Payments News Update – February 18, 2021
Posted February 18, 2021
Legal and Regulatory Developments
SPOTLIGHT: Feds Probing American Express’ Business, Consumer Card Sales Practices
The Hill – February 12, 2021
American Express disclosed on Friday that several federal agencies are probing its sales practices for its small business credit cards and consumer cards. The company said in a regulatory filing that it received a grand jury subpoena in January from the U.S. Attorney’s Office for the Eastern District of New York over its sales practices for its small business credit cards. It also received a Civil Investigative Demand from the Consumer Financial Protection Bureau (CFPB) seeking information on sales practices relating to consumers, according to the filing.
The company also said it began responding to a regulatory review led by the Office of the Comptroller of Currency (OCC) and Department of Justice (DOJ) in May over “historical sales practices relating to certain small business card sales.” The company said it is “cooperating with all of these inquiries and have continued to enhance our controls related to our sales practices.” “We do not believe this matter will have a material adverse impact on our business or results of operations,” it added. . . .
Retail Sales Surge on Stimulus
PYMNTS – February 17, 2021
Retail sales rose in January by 5.3 percent on the wings of long-delayed action on the part of Congress, which OK’d a $900 billion COVID-19 stimulus package. As part of that, COVID stimulus checks went out to millions of Americans. The increase in retail sales from December followed three consecutive months of declining sales during the 2020 holiday shopping season. For example, December’s drop in sales of 0.7 percent had been affected by a dramatic spike of COVID cases as well as protracted stimulus negotiations.
Month over month figures showed spending up in every major category. The comparison to one year earlier was more mixed, however. Sales in the furniture and home furnishings category rose 9.3 percent in January from a year ago, non-adjusted. Sales in the building materials and gardening equipment category rose 13.7 percent. Sales in the sporting goods, hobby, musical instruments and bookstores category rose a whopping 22 percent. The increase came as shoppers went for what they were allowed to do — use their new gear and go outside. . . .
Google Strikes Deal With News Corp Amid Pressure on Regulation
International Business Times – February 17, 2021
Google has agreed to make “significant payments” to Rupert Murdoch’s News Corp. for content, the companies said Wednesday as tech firms face growing pressure to pay for news from an Australian-led initiative. A joint statement called the deal a “historic multiyear partnership” that would see Google feature news from the media giant as part of the Google News Showcase. The three-year agreement also includes the development of a subscription platform, the sharing of ad revenue and “meaningful investments in innovative video journalism” by Google’s video-sharing site YouTube.
The move comes with Australia poised to adopt legislation that would force digital companies to pay for news content, something that would create a global precedent and, according to Facebook and Google, wreck the way the internet works. The outlets joining Google News Showcase will be News Corp-owned Wall Street Journal, Barron’s, MarketWatch and the New York Post in the United States; British-based The Times and The Sunday Times, and The Sun as well as a number of Australian media outlets including The Australian. News Corp. chief executive Robert Thomson said that the deal would have “a positive impact on journalism around the globe as we have firmly established that there should be a premium for premium journalism.” . . .
Citi Loses Bid to Recoup Massive Mistake in Surprise Ruling
Bloomberg Law – February 16, 2021
Citigroup Inc. unexpectedly lost a legal battle to recover half a billion dollars it sent Revlon Inc. lenders, after the embarrassing blunder forced it to answer to regulators and tighten its internal controls. U.S. District Judge Jesse Furman on Tuesday ruled that 10 asset managers for the lenders — which include Brigade Capital Management, HPS Investment Partners and Symphony Asset Management — don’t have to return $504 million that Citibank said it mistakenly transferred in August while trying to make an interest payment. He said they shouldn’t have been expected to know that the transfer, which totaled more than $900 million before some lenders returned their share, was an error.
“To believe that Citibank, one of the most sophisticated financial institutions in the world, had made a mistake that had never happened before, to the tune of nearly $1 billion would have been borderline irrational,” wrote Furman, who presides in Manhattan. The decision is the latest blow to Citigroup, which is in the midst of a yearslong effort to update its underlying controls and technology after regulators slapped it with a $400 million fine for deficiencies in both areas last year. The New York-based company is also undergoing a leadership change, with incoming Chief Executive Officer Jane Fraser set to take the reins on March 1. . . .
Mastercard Faces Swiss Probe Linked to ATM Scheme
Yahoo! News – February 16, 2021
Mastercard (MA) is being investigated by Swiss authorities for the possible obstruction of Switzerland’s National Cash Scheme. COMCO, Switzerland’s competition watchdog, said in a statement on Tuesday it had opened an investigation into Mastercard. The probe is linked to Switzerland’s National Cash Scheme, which allows people to use their bank cards at any ATM operated by Swiss banks rather than being limited to those run by their issuing bank. The National Cash Scheme is a new initiative from SIX, the company that operates Switzerland’s national stock exchange and other financial infrastructure in the country. SIX complained last year that Mastercard was potentially obstructing the rollout of the National Cash Scheme by refusing to link its cards to the new system.
