Payments News Update – July 23, 2021

Legal and Regulatory Developments

SPOTLIGHT: DOJ Official Cites Efforts to Fight Anti-Competitive Practices as NRF Holds First Retail Law Summit
NRF – July 21, 2021

A top Department of Justice official says the agency’s successful effort to keep credit card giant Visa from acquiring — and potentially shutting down — financial technology innovator Plaid shows how the nation’s antitrust laws can be used to encourage competition that benefits businesses and consumers alike. “Instead of competing against Plaid … Visa decided to buy it,” Associate Attorney General Vanita Gupta said. “That was one example of protecting competition to make sure that large, dominant incumbents can’t buy off or merge with innovative entrants to protect their market power.”

Gupta, who is in charge of a broad portfolio of issues including antitrust, civil rights and consumer protection among others, was a keynote speaker as more than 100 in-house lawyers from some of the nation’s most prominent retail brands gathered virtually last week for NRF’s inaugural Retail Law Summit. Gupta addressed top issues affecting retailers during a “fireside chat” with NRF Chief Administrative Officer and General Counsel Stephanie Martz. . . .

China’s Central Bank Requires Non-Bank Payment Firms to Report Overseas IPOs
Reuters – July 23, 2021

China’s central bank on Friday said that non-b ank payment firms must report plans for overseas initial public offerings and other major events, the latest move in a widespread regulatory squeeze on the country’s tech firms. The shifting regulations first scuttled a $37 billion listing planned by Alibaba fintech affiliate Ant Group late last year and extended to ride-hailing giant Didi Global earlier this month, just days after its New York Stock Exchange debut.

Non-bank payment firms should report both domestic and overseas listing plans, the People’s Bank of China (PBOC) said in a statement. The requirement applies to payment firms with a variable interest entity (VIE) structure, which has been widely adopted by internet companies and allows them to bypass the lengthy domestic listing process and raise funds overseas. . . .

Apple Under Fire From Banks and Regulators on Payment App Restrictions
Australian Financial Review – July 22, 2021

Major banks and regulators want a parliamentary committee to probe the restrictions Apple has placed on third-parties accessing the payment functions of its iPhone, to ensure the fast-growing market for digital wallets is competitive. Banks say smartphones have become “critical gateways” for making payments, but given Apple and Google have payment applications that compete with banks, “competition questions may arise because of their ability to self-preference” Apple Pay and Google Pay over banks’ own apps.

The parliamentary joint committee on corporations and financial services will conduct hearings on Monday and Tuesday next week to examine the surging use of mobile phones to make payments. Behind the seamless process of waving a phone at a payments terminal instead of a physical card, banks and tech giants are locked in a fight over control of digital wallets. . . .

Canada CBDC ‘Probably Necessary’ for Competition, Central Bank Says in Paper
Yahoo! Finance – July 21, 2021

A central bank digital currency is “probably necessary” for a competitive digital economy, the Bank of Canada said in a staff paper published Tuesday. A CBDC would give consumers a non-bank option to store their money risk-free, increasing competition in the market for retail deposits, argue the authors of the paper, titled “The Positive Case for a CBDC.” A digital currency would also allow users to bypass payment services providers such as credit cards, which antitrust watchdogs globally have said exhibit anticompetitive practices, the central bank said.

The digital currency might be a “measured path” to combat big tech monopolies, the authors argue. Central banks around the world are studying the feasibility of a digital currency, with China having made the most progress. The total number of transactions using the digital yuan as of the end of June was about 71 million, spread among almost 21 million personal wallets and 3.5 million enterprise wallets, the People’s Bank of China said in a white paper last week, in which it confirmed smart contract programmability. . . .

Mastercard Banned From New Card Issuances in India
Westfair – July 19, 2021

India’s central bank has banned Mastercard from issuing new credit, debit and prepaid cards within its country, citing a failure by the Purchase-headquartered company to comply with a 2018 rule requiring foreign card issuers to store Indian payments locally. Mastercard accounts for 33% of all card payments in India, according to data from the London-based payments start-up PPRO that was cited by the AFP news agency. The ban, which goes into effect on July 22, will not impact Mastercard’s current card users within India.

However, Reuters reports that banks in India will need to sign new commercial deals with rival networks such as Visa, a process that could take up to five months to complete. Mastercard is the second U.S.-headquartered company banned by the Reserve Bank of India for alleged non-compliance of its 2018 rule – American Express was subject to a similar prohibition in April. . . .

Warren Calls for CFPB Scrutiny of Overdraft Fees, Crypto
Law360 – July 19, 2021 (subscription required)

Sen. Elizabeth Warren, D-Mass., said Monday that the Consumer Financial Protection Bureau should be part of the regulatory response to emerging cryptocurrency risks and cited “predatory” bank overdraft fee practices as an area where she hopes to see action from the agency as it marks its 10th anniversary. At an online event hosted by Americans for Financial Reform and other consumer advocacy groups, Warren lauded the CFPB for having “fought the right fights” on behalf of consumers since opening its doors a decade ago this month, but she said there are “so many areas still where the bureau can make a difference.”

