Payments News Update – July 30, 2020
Legal and Regulatory Developments
SPOTLIGHT: Durbin Asks Fed Chairman for ‘Appropriate Enforcement Action’ Involving Debit Card Transaction Routing
Digital Transactions News – July 28, 2020 (click here for Sen. Durbin’s letter)
U.S. Sen. Richard Durbin and a Vermont Congressman want the Federal Reserve to look into what they say are efforts by debit card issuers “aided by the dominant card networks” to prevent PIN-debit networks from getting a bigger share of booming card-not-present payment volume. “The Federal Reserve should consider appropriate enforcement action and policy responses to correct any such anticompetitive incentives and regulatory violations,” says a July 24 letter to Federal Reserve Board Chairman Jerome Powell signed by Durbin, D-Ill., and U.S. Rep. Peter Welch, a Democrat who has monitored payment card acceptance issues for at least a dozen years.
Durbin sponsored the so-called Durbin Amendment to 2010’s sweeping Dodd-Frank Act, a measure that regulated the interchange big debit card issuers could receive. To preserve network competition in a market dominated by Visa Inc. and Mastercard Inc., the amendment also required issuers to make at least two unaffiliated debit networks available to merchants for transaction routing. The Fed’s Regulation II, which took effect in 2011, implements the amendment’s provisions. The letter says “intervention may become necessary again” because of “what appears to be the anticompetitive practice of major debit issuers refusing to enable PINless debit functionality on their cards.” . . .
Mastercard Offers Concessions in Bid to Gain EU Okay for Nets Deal
Reuters – July 28, 2020
Mastercard Inc (MA.N) has offered concessions in an attempt to address EU antitrust concerns about its planned purchase of part of Scandinavian payments group Nets, according to a European Commission filing on Tuesday. The U.S. payments group announced a deal last August to acquire three divisions of European rival Nets, covering corporate clearing, instant payments and e-billing.
The EU’s competition enforcer has said that the acquisition threatens to significantly affect competition in the Nordic area, the European Economic Area and Britain. It extended its scrutiny of the deal to Aug. 17 to allow for feedback from rivals and customers regarding Mastercard’s concessions but did not provide details of the offer. The Commission can either clear the deal based on the concessions, demand more or open a four-month long investigation if it has serious doubts. . . .
Facebook Wins Temporary Reprieve From EU Competition Probe
PYMNTS – July 28, 2020
Potential overreach by European Commission investigators has won Facebook a breather from an intensifying probe by the powerful regulator into alleged unfair competitive practices by Big Tech. The EU General Court has put the kibosh on attempts by EU Commission regulators to force Facebook to turn over massive amounts of data, a trove the social media giant contends includes “highly sensitive” information about employee medical records and the personal finances of family members,” Bloomberg reported Tuesday (July 28).
Irked by the commission’s data demands, Facebook had filed suit against the European Commission on July 15. “We think such requests should be reviewed by the EU courts,” Tim Lamb, a Facebook lawyer, told Bloomberg. In its July 24 ruling, the EU General Court fell short of placing such personal medical and financial information off limits to investigators. . . .
Brazil Antitrust Watchdog Questions Facebook’s WhatsApp Payment Fees
Reuters – July 27, 2020
Brazil’s antitrust watchdog is asking Facebook Inc (FB.O) to explain the fee structure for its short-lived payments service launched in June in partnership with card processor Cielo SA (CIEL3.SA), according to a document seen by Reuters. The service on Facebook’s WhatsApp messaging platform was blocked by Brazil’s central bank eight days after the launch. Facebook charged merchants a 4% fee per transaction, above market prices, but transfers among individuals were free.
Cade, as the watchdog is known, said it wanted to understand the rationale for the fee and see if the deal prevented other card processors from joining the payment platform as Cielo dominates Brazil’s market with a 40% share. Facebook and Cielo have said the deal did not exclude others from joining. The antitrust watchdog also asked Facebook to explain how it reached agreements with Cielo and card issuers Nubank, Banco do Brasil SA (BBAS3.SA) and Sicredi. . . .
