Payments News Update – July 2, 2020

Legal and Regulatory Developments

SPOTLIGHT: EU Says Credit-Card Fee Curbs Helped Reduce Prices for Consumers
Bloomberg – June 29, 2020

European Union curbs on credit and debit-card fees helped reduce prices for consumers and aided payments across the 27-nation bloc, regulators said in a report published Monday. “Interchange fees for consumer cards have decreased, leading to reduced merchants’ charges for card payments, and ultimately resulting in improved services to consumers and lower consumer prices,” the European Commission said in an emailed press release. Payment transactions are also increasing across national borders within the EU, it said.

Regulators aren’t proposing any legal changes to the cap on fees. European retailers including Tesco Plc, Ikea and Amazon.com Inc. called last month on the EU to crack down on credit and debit-card fees that they say have increased in other ways after laws capped so-called interchange fees five years ago. . . .

U.S. Moves Closer to Digital Dollar
Forbes – July 1, 2020

On June 30th, 2020, the Senate Banking Committee held a hearing on the future of the digital dollar. The pressures to create a digital USD are mounting as China recently began testing its own digital currency – the DCEP, which will be included in popular applications like WeChat and AliPay. Of particular concern is widespread adoption of a digital yuan in emerging markets and in international trade.

The idea of a dollar-backed digital currency gained mainstream media attention last year during the Libra congress hearings, where Facebook introduced a new type of digital unit backed by a basket of currencies and commodities. Although David Marcus insisted that Libra users will not have to put their trust in Facebook and that Libra was a decentralized currency, regulators weren’t buying it and expressed concern over the long-term threat to the traditional financial system. . . .

Fintech Startup Plaid, Inc. Hit With $5m+ Class Action Lawsuit
National Law Review – July 1, 2020

Imagine there is a company that knows every dollar you deposit or withdraw, every dollar you charge or pay to your credit card, and every dollar you put away for retirement, within hours after you make the transaction. Imagine this includes every book or movie ticket or meal you purchase, every bill you pay to a doctor or hospital, and every payment you make (or miss) on your mortgage, student loan or credit card bill. Imagine this company maintains a file on you containing all of this information going back five years. Imagine that this company uses your username and password to log into the online account you maintain with your bank and updates that file multiple times a day to stay up to date on every financial move you make.

Imagine this company is not your bank. Imagine that, as far as you know, you never provided your username and password to this company or otherwise authorized it to access your online accounts. Imagine you never heard of this company at all. Intrigued yet? This is just the start of the 59 page, 223 paragraph-long complaint recently filed against Plaid, Inc. in the Northern District of California.  . . .

Apple Not Dominant in Any Market, Plenty of Rivals, Senior Executive Says
New York Times – June 30, 2020 (subscription required)

IPhone maker Apple, the target of EU antitrust investigations into key segments of its business, on Tuesday rejected accusations of market dominance, saying it competes with Google, Samsung and other rivals. Earlier this month, the European Commission opened investigations into Apple’s App Store and mobile payment system Apple Pay, concerned about its role as a gatekeeper to its lucrative platform.

“We compete with a wide variety of companies, Google, Samsung, Huawei, Vivo, LG, Lenovo and many more,” Daniel Matray, head of Apple’s App Store and Apple Media Services, told a Forum Europe online event. “In fact, Apple does not have a dominant position in any market, and we face strong competition in every category, in tablets, wearables, desktop and notebook computers, maps, music, payments, messaging, and more,” he said. . . .

New Rules May Be Needed for Payments in Wake of Wirecard, BIS Boss Says
Reuters – June 30, 2020

More joined up rules may be needed across the payments sector after the collapse of Germany’s Wirecard AG, Bank for International Settlements president Augustin Carstens said. Wirecard’s demise has thrown a spotlight on payments, which is one of the fastest growing sectors in financial services and which central banks could enter themselves by developing digital forms of national currencies.

“One of the key aspects will be how different and non-bank participants and payment service providers can be incorporated into the whole scheme,” Carstens told reporters. Payments have broadened out beyond banks to include so-called fintech firms which offer smartphone apps for making and receiving payments. . . .

Brazil Antitrust Agency Revokes Decision Blocking WhatsApp, Cielo Venture
Reuters – June 30, 2020

Brazilian antitrust watchdog Cade on Tuesday said it was revoking its previous decision suspending Facebook Inc’s recently launched WhatsApp payments messaging service in partnership with card processor Cielo SA. Cade said preliminary information provided by both Cielo and Facebook indicated their agreement does not limit new deals with rivals and does not reduce consumers’ choice. Still, Cade said it would continue investigating the partnership.

“We are glad Cade acted quickly to lift its preventive restrictions on WhatsApp Payments,” a spokesperson for WhatsApp said in a statement. “We look forward to continuing to work with Brazilian authorities to restore the service soon and allow all WhatsApp users in Brazil to send money to friends and family or purchase a product right on WhatsApp,” the spokesperson added. . . .

