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Payments News Update -- July 3, 2019

Posted  July 3, 2019

Legal and Regulatory Developments

SPOTLIGHT: Antitrust Chronicle – Ohio v. American Express: A Year Later…
Competition Policy International – June 25, 2019 (click here for the full report)

On June 25, 2018, the Supreme Court sided in a 5-4 decision with American Express in a lawsuit over rules it imposes on merchants who accept its cards. The Supreme Court’s decision in Ohio v. American Express addressed a number of important issues concerning multisided platforms: for instance, whether each side of a platform is a separate relevant product market and whether a prima facie assessment of competitive harm must incorporate the impact to consumers on all sides of a platform. . . .

Mastercard, Visa Face Tough Regulations but a Big Market in India
PaymentsSource – July 2, 2019 (subscription required)

India’s soaring digital payments market has prompted Mastercard and Visa to increase their investments in India, targeting one of the world’s largest cash displacement opportunities while complying with local regulations such as expensive data store requirements.

The network operators are investing in technologies and partnerships that will enable them to compete with domestic Indian payment schemes, while complying with local regulations such as local data storage. . . .

Big Tech Cryptos Set For Antitrust Scrutiny
PYMNTS – July 1, 2019

Facebook’s announcement of Libra late last month has spurred greater regulatory oversight of cryptocurrencies, with a particular eye on who may be bringing those cryptos into the larger payments ecosystem.

As noted in this space last week, the regulator who helms Germany’s Federal Cartel Office said that cryptos – in particular, those brought by large technology firms – should be examined by regulators over antitrust concerns. As stated by Andreas Mundt, the president of the German regulatory watchdog, said that examination of cryptocurrencies “could become a topic for us.” . . .

Paypal, Card Networks May Bear a ‘Heavy Burden’ With Facebook Crypto Plan
American Banker – July 1, 2019

Visa, Mastercard and PayPal may have magnified the greatest risk they face — tougher regulation — by becoming early backers for Facebook’s new digital money, Libra.

That’s according to Morgan Stanley analyst James Faucette, who wrote that the three companies face a potentially “heavy burden” as already-fierce regulatory scrutiny is likely to keep growing. . . .

Central Banks Launch Initiative To Compete In Fintech
Law360 – July 1, 2019 (subscription required)

The Bank for International Settlements, a global coalition of central banks, has unveiled an initiative designed to increase collaboration on financial technology initiatives amid the growing interest in digital currencies and other technological advances around the world.

Approved by the BIS board at its annual general meeting, the organization said Sunday that the BIS Innovation Hub serves to bring central banks together on various fintech issues and build off of existing ties between the group’s 60 global members. The main goal of the innovation hub is to acknowledge and address trends in the fintech space by providing central banks with opportunities to implement new policies and solutions. . . .

Visa, Mastercard, Budapest Bank Challenge Hungarian Card-Fee Probe at EU’s Top Court
MLex – June 27, 2019 (subscription required)

Visa, Mastercard, Budapest Bank and a number of other Hungarian banks appeared at the EU’s top court today, to dispute a decision by the Hungarian Competition Authority which found that they violated competition law on principle when fixing card fees.

Lawyers for the companies argued that the authority should have looked more closely at the effects of the activity, pointing to the complex multi-sided nature of the payment-services market, while Visa and Mastercard also disputed the extent of their overall involvement in the cartel. . . .

Industry Developments

SPOTLIGHT: How Merchants Got Stuck With Card Fraud
Digital Transactions Magazine – July 1, 2019

It used to be when a merchant got an authorization—an approval from a card-issuing bank resulting from a request by the merchant—the merchant got paid. Not any more!

After squeezing as much money as possible out of merchants by charging them excessive, supra-competitive interchange fees and shifting most of the burden of network overhead from issuers to merchants, it evidently occurred to the networks (some of which are issuers themselves) that helping issuers get rid of one of their biggest costs, fraud losses, was virgin territory. . . .

PayPal Launches Instant Transfer in Canada Using Visa Direct
Digital Transactions News – July 2, 2019

PayPal Holdings Inc. added Instant Transfer capability for individuals and small businesses in Canada. The move relies on Visa Direct, a real-time push-payments service.

Announced Tuesday, the service can move money from a PayPal account to a bank account via a Visa debit card. All transfers are subject to a 1% fee, up to a maximum of $10, PayPal says. . . .

Open Banking Could Allow Banks to Get out of the Payments Business
PaymentsSource – July 1, 2019 (subscription required)

For many banks, especially midtier institutions, payments isn’t a core business — and their batch processing-based legacy systems weren’t designed to deliver real-time payments.

Banks have long provided business and consumer payments, often simply for regulatory reasons and because their customers expected them to do so. But, as more fintechs provide API-based services to help banks deliver on U.K. and European regulators’ vision for open banking, incumbent banks encumbered with legacy systems are looking to payments-as-a-service providers to replace manual processes and provide real-time payments execution and transaction reporting to clients. . . .