Germany to Reform Regulation of Insurers, Banks, Payment Firms on Wirecard Scandal
Insurance Journal – July 27, 2020
German Finance Minister Olaf Scholz intends to unveil a reform of the government’s financial oversight, as the widening scandal over the collapse of Wirecard AG reaches the highest levels of Chancellor Angela Merkel’s government. Scholz’s 16-point “action plan” would install a streamlined system to pursue irregularities among banks, insurers and payment companies, according to draft reported by Sueddeutsche Zeitung newspaper. The new rules would be put in place by spring of next year, the newspaper said.
The plan by Merkel’s finance minister is an attempt to assuage heavy criticism about why his ministry as well as the chancellery didn’t take action when they learned of possible malfeasance. The latest fallout includes an investor lawsuit against Germany’s financial regulator. Merkel’s office confirmed that the chancellor made a pitch for Wirecard during a trip to China in September 2019, even though her office had been appraised of the allegations. The chancellery said she was unaware of any “severe irregularities” at the time. . . .
Brazil Is Set to Leap From Cash to Real-Time Digital Payments
PaymentsSource – July 27, 2020 (subscription required)
Payments in Brazil are about to make a significant pivot, turning a country in which consumers rely heavily on cash and remain skeptical about payment cards into the next region to pioneer faster payments. When the Central Bank of Brazil revealed plans this year to launch the Brazil Instant Payment System, or PIX, by November, technology providers and global businesses viewed it as a major opportunity.
Considering 47% of Brazil’s consumers prefer cash payments at the point of sale, and even though credit cards are popular, at 57%, for online purchases, many consumers still use other methods including the Boleto QR code and its PostPay cash-acceptance scheme at 16%, or bank transfers at 10%, according to recent Worldpay research. “‘Cash is king’ has been the motto for Latin America, even as other regions see a steeper decline in cash transactions,” said Erika Baumann, senior analyst for Aite Group. “The PIX initiative in Brazil has a few factors working in its favor in that it is mandated for all banks that have more than 500,000 accounts.” . . .
Deep Dive: How the COVID-19 Pandemic Is Shifting Latin America’s Open Banking Plans
PYMNTS – July 23, 2020
Open banking has been picking up steam in Latin America for more than two years. Regulators in Mexico passed a law governing FinTechs in March 2018, just two months after PSD2 went into effect in the European Union, and others in the region have since followed suit. Brazilian lawmakers have been developing open banking plans since 2019, for example, outlining rough guidelines to be enacted late this year.
Many of these initiatives are moving forward during the COVID-19 pandemic, with Banco Central do Brasil — the nation’s central bank — announcing a four-stage rollout of open banking standards set to take place in 2020 and 2021. Mexico’s financial authorities have also updated their country’s 2018 law, making shifts that allow financial companies to more easily connect with larger financial institutions (FIs) and other business partners via application programming interfaces (APIs). . . .
Bitcoin Meets Banking as U.S. Bank Regulator Permits Cryptocurrency Custody
Forbes – July 22, 2020
The relationship between banks and cryptocurrency in the United States has been as complicated as the concept of “money” itself. But today’s interpretive letter from the Office of the Comptroller of the Currency (OCC) may be changing all of that. The OCC serves to charter, regulate and supervise national banks. Today’s OCC letter clarifies that national banks have the authority to provide fiat bank accounts and cryptocurrency custodial services to cryptocurrency businesses. This clarification from the OCC may open the doors for larger financial institutions to be more comfortable providing traditional bank accounts to cryptocurrency companies, as well as actually provide custodial services for customers’ private keys.
In its letter, the OCC acknowledged the difference between custodial services for fiat money versus cryptocurrency, noting that because digital currencies exist only on the blockchain or distributed ledger, there is no physical possession of the instrument. Therefore, a bank “holding” digital currencies on behalf of a customer will take possession of the cryptographic access keys to that unit of cryptocurrency. . . .
Industry Developments
SPOTLIGHT: Payments Gripes Soar During the Pandemic, According to CFPB Data
Digital Transactions News – July 28, 2020
Consumer complaints about payment products and services have shot up since March, when the national emergency was declared to deal with the Covid-19 pandemic. Complaints about credit and prepaid card products are up 29% over the same period last year, and gripes about money-transfer, virtual-currency, and money services have soared 77%. That’s according to data from the Consumer Financial Protection Bureau analyzed by Hoboken, N.J.-based LendEDU, an online information source and marketplace for consumer financial products.