COMCO is investigating whether Mastercard is abusing its dominant position in the market. As a precautionary measure, it has ordered banks that work with Mastercard to prepare for the possibility of bringing Mastercard cards onto the National Cash Scheme. A COMCO spokesperson declined to comment beyond Tuesday’s press release. No guidance was given on the timing of the Investigation. Investigations of this nature can take years. . . .
Industry Developments
SPOTLIGHT: Google’s Link to Passport Is Part of a Broader Plan to Extend Google Pay to Parking and Transit
Digital Transactions News – February 17, 2021
Passport Labs Inc., a provider of transportation software, announced Wednesday it is expanding its integration with Alphabet Inc.’s Google to enable payment for parking within Google Maps in more than 400 cities, including Boston, Cincinnati, Portland, Me., Norfolk, Va., Cheyenne, Wy., Westminster, Colo., and Green Bay, Wis. The integration of Google Maps and Google Pay into Passport’s operating system enables consumers using Google Maps on their smart phones to navigate to a destination and call up Google Pay through Google Maps to pay as they approach a parking lot. Consumers do not need to download an additional app to make use of the service.
Passport began piloting its integration with Google Maps and last fall in Austin, Texas. Since launching the Passport program, Austin officials say the city has seen several improvements in parking, including increased consumer convenience, compliance with paying for parking, and recovered revenues. Overall, Passport has more than 1,000 client cities, including Chicago, Toronto, Los Angeles, and Miami, as well as universities and agencies. Charlotte, N.C.-based Passport’s expansion of its integration with Google Maps is part of a broader strategy by Google to expand the ability to pay for parking and transit fares from Google Maps using Google Pay. Google is also teaming with ParkMobile LLC to enable payment for parking via Google Maps, according to a Google blog post on Wednesday. . . .
Mastercard and Island Pay Launch First Digital Currency Card
FinTech Magazine – February 18, 2021
Finance giant Mastercard has teamed up with Island Pay to deliver a world first: a digital currency-linked payment card backed by a central bank. Held together by Central Bank of The Bahamas, the collaboration will enable people to use an official digital currency called ‘The Bahamas Sand Dollar’ for purchases via a prepaid card. Transactions carried out with the card are automatically converted from digital to fiat currency and will be legal tender for goods and services on the islands (of which there are 700), as well as around the world.
It is hoped that the Sand Dollar will create a more financially inclusive economy, promote more diverse purchasing methods, and facilitate government disbursements. The same value and protections will apply as the Bahamas’ traditional currency. The Sand Dollar was originally trialled in 2019 and went on to become the first digital incarnation of a national currency in circulation late last year. Mastercard’s virtual testing environment allowed developers to chart the issuance, distribution and exchange of the Sand Dollar in a simulated environment prior to its real rollout. . . .
Merchants Want More Say as Faster Payments Develop
PaymentsSource – February 16, 2021 (subscription required)
Retailers are often considered to be key beneficiaries of faster payments, but they may be among the last to reap its benefits in the U.S. The latest advancements in real-time payments are focused on banks’ use cases. The Federal Reserve is advancing its real-time settlement service through testing with banks, and Visa is piloting two artificial intelligence-powered services that mimic the benefits of real-time payments. These tests emphasize a focus on P2P or B2B payments, which are essentially interactions between a customer and a bank.
Countries such as India have established faster payments to merchants, motivated in part by a desire to diminish cash use. The financial institutions in India accept and clear transactions in real time under that setup — and there is demand for that model to be replicated in some form in the U.S., said John Drechny, CEO of the Merchant Advisory Group, which acts on its mission to educate merchants about the latest technology and regulatory developments. “Real-time payments are not here yet for merchants, but that focus is changing,” Drechny said. “Merchants have always envisioned faster payments as a more direct access (to funds) that could be more secure and efficient for them with a push-payment aspect.” . . .
How Apple Pay Helps ‘Cheat’ Banks Out of $250 Billion in Payments
Forbes – February 16, 2021
A new study from Cornerstone Advisors found that 75% of Americans are turning to Big Tech companies like Apple, Google, and Amazon and fintechs like PayPal and Credit Karma to do their banking, make payments, and manage their finances. That’s not new news. But few people know the extent to which consumers’ new payments behaviors are impacting the banks they do business with. Big Tech and fintech companies have impacted the payments landscape in a number of ways: mobile payments, merchant mobile apps (or merchant wallets), buy now pay later, and even cryptocurrencies.
The result is a huge loss in payments volume—and interchange revenue—for many banks and credit card providers. The pandemic increased consumers’ use of mobile payment apps like Apple Pay and Google Pay. That, in and of itself, doesn’t necessarily displace payments. But many consumers don’t link their primary debit and credit cards to their mobile payment apps. Nearly 30% of Apple Pay users and 40% of Google Pay users link a debit or credit card from a provider other than their primary bank or credit card issuer to their Apple and Google mobile payment apps. . . .