How the Global-TSYS Deal Is Different
Digital Transactions Magazine – July 1, 2019

Payments observers are tempted to think of the $21.5 billion proposed merger of Global Payments Inc. and Total System Services Inc. (TSYS), announced last month, as the latest megadeal in a series initiated in January when Fiserv Inc. said it would acquire First Data Corp. That announcement was followed by the news in March that Fidelity Information Services Inc. (FIS) had struck a $43-billion deal to acquire Worldpay Inc.

To be sure, processors are using acquisitions to achieve the scale they need to remain competitive in pricing and technology. But some experts reacting to the Global-TSYS deal, which results in a combined company that will use the Global Payments name and will take in a projected $8.6 billion in annual revenue, could herald a completely new trend in third-party transaction processing, and on a huge new scale. . . .

JPMorgan to Start Customer Trials of Its ‘JPM Coin’ Crypto
Coindesk – June 25, 2019

JPMorgan Chase is to start trials of its “JPM Coin” cryptocurrency in conjunction with corporate clients.

According to a report from Bloomberg Japan on Tuesday, Umar Farooq, the investment bank’s head of digital treasury services and blockchain, said that customers would trial the technology with the ultimate aim of speeding up transactions, such as payments between firms and bond transactions. . . .

Who’s Using Installment Loans at the Point of Sale?
PaymentsSource – June 28, 2019

Installment lending, whether it’s online or at the physical point of sale, is a market sector that has been experiencing a global boom in consumer demand for the last several years. Installment loans are different than credit cards since they are not open lines of credit and are typically used for a specific purchase. This can help consumers overcome the stigma of borrowing in certain markets such as Germany, where cash and bank transfers tend to dominate the payments landscape; or in the U.S., where millennials fear amassing unwanted debt.

Is this a short-term trend or are there potentially deeper-rooted factors that could make installment lending, especially online, a major source of future loans? Visa recently announced an installment lending API to allow its issuers to participate in this market. Affirm, which recently raised $300 million in capital for expansion, and announced a partnership with Walmart to fund POS loans at the retail giant are signals of a potential shift in habit. . . .

Why PayPal Agreed To Take A Seat At Libra’s Table
PYMNTS – June 28, 2019

In the aftermath of Facebook’s unveiling of Libra and its Calibra wallet, among the many questions raised was how it managed to get so many of the “who’s who” in payments at the table. That was the question Karen Webster had for PayPal Chief Operating Officer Bill Ready when she learned that PayPal was one of those players.

The vision, she agreed, is undeniably big, bold and targeted at a worthy goal: the inclusion of the 1.7 million people worldwide who are unbanked, and exist on the financial margins of society. . . .

With Its New Installment-Payment APIs, Visa Enters a Crowded But Enticing Market
Digital Transactions News – June 27, 2019

Visa Inc. said on Thursday it is getting into the point-of-sale installment-payment business weeks after rival Mastercard Inc. announced it bought Austin, Texas-based POS credit fintech Vyze Inc. The move also comes as volumes are growing for the product, driven in part by offerings from non-banks like Affirm Inc. and PayPal Holdings Inc.

The new offering from Visa will become available in January and includes application programming interfaces that will link to Visa issuers and let merchants offer consumers using Visa cards at checkout the option to pay for purchases in equal portions over a number of months. The service will be available in stores, online, and overseas, Visa said. “Consumers still want to finance major purchases, but they prefer to do so with the simplicity and discipline an installment loan provides,” says Leslie Parrish, a senior analyst at Aite Group, a Boston-based consultancy, in an email message. “They especially like the fact that there is a set end date at which they will have fully paid off the purchase.” . . .

Retailers Find More Uses for Blockchain — Including Payments
PaymentsSource – June 27, 2019 (subscription required)

As blockchain use cases grow, retailers are seeing more reasons to use the distributed ledger technology for payments.

In much the same manner banks are learning more about blockchain payments by using the distributed ledger technology for other services — and Facebook is jumping in with Libra, a cryptocurrency developed with the support of mainstream payment companies — retailers are finding use cases for blockchain including consumer payments or rewards redemption. . . .

Facebook Crypto Plans Turn up Heat on EU Banks Over Real-Time Payments
Reuters – June 26, 2019

The euro zone could have an instant payments system shared by all banks in the bloc by the end of 2020, finance industry officials said, as lenders face more competition from the likes of Facebook and other tech firms.

Real-time payments have been possible in the 19-country currency bloc since 2017, but only about half of the euro zone’s banks have joined the scheme that underpins these transactions and it is mostly used for domestic payments. . . .

TransferWise Launches U.S. Debit Card Customers Can Use Abroad
Forbes – June 26, 2019

TransferWise, the UK based money transfer service, launched a debit card in the U.S. Thursday that works in multiple currencies at once.

Claiming to be the first FinTech to offer customers multi-country banking, the TransferWise debit Mastercard enables U.S.-based customers to spend money overseas as if they were locals. . . .