Visa, Mastercard Attack Cert. Bid in ATM Fee Antitrust Suit
Law 360 – June 30, 2020 (subscription required)

Visa and Mastercard are coming out swinging against a bid to certify three different classes that all accuse the credit giants of running afoul of antitrust laws with ATM fee rules that hurt consumers and machine owners. The credit companies’ case against certification was revealed Monday in a heavily redacted D.C. federal court filing that defended the discrimination rules targeted by the lawsuits and attacked what they say is a lack of injury among the would-be class members.

“Far from being the cause of consumer injury, these rules actually prevent it,” the companies said. “[But] notwithstanding these clear benefits, three separate groups of plaintiffs — two sets of consumers and one set of independent ATM operators — claim to have been injured by Visa’s and Mastercard’s non-discrimination rules.” . . .

EU Watchdogs Urge Caution in Digital Finance Surge
Law360 – June 30, 2020 (subscription required)

European financial watchdogs have warned the European Commission to weigh the need to protect consumers against the benefits of “big data,” artificial intelligence and technological innovation as it moves toward a digitized financial future. The European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority ⁠— collectively the European Supervisory Authorities ⁠— responded on Monday to the commission’s consultation on how it should regulate growing pressure on financial sectors to move online.

The watchdogs emphasized the need to ensure that embracing big data and digitization in finance does not put consumers at risk and that online information is used fairly and transparently. “A level playing field and technological neutrality are crucial,” the insurance and pensions regulator said. “It is crucial to understand how new technologies and business models drive new risks and opportunities.” . . .

Industry Developments

SPOTLIGHT: Venmo Pilots Business Payments for Micro SMBs
PYMNTS – July 1, 2020

Venmo will introduce a new feature for businesses to accept payments separate from the individual owner’s account, a press release says. The payments company said the idea was to add features for those like “sole proprietors, casual sellers, and users with a side hustle” to have an additional boost to their businesses during the pandemic economy.

“Whether you’re an artist, selling homemade planters at a craft fair, serving up one-of-a-kind haircuts, selling floral arrangements or mowing lawns, you can now leverage the power of Venmo’s community of more than 52 million users to generate interest, referrals and awareness for your business,” the press release says. More than 75 percent of the small businesses in the U.S. are sole proprietors, the release says, and Venmo wants to aid them in the times when the pandemic has shut down many businesses or rendered them inoperable due to the risk of transmitting the coronavirus. . . .

How IoT Is Digitally Transforming Payments
FinTech Magazine – July 1, 2020

The global financial services sector is undergoing a period of significant transformation. In particular, the digital payments space is in the midst of a rapid evolution, pulled by growing customer demand for easy, interconnected payment solutions, and pushed by a rising tide of powerful new technologies. Alongside increasingly advanced data analytics, artificial intelligence (AI) and cloud-based digital architectures, one of the areas of technology poised to have the biggest impact on this sector is the Internet of Things (IoT).

IoT is a term used to describe a wide variety of devices beyond those that we traditionally think of as being capable of connecting to the internet. From connected cars and Samsung’s smart fridge to powerful sensor relays inside active volcanoes, IoT devices are increasingly integrating an already connected world. The implications are astounding, and adoption is progressing at an incredible pace. . . .

The $43 Billion Payoff
Digital Transactions – July 1, 2020

The FIS-Worldpay merger not only created a processing behemoth, it set the stage for an operation with diverse revenue streams that can withstand shocks like Covid-19. A year later, the FIS/Worldpay merger—one of three giant processor combinations in 2019—appears to be reaping the promised benefits. If a company that created itself in a $43 billion merger and that processed a combined $1.34 trillion in volume in 2019 can be summed up in one word, “agile” may not come to mind straight away. But, that is the word most apt for FIS, which closed on its merger with Worldpay Inc. last summer.

It was the largest of the three giant 2019 deals. Fiserv Inc. and First Data Corp. was valued at $22 billion and the Global Payments Inc./Total System Services Inc. (TSYS) combination was a $21.5 billion transaction. While every payments company can pride itself on being attuned to change and having the flexibility to adapt, FIS—legally Fidelity National Information Services Inc.—has been rash enough to make these characteristics part of its overall strategy. . . .

EU Awaits Launch of Payments Network Challenger This Week
PYMNTS – July 1, 2020

The global financial services sector is undergoing a period of significant transformation. In particular, the digital payments space is in the midst of a rapid evolution, pulled by growing customer demand for easy, interconnected payment solutions, and pushed by a rising tide of powerful new technologies. Alongside increasingly advanced data analytics, artificial intelligence (AI) and cloud-based digital architectures, one of the areas of technology poised to have the biggest impact on this sector is the Internet of Things (IoT).

IoT is a term used to describe a wide variety of devices beyond those that we traditionally think of as being capable of connecting to the internet. From connected cars and Samsung’s smart fridge to powerful sensor relays inside active volcanoes, IoT devices are increasingly integrating an already connected world. The implications are astounding, and adoption is progressing at an incredible pace. . . .