Among them, according to Warren, are overdraft fees, which other Democrats and consumer advocates have also argued should be reined in with limits on when, where and how much banks can charge. “This is an area where there’s a lot of predatory behavior by giant banks that make billions of dollars in profits and squeeze every last penny out of customers who are struggling,” Warren said of the fees. . . .

New EU Tax Rules Stand to Stimulate Cross-Border Payments for U.S. Merchants
American Banker – July 19, 2021 (subscription required)

Online cross-border payment technology is opening new markets for e-commerce firms and new shopping options for consumers — but the European Union’s tax system hasn’t kept pace, creating compliance headaches for U.S. digital merchants and confusing bills for customers on the Continent.

In an attempt to fix that problem, the European Commission has simplified its value-added-tax (VAT) regulations governing online sellers and cross-border payments. VAT, which is assessed in Europe and other countries, is the equivalent of a sales tax but is structured differently. U.S. sales taxes are levied at the point of sale as a percentage of the overall purchase, while VAT is based on calculations that determine the increase in value of a good or service at different stages of production or distribution. . . .

China to Explore Cross-Border Payments in Digital Yuan
Reuters – July 16, 2021

China’s central bank said on Friday it will explore cross-border payments in digital yuan, and is willing to discuss setting global standards for digital fiat currency to jointly develop the international monetary system. The People’s Bank of China (PBOC) will strengthen data security and personal information protection as it forges ahead with domestic testing of the digital yuan, it said in a white paper that is the first comprehensive disclosure of its plans.

China is a front-runner in the global race to launch central bank digital currencies (CBDC) and is testing a digital yuan, or e-CNY, in major cities including Shenzhen, Beijing and Shanghai but has not set a timetable for its official rollout. Many analysts believe the e-CNY will bolster the currency’s global status as China seeks ultimately to break the dominance of the dollar settlement system. . . .

It’s CardX Versus AmEx at State Capitols Nationwide
Payments Dive – July 15, 2021

The startup CardX is fighting American Express from coast to coast as states reassess whether merchants should be able to slap surcharges on credit card purchases. Chicago startup CardX is on a crusade to overturn state bans that prohibit merchants from imposing surcharges on customers who want to pay with credit cards, but it faces a major industry foe: American Express. While rivals Visa, Mastercard and Discover Financial have been mainly mum on the CardX campaign to repeal the bans, American Express has refused to stand quietly by as CardX benefits from new laws at card companies’ expense.

New York-based American Express battled in vain this summer to stop Colorado’s legislature and governor from overturning that state’s ban on credit card surcharges. Last week, the state enacted a law scrapping its credit surcharge ban and installing restrictions that cap merchant surcharges at 2%, of the value of a transaction, or a merchant’s cost to process the transaction. . . .

Industry Developments

SPOTLIGHT: Apple Pay Later Could Pose Larger Threat to Card Issuers Than to BNPL Players
PYMNTS – July 19, 2021

The “Pay Later” pure-play stocks took a drubbing last week on the news that Apple Pay and Goldman, who partnered on the Apple Card, are doing it again to build a BNPL product. Details are sketchy at the moment, and rife with rumor and innuendo. But, as reported, it seems in line with the typical buy now, pay later playbook: Pay in four installments, every two weeks, without interest, for smaller-dollar purchases; pay in monthly installments over a longer period of time with interest for larger purchases.

Based on what’s been attributed to “unnamed sources,” however, the real target may not, in fact, be the pure-play BNPL competitors, but rather the card issuers whose relationship with Apple — and Apple Pay — have been a bit strained since the start. Many card issuers are also working on how they, too, can innovate using BNPL in-store and online at checkout with minimal friction — and with minimal risk of losing control of the customer relationship when they do. And, of course, they’re all over revolving credit, which is a big source of their profits and is threatened by the BNPL upstarts. . . .

Visa Makes Another Big Bet On Fintech, Buying UK Payments Start-up Currencycloud
CNBC – July 22, 2021

Visa said Thursday it has agreed to buy British payments start-up Currencycloud, in its second major fintech acquisition of 2021. The deal values Currencycloud at £700 million ($962 million), Visa said. The payments giant led an $80 million investment in Currencycloud at the beginning of 2020. As a result, Visa said the sum it’s paying for Currencycloud would be reduced by the outstanding equity it already owns.

Founded in 2007, London-headquartered Currencycloud sells software for banks and fintech firms to process cross-border payments. It’s one of many business-focused fintechs that operate behind the scenes powering popular banking and payment apps like Monzo, Starling and Revolut. “Consumers and businesses increasingly expect transparency, speed and simplicity when making or receiving international payments,” said Colleen Ostrowski, Visa’s global treasurer. . . .

Most Consumers Want to Decrease Credit Card Use As BNPL and Debit Gain Favor, A Survey Finds
Digital Transactions News – July 21, 2021