport lounge access—are all but obsolete in a global pandemic.

Typically, card companies don’t disclose the volume of spending on their airline cards versus other, more general-purpose cards. But travel purchases were down about 70% on Visa Inc. cards in the last quarter compared with a year ago. Travel and entertainment purchases were down 69% on American Express Co. cards. Other categories are faring better. At AmEx, spending outside of travel and entertainment was up 1% in the third quarter. (AmEx says this category represents the majority of its cardholder purchases.) People moved away from credit cards in general during the pandemic and the accompanying economic downturn, often using debit cards instead as they sought to avoid incurring new debt. At Visa, the largest U.S. card network, credit card spending volume was down about 9% and debit volume was up 20% in its most recent quarter. . . .

7 Major Payment Trends That Will Shake up Banking in the Year Ahead
The Financial Brand – December 1, 2020

The role of payments as a core banking function, already eroding, is now under full assault. Between fintechs like Square, big tech wallets and the massive impact of COVID-19, the payment space is being upended as never before. Here’s what banks and credit unions need to know to stay in the game and succeed in 2021 and beyond. Payments are the lifeblood for banks and credit unions. Yet this vital source of revenue, data and customer engagement increasingly stands at risk. Even though financial institutions responded quickly to the unprecedented demands of COVID-19, ramping up digital banking capabilities including contactless payments faster than anyone imagined, the pandemic slashed payment revenues due to sharply curtailed economic activity. Simultaneously, COVID accelerated trends already happening in payments leading to new competitors, new consumer needs and expectations, and a faster pace of digitization than anyone could have predicted.

“No part of the payments ecosystem will escape the effects of the pandemic,” Accenture asserts. The consulting firm predicts that a total of 2.7 trillion transactions worth $48 trillion will shift from cash to cards, interbank payments and alternative payment instruments such as person-to-person (P2P) and point-of-sale finance (buy now, pay later). This represents a $300 billion opportunity for payment providers. However, Accenture states that banks are scrambling to respond as the scale of disruption and tempo of change have grown dramatically. . . .

Unicorn Momentum—Like Much Else—Slows in 2020 for Payments Firms and Other Fintechs
Digital Transactions News – December 1, 2020 

Most Americans will be glad to see the last of 2020 as they ring in 2021 in a few weeks, and that group will include private investors. In a year in which the coronavirus ran rampant, damaging many businesses and shuttering others, tech investors pegged significantly fewer privately held payments firms and related companies with the coveted $1-billion-plus valuation. Some 15 fintechs have joined this club so far in 2020, according to the latest statistics from CBInsights, a New York City-based research firm. With only about four weeks remaining, it’s unlikely this year’s roster of newly minted fintech unicorns—startups that have vaulted that $1-billion valuation—will come anywhere close to the record 25 that joined the list last year.

Among the 2020 arrivals on the list is Tipalti Inc., a 10-year-old payments company whose $150-million Series E round in October valued the company at $2 billion. Other payments firms joining the list this year include Flywire Payments Corp. (founded in 2011) and HighRadius Corp. (2006), valued early this year at $1 billion each. The slowing momentum this year means the count of newly arrived fintech unicorns barely exceeds the roster of 13 that joined the club in 2018. After a mere five in 2015 and none in 2016, the pace began to pick up significantly in 2017, which saw some 10 fintechs join the list. . . .

A New Visa Credit Card Offers Bitcoin Rewards Instead of Miles or Cash
Bloomberg – December 1, 2020

Visa Inc. is partnering with cryptocurrency startup BlockFi to offer a credit card that rewards purchases with Bitcoin rather than airline miles or cash. Users of the Bitcoin Rewards Credit Card will receive 1.5% of their purchases back in the world’s most-valuable digital asset, and a lump sum $250 in the crypto-asset if they spend more than $3,000 in the first three months, BlockFi said in a statement. The card, which comes with a $200 annual fee, will be issued by Evolve Bank & Trust. Mainstream adoption of Bitcoin received a boost from Visa earlier this year, when the credit card giant joined startup Fold to offer a debit card that earns rewards denominated in the cryptocurrency. Visa’s approach to crypto has been evolving. Just two years ago it was in a public fight with the Coinbase Inc. exchange over issues related to purchases made using its cards.

Then, in February, Coinbase and Visa announced the Coinbase Card, which allows users to spend Bitcoin using the Visa debit card. “We’re excited to add credit cards to our suite of products and expand Bitcoin’s accessibility to a broader set of consumers,” Zac Prince, chief executive officer and founder at BlockFi, said in the statement. The company hopes to make the card available in early 2021. Bitcoin has rallied more than 160% this year, sparking debate over whether the run-up shows it’s becoming a store of value or is in a bubble. . . .

Crypto Payment Firms See Speed as Key to Merchant Support
PaymentsSource – November 30, 2020 (subscription required)

High profile companies like Facebook, Square and PayPal have brought attention to using cryptocurrency for payments — but speed is more important than buzz in getting stores to view crypto as tender, according to a group of developers who are building connections to merchants. “We may have a bitcoin worth $16,000, but that’s not the measure of its usefulness to the payment system,” said Angus Brown, co-founder of the Johannesburg, South Africa-based Centbee. “I look at it as a way to pay for something. It’s about moving money cheaply.”

CentBee’s digital wallet has about 30,000 registered users that store, buy and make payments; it recently added the ability to withdraw bitcoin directly to a user’s bank account and offers a Mint Money app to power remittances. Like most of the companies trying to support cryptocurrency for retail payments, CentBee needs to address issues such as volatility and latency. Writing for PaymentsSource, payments consultant Collin Canright said the market of people who want to spend bitcoin for payments is very small because there are many better options that don’t require using a deflationary store of value. . . .

HSBC Considers Exit From Us Retail Banking
Financial Times – November 28, 2020

HSBC is weighing up a complete exit from retail banking in the US after narrowing the options for how to improve performance at its struggling North America business, according to two people familiar with the situation. Senior management aim to present the plan to the bank’s board in the coming weeks, the people said, as HSBC seeks to allocate resources away from the US in favour of more profitable businesses in Asia. Closure of the US retail network would mark the end of the lender’s 40-year long attempt to run a full-service, universal bank in the country. The division made a pre-tax loss of $518m in the first three quarters of this year, following losses of $279m last year and $182m in 2018.

HSBC’s American division has been under intense scrutiny for several months as part of the UK lender’s efforts to make even deeper savings than it pledged in February, when it outlined $4.5bn in cost savings and 35,000 job cuts. Executives decided the impact of the coronavirus crisis and a prolonged period of ultra-low interest rates required more drastic measures, the Financial Times reported in May. A full exit from the US is no longer on the table, according to the two people. “The US is an important marketplace,” one said, particularly for HSBC’s investment bank. It is also seeking to grow its US wealth management division. . . .


– By Kristian Soltes. For questions about this newsletter or its content, contact