The complaints poured in as consumers struggled with sudden unemployment or reduced working hours, and small business owners contended with lost business from shut-down and stay-at-home orders. Banks and other issuers, too, were faced with an unprecedented crisis. “No one was really prepared for this situation,” Mike Brown, director of communications at LendEDU, tells Digital Transactions News. . . .
PayPal-Backed Raise Marketplace Launches Slide
Mobile Payments Today – July 27, 2020
Raise Marketplace, a Chicago-based firm that offers the Raise gift card app, has launched Slide, a new mobile payments app with a 4% rewards feature and an initial lineup of merchant partners that includes Lowe’s, Ulta Beauty and Chipotle among 150 retailers. Raise is backed by several venture capital partners, including PayPal, Accel Partners, Bessemer Venture Partners and New Enterprise Associates.
“Through our success with Raise and in talking with our customers, we know that value and convenience are two uncompromisable aspects of any digital experience,” Jay Klauminzer, CEO of Raise, said in a company release. “With all the payment platforms and loyalty programs from retailers today, we’ve created a single destination for instant rewards that consumers can easily incorporate into their daily shopping routines.” . . .
Open Banking Gets a Big Jump Start From COVID
The Financial Brand – July 27, 2020
What was once an alien concept for most financial institutions is now viewed as an essential path to innovation. Open banking has ‘opened’ the door for traditional institutions to offer a wider range of products through promoting access to third-party applications, on a secure basis. Here’s why all banks and credit unions must have strategy for a trend that’s reshaping banking.
The term “open banking” may soon be supplanted by “open finance,” a broader term encompassing much more than payments. Alternatively, both terms may simply fade into the background. Not because they’re unimportant — quite the opposite. The ability of banks and credit unions to facilitate quick and secure access to third-party products and services that draw on consumer account and transaction data will not only become a competitive necessity, but potentially a leveler between giant and smaller institutions. . . .
Visa Is Getting Behind Digital Currencies and Blockchain
Tech HQ– July 27, 2020
Payment titan Visa has announced its support and development of blockchain and digital currencies. The financial services company wrote in a blog post, “we’re reshaping how money moves across the globe, and that means pursuing a broad array of technologies and partnerships. “In that regard, digital currencies offer an exciting avenue for us to continue doing what we do best: expanding our network-of-networks to support new forms of commerce.”
The post entitled “Advancing our approach to digital currency” narrates the company’s efforts and plans to venture further into blockchain and cryptocurrencies, tying in the relevance of its pursuit as the world moves forward with digitalization in the finance industry. With more consumers and businesses adopting digital currencies and circulation spreading wide, reaching over US$10 billion in May, Visa is aiming to tap into this space and avoid falling behind from competitors. . . .
From Local to Global – How Domestic Payment Programs Can Reach International Presence
The Paypers – July 23, 2020
Merchants are casting a wider net by expanding overseas as their domestic markets have become increasingly saturated. These current dynamics are reshaping the size of the cross-border commerce market, several studies show. Even though typical spend habits have been disrupted amid the current pandemic, we are still expecting to see a rise in cross-border commerce. According to Accenture, the cross-border payments value is expected to rise 5.6% annually. Moreover, Forrester predicts that cross-border shopping will make up 20% of ecommerce in 2022, with sales reaching USD 627 billion.
The desire of consumers for more diverse products is also influencing the global market. Shoppers in Western countries often look to Asian markets for online purchases of cheaper or limited-edition products. Consumers in Asian countries look to Western markets for luxury goods, for example, as Chinese consumers seek high-quality products and niche brands they cannot find in their country. . . .
Ant Group Creates New Blockchain-Based Technology Unit
Finextra – July 23, 2020
Chinese giant Ant Group has unveiled AntChain, a new technology brand for the financial firm’s blockchain platform that also aggregates other digital technologies including AI, Internet of Things (IoT) and secure computation. Ant Group-operated Alipay holds the most blockchain patents worldwide with 212 patents as of May 14, 2020. The firm has been investing in the technology since 2015 and claims more than 50 use cases cases, typically involving multi-party collaboration, including IT leasing, global shipping, medical insurance claim