Payments News Update – July 16, 2020
Legal and Regulatory Developments
SPOTLIGHT: UK Tightens Rules on Payments Firms in Wake of Wirecard Debacle
PYMNTS – July 9, 2020
The United Kingdom’s financial regulator has toughened rules on payment companies less than two weeks after Wirecard AG’s collapse locked millions of customers out of their accounts, the Financial Times reported. The Financial Conduct Authority (FCA) said Thursday (July 9) it has introduced stronger measures to protect the users of payment cards and digital apps.
“Reducing the risk of harm to customers in the payments sector has been a priority area for the FCA for some time,” an FCA spokesperson said. “Today’s … final guidance concludes the consultation launched in May and makes very clear our expectations in light of coronavirus of what payments firms must do to protect customers’ money robustly.”
Late last month, the FCA froze the German payment company’s funds as regulators determined the next steps. As a result, Wirecard Card Solutions’ (WCS) customers did not have access to their accounts temporarily. WCS is located in Newcastle, England and is run and regulated separately from Wirecard AG. . . .
Government Entities Deepen Blockchain Payments Exploration
PYMNTS – July 15, 2020
Digital currencies continue to make their way into the mainstream, with government entities elevating their exploration of the technology. This week’s look at payment rails innovation finds the Monetary Authority of Singapore, the Bank of England, and others stepping further into the digital currency space to tackle payments friction in ways that legacy rails potentially cannot address. As they do so, their involvement with blockchain as payments infrastructure will deepen, too.
Banking-as-a-Service FinTech OpenPayd recently made a big show of support for cryptocurrency payments, announcing last week the launch of its banking and payments offering designed for businesses operating in the crypto space. The business finserv suite of services enables companies to access multi-currency payment accounts that support payments in fiat currencies, while also bridging these firms to digital currency purchasing via debit card, credit card or bank transfer. OpenPayd is also offering technology to support fiat-crypto currency exchange. . . .
Fifth Third Faces Another Suit Over Unauthorized Accounts
Law360 – July 14, 2020 (subscription required)
Fifth Third Bancorp’s officers and directors covered up “abusive” sales tactics at its subsidiary Fifth Third Bank that resulted in the opening of unauthorized accounts and exposed consumers to “unnecessary risks,” according to a shareholder derivative suit filed in Illinois federal court Monday. Investor Stephen Pemberton claims the holding company’s top brass was aware that Fifth Third Bank’s cross-sell strategy — in which employees were pressured to sell products to existing customers in order to meet “unrealistic” sales goals — encouraged a “toxic” sales culture that ultimately harmed consumers.
Bank employees conducted unauthorized transactions with consumers’ accounts in order to reach their aggressive targets, including opening new accounts or credit cards and enrolling consumers in online banking services without their permission, according to the complaint. . . .
Singapore Says Blockchain Payments Project Ready for Commercial Rollout
The Guardian – July 13, 2020
Singapore has developed a blockchain-based payments network that could enable faster and cheaper international settlements, authorities said on Monday, adding that the next step was a commercial rollout. The final phase of the years-long ‘Project Ubin’ saw the Monetary Authority of Singapore team up with state investor Temasek and J.P. Morgan to develop the prototype multi-currency payments network.
“An international settlement network, modelled after this payments network prototype, could enable faster and cheaper transactions than conventional cross-border payments channels,” MAS and Temasek said in a joint statement. They said that commercial applications of the prototype include cross-border payments in multiple currencies, foreign currency exchange, and settlement of foreign currency denominated securities as well as other use cases. . . .
Lawsuit Against Plaid Heightens Focus on Data Privacy Issues
PaymentsSource – July 13, 2020 (subscription required)
Two California men have sued the data aggregator Plaid over alleged data privacy violations in a case that could have implications for firms that gather consumers’ bank account data and feed it to fintechs. According to the complaint, the two plaintiffs — James Cottle in 2019 and Frederick Schoeneman in 2016 — separately signed up for Venmo to send and receive payments. In three of their accusations, they assert that Plaid obtained their banking credentials in a misleading way, accesses more bank account information than it needs for its current business model, and may ultimately look to sell their data to others.
Plaid denies the allegations, but the case comes at an awkward time for the company, which is being sold to Visa. If U.S. and U.K. regulators approve the acquisition, Plaid’s legal woes could become Visa’s. The lawsuit was filed in May, but it has not been widely reported and has not yet been brought to court. . . .