A Merchant’s How-To for Managing the Contactless Payments Surge and SCA Requirements
PYMNTS – June 29, 2020

The pandemic has drastically affected how consumers are shopping and paying for even routine purchases, and this in turn has altered how businesses are accepting their payments. The rise of online and contactless transactions in the European Union, for example, has meant that many merchants are making the bulk of their sales away from brick-and-mortar stores.

Small- to medium-sized businesses (SMBs) have been especially hard hit, as many have pivoted quickly to enable online transactions and adhere to the regulations that often accompany them. SMBs and merchants operating in the EU must comply with strong customer authentication (SCA), which mandates stricter authentication requirements for online and contactless purchases above a certain value. The health crisis has brought about changes to this rule, however, and these may have long-term implications for payment standards and regulations. . . .

Are QR Codes an Option for Contactless Payments?
Practical Ecommerce – June 29, 2020

Before the Covid-19 pandemic, many physical-store merchants considered contactless payments to be a fad. Most did not see a reason to implement contactless systems. They were, after all, expensive to install and difficult to operate with little apparent return on the investment. Then came the coronavirus. Everything changed for contactless payments. Now consumers are reluctant to touch PIN-pads, cash, pens, and receipts.

My previous article addressed near field communication, the technology that powers most contactless payment methods in North America. Apple Pay, Google Pay, and all plastic tap-to-pay credit cards use NFC to transmit payment credentials from the customer’s phone or contactless card to the point-of-sale card reader — without actually coming into contact with each other. . . .

What Happens If Mastercard and Visa Gobble up All the Data Aggregators?
PaymentsSource – June 29, 2020 (subscription required)

Mastercard’s announcement last week that it is buying the data aggregator Finicity for nearly $1 billion mirrored Visa’s news in January that it had agreed to acquire Plaid for $5.3 billion. If these deals are approved by regulators, the largest card networks will own two of the largest U.S. data aggregators, which are companies that collect and feed bank customer data into fintech apps like Venmo and Betterment. These deals would change the banking, payments and fintech landscape. What would the impact be on banks, fintechs and consumers?

The card networks say their motive is to advance open banking and to work with fintechs. “Open banking is a growing global trend and a strategically important space for us,” Michael Miebach, president of Mastercard, said in a press release. “With the addition of Finicity, we expect to not only advance our open-banking strategy, but enhance how we support and accelerate today’s digital economy across several markets.” . . .

Travel Bans Take Shine off Banks’ Premium Rewards Cards
Wall Street Journal – June 28, 2020 (subscription required)

For more than 20 years, Laura Chapman routinely charged thousands of dollars a month on her American Express Co. Platinum card. The 57-year-old travel agent’s income and spending took a dive after coronavirus made the kind of business trips and vacations she booked all but impossible. She canceled the card when AmEx charged her the $550 annual fee. “I thought ‘that’s it I’m done,’” said Ms. Chapman, who is still paying off her balance on the card. “The card won’t be worth it.”

Ultra-premium rewards credit cards aren’t as rewarding these days. Banks have spent years fine-tuning the cards to appeal to big-spending jet-setters, offering generous sign-up bonuses and extra points on airfare, hotel stays and restaurant meals. Travel bans and social distancing have made those perks less appealing, leading some customers to question if the cards are worth their hefty annual fees. . . .

Commentary: Nine Ways Gas and Convenience Retailers Can Cut Their Fraud Risk
Digital Transactions News – June 26, 2020

All card schemes are now on board with the new deadline for the U.S. EMV liability shift in April 2021. So, the time to upgrade—if you haven’t—is now. Adding EMV chip readers both inside a store and at automated fuel dispensers (AFDs) isn’t intended to be a hardship for gas and convenience retailers. Rather, because EMV is inherently more secure, it will actually help retailers by protecting them from fraudulent transactions.

But upgrading a retail environment to EMV isn’t the only way to protect a gas and convenience business—and customers’ payment cards and data—from falling victim to fraud. Here are nine other tactics and tools: . . .

Payment Facilitators Struggle With Risk of Pandemic Payments — Would Banks Do Better?
PaymentsSource – June 25, 2020 (subscription required)

Brick-and-mortar merchants that have shifted to online have changed their risk profile, causing conflicts with the fintechs like Square that handle their payments. And that could be an opportunity for banks.

Square has begun withholding portions of its merchants’ payments as a temporary measure designed to mitigate chargebacks, and says this doesn’t apply to the vast majority of its sellers. Under normal circumstances, this practice is limited to merchants with a thin track record, such as a new onboarding merchant or a merchant in a business deemed risky. The coronavirus has upended business models in a way that throws more merchants into the higher-risk zone. . . .

– By Kristian Soltes. For questions about this newsletter or its content, contact ksoltes@constantinecannon.com.