PayPal Opens Its New Venmo Credit Card to Users Generally
Digital Transactions News – February 16, 2021
PayPal Holdings Inc. on Tuesday threw the door wide open for applications for its new Venmo credit card. The Visa-branded card, which the company has had in the works since 2019 and began issuing to select users in October, includes a Quick Response code, a rewards structure, and, through the Venmo app, the ability to track and schedule purchases and cash back, view spending trends, and share and schedule payments. PayPal is counting on the card, which is issued by long-time PayPal partner Synchrony, to help bolster revenue for the highly popular Venmo peer-to-peer payment service. The app claims an estimated 50-million-plus users and racked up approximately $47 billion in volume in the fourth quarter, up 60% from the same period in 2019.
But while P2P volume earns slim margins, the new card, with its widespread Visa acceptance, will pull in interchange revenue for PayPal and Synchrony that will allow the partners to tap into Venmo’s rapid growth. The new card offers features designed to promote wide and immediate usage. Its QR code feature allows users to activate the card immediately by scanning the code. Later, a purchase can be split with others by letting them scan the code. Usage also invokes rewards, with 3% cash back on the top spend category, 2% on the next-biggest category, and 1% on everything else, according to PayPal. The cash is added to the users’ Venmo balance. . . .
Apple Pay Users Can Now Spend in Bitcoin, Other Cryptocurrencies
Mint – February 15, 2021
Bitcoin is one of the hottest currencies in the world. The cryptocurrency almost managed to breach the $50,000 mark on Sunday. Mainstream companies are also jumping on the crypto bandwagon. Reportedly, Apple Pay users can also spend their bitcoin through the native app. A report by PhoneArena claims that Bitcoins and few other popular crypto-currencies can be used for payment using the Apple Pay app. An app called BitPay allows users to buy Bitcoins as well as use the app’s prepaid Mastercard in the Apple Pay. The BitPay wallet can be added to both Apple Wallet and Apple Pay. The BitPay wallet app also works with other cryptocurrencies such as Ether, Bitcoin Cash as well as USD Coin, Gemini Dollar, Paxos Standard and Binance USD which are dollar-pegged stable coins.
According to the application’s description on Google Play Store, any user can apply for a BitPay Card to start spending crypto instantly. It claims that approval only takes seconds and the virtual card will be available for immediate use online. The user will also get a physical card will after a couple weeks through which the user will be able to convert their crypto into cash at the ATM or spend it in any retail store. However, this will only be available to users in the United States. . . .
Cryptocurrency Begins Its Move up From the Minor Leagues for Mastercard and Visa
Digital Transactions News – February 12, 2021
The two big card networks have made no bones about their interest in supporting cryptocurrency transactions, and this week both made moves that point to how they are prepared to leverage their global systems to support digital-currency transactions. The bigger move came from Mastercard Inc., which on Wednesday announced its intention to launch later this year the ability to send and receive crypto transactions natively on the company’s network. Then, on Friday, Visa Inc. made a more modest announcement welcoming a blockchain startup called GreenBox POS into its Fintech Fast Track program. The move gives San Diego-based GreenBox access to the massive VisaNet backbone network for a cobranded Visa card for push-to-card payments.
Mastercard’s decision means it will process digital-currency transactions directly on its network, a major departure from current practice where it has processed fiat transactions for operators that have already converted their crypto assets. The new system will require “a lot of work” to build, says Raj Dhamodharan, executive vice president for digital asset and blockchain products and partnerships, in a blog post. “Our change to supporting digital assets directly will allow many more merchants to accept crypto—an ability that’s currently limited by proprietary methods unique to each digital asset,” Dhamodharan says in the post. “This change will also cut out inefficiencies, letting both consumers and merchants avoid having to convert back and forth between crypto and traditional to make purchases.” . . . .
PayPal Wants to Be a CBDC Distributor
Coindesk – February 11, 2021
PayPal could be to central bank digital currencies (CBDCs) what private banks are to physical dollars. The company’s CEO, Dan Schulman, laid out a vision during its investor day on Thursday for PayPal’s digital wallets being the means by which central banks distributed CBDCs to consumers across income levels. “You think about how many [digital wallets] we’re going to have in the next two, three or five years, and we’re a perfect complement to central banks and governments to distribute those digitized forms of currency,” Schulman said. Schulman also revealed that PayPal is looking into smart contracts and tokenizations of other non-crypto assets.
“This is a once in a multi-decade opportunity where the fundamental rails of the system are going to be redefined and we have a chance to help shape that,” Schulman said. The company also released new numbers around the transaction activity of its customers who use its crypto products. PayPal customers that use its crypto services have a 12% increase in weekly transactions on the platform. This is in part because more than 40% of the U.S. PayPal customers who use crypto return to complete more than two additional transactions, the company said. . . .