Refusal to Embrace Open Banking Puts Canada Behind Yet Another Curve
Financial Post – July 10, 2020
Adam Felesky, chief executive of Portag3 Ventures LP, the venture-capital arm of Power Corp. of Canada, was primed to put his home country on the leading edge of finance at the end of last year. “We’re on a mission to build global champions from a Canadian base,” Felesky told the TechCrunch website in early December when Portag3 announced it had raised $427 million for a new fund aimed at digital finance startups.
The “majority” of that money remains unallocated, Felesky told me this week, but that could soon change. The social distancing demanded by COVID-19 has sped up the shift to a digital economy, a boon for outfits such as Toronto-based Portag3, which specializes in identifying startups that have plans to disrupt finance. The pandemic caused a terrible recession, but anyone focused on digital technology barely noticed. “We’ve been playing offence,” Felesky said during a Zoom interview organized by the National Crowdfunding & Fintech Association. “We’re excited about the environment right now. There are lots of opportunities.” . . .
Chile to Submit Card Interchange Fee Regulation Bill
BNamericas – July 10, 2020 (subscription required)
Chile’s finance ministry said it plans to regulate card interchange fees. An associated bill will be submitted to congress, a statement said. The move – designed to spur digital payments, competition, innovation and financial inclusion – comes as the country’s payment acquisition market opens up.
Local fintech chamber FinteChile has previously called for regulation of interchange fees, charged by card networks such as Visa and Mastercard. Interchange fee ceilings would be set by the central bank, by card type: debit, credit and prepaid. An independent technical body would conduct research as part of the process of establishing the fee ceilings. . . .
Industry Developments
SPOTLIGHT: PayPal Confirms Development of Crypto Capabilities
Finance Magnates – July 14, 2020
PayPal, one of the major online payments giant, has confirmed that it is working to bring crypto capabilities on its platform. As reported by The Block, the revelations were made in a letter to the European Commission in March, responding to the body’s public consultation on its proposed framework of crypto-assets.
“As an innovative FinTech company and by virtue of its mission, PayPal is monitoring the evolution of the crypto-asset space,” the payments company noted. The letter detailed that PayPal initiated its development in the crypto area since last year when it joined the Libra Association as a member. Notably, Paypal became the first company to quit the consortium followed by Mastercard, Visa, and others. . . .
EBay’s Deal With Paypal Expires Soon. What Does That Mean for Managed Payments—and eBay Sellers?
Digital Transactions News – July 15, 2020
With the expiration of a major agreement with PayPal Holdings Inc. just a few days away, eBay Inc. is charting a new course in payments. But at least some merchants are hoping the e-commerce giant will address outstanding questions about how payments will be handled in the new era.
According to the latest numbers, eBay has converted some 32,000 merchants to its managed-payments platform, which relies on a gateway from Adyen NV that funnels transactions to a variety of processors, of which PayPal is one. The platform, which is moving into Canada and Australia after launches in the United States, Germany, and the United Kingdom, has processed a total of $3 billion in volume so far. . . .
Commentary: How 3-D Secure 2.0 Will Change the Payments Industry
Digital Transactions News – July 14, 2020
With the massive increase in e-commerce this year, and new merchants moving to an online model out of necessity, combating card-not-present fraud is incredibly important. EMV 3-D Secure 1.0 (or 3DS1) has been continually upgraded as technology and consumer habits changed; however, from its first iteration it has always had issues.
It was created well before we all had smartphones, and consumer habits were strikingly different when it was conceived. Basically, it wasn’t a great user experience, and created friction at checkout. This led to shopping cart abandonment, directly impacting sales revenue. At the heart of these issues was a basic problem of performing user authentication, where more data is needed to ensure a purchase is safe, without disturbing the consumer. . . .
Big Banks See Credit Card Purchases Plunge by More Than 20% in the Second Quarter
Digital Transactions News – July 14, 2020
Three of the nation’s largest banks reported Tuesday that their credit card purchase volumes fell by more than 20% in the second quarter as the Covid-19 pandemic slammed the brakes on the economy, though things were better on the debit card side. New York City-based JPMorgan Chase & Co., the biggest U.S. credit card issuer, posted credit card sales volume of $148.5 billion, down 23% from $192.5 billion in 2019’s second quarter.
Including debit cards, JPMorgan Chase recorded card-based purchase volume of $237.6 billion, off 16% from $281.5 billion a year earlier.
Confirming what merchants have reported consistently over the past several months, JPMorgan Chase’s card-present retail spending volumes on credit and debit cards plunged beginning in March, ultimately falling by more than 70% year-over-year and recovering to a 50% fall-off in June. But card-not-present credit/debit volumes jumped by more than 50% by April and have remained in that range since then. . . .
Amazon Launching Smart Shopping Carts That Eliminate Checkout Line
Mobile Payments Today – July 14, 2020
Amazon is advancing its contactless and cashierless shopping experience with a smart shopping cart, called a Dash Cart, that lets shoppers avoid the checkout line once done shopping. The carts will be deployed this year at a new Amazon grocery store in Los Angeles, California. The cart features embedded cameras, sensors and a smart display that tracks the consumer’s order, according to a CNBC report.
The innovation advances Amazon’s cashierless technology being used at its Amazon Go stores for the past two years. Shoppers must have an Amazon account and smartphone to use the carts. To begin shopping the shopper scans a QR code in the Amazon app and that signs them into the cart and then tracks items put into bags and completes checkout when shoppers remove bags and leave the store. . . .
Visa Launches Visa Installments Pilots in the US
PYMNTS – July 14, 2020
Point-of-sale (POS) installment plans have captured the attention of consumers and merchants, alike, as each explores new credit options to manage spend and boost sales, respectively. For a merchant, the addition POS installment options is often directly tied to an increase in customer frequency, basket size and conversion rates.
For consumers, POS installment plans provide a different way to access and use credit to make purchases. When using them, consumers can expand their purchasing power using repayment terms of equal, fixed amounts over a defined period of time that directly link payments to the payoff of the item purchased. Cetin Duransoy, Visa’s global head of installment solutions, told Karen Webster in a recent conversation, that it’s time to make installment plans ubiquitous options available at checkout to consumers everywhere — just like they use their traditional credit cards today. . . .
As Contactless Gains, Will QR Codes Win Over NFC Adherents?
Digital Transactions News – July 13, 2020
With consumer and merchant preferences shifting towards contactless payment methods in the wake of the Covid-19 pandemic, payments activated by Quick Response codes are gaining more attention. That’s because they are a low-cost way for merchants without NFC (near-field communication)-based applications, such as Apple Pay and Google Pay, to add contactless payment, experts say.
“QR codes are able to be used in scenarios where NFC is more difficult to implement, such as in restaurants or bars where the payment device isn’t typically brought to the customer,” says Nate Hirshberg, vice president, marketing for Allentown, Pa.-based Shift4 Payments Inc. “QR codes offer a unique solution that can be implemented with minimal cost while offering additional functionality, such as a built-in loyalty program or email capture for marketing purposes.” . . .
Payments With Face Biometrics for Vending Machines and Transit, Iris Recognition at Shops Unveiled
Biometric Update – July 9, 2020
NEC’s Bio-IDiom facial recognition technology has been integrated by Japanese vending machine operator DyDo, known for automated retail devices that thank customers, deliver motivational messages or offer free umbrellas for them to borrow, reports Sora News 24. Customers will have to register an account and enroll their facial biometrics, as well as chose a four-digit code which acts a second factor to prevent spoofing. Once registered, customers can perform facial authentication with a terminal mounted next to the product display area to pay without the use of a card or other device.
The vending machines are now operational at some DyDo and NEC offices and factories, under a three-month trial. Polish company PayEye meanwhile has developed a terminal for card-free payment with iris recognition biometrics, according to an ESKA.pl article translated by Google. Customers can register at the company’s website and enroll their irises at retail points-of-sale with PayEye’s terminals. . . .
‘Tens of Thousands of Dollars’ in Fraud for Operators That Don’t Upgrade Gas Pumps to EMV, a Report Estimates
Digital Transactions News – July 9, 2020
When the big card networks this spring postponed until April 2021 the fraud-liability deadline for EMV chip cards at gas pumps, the retail fuel industry heaved a huge sigh of relief. But now estimates are emerging that indicate even relatively small gas-station operators that don’t enable their pumps for EMV by that date could face tens of thousands of dollars in monthly fraud losses for each station.
American Express Co., Discover Financial Services, Mastercard Inc., and Visa Inc. have said they will shift liability for fraud on gas pumps to the stores if their pumps can’t accept EMV. The deadline for the shift had been originally set for this fall, but the networks postponed it in recognition of the struggles merchants were having with the effects of the Covid-19 pandemic. Most other U.S. retailers adopted EMV years ago in the face of similar liability deadlines from the networks, but gas-station operators won a delay based on the complexity and expense of converting their pumps. . . .
– By Kristian Soltes. For questions about this newsletter or its content, contact [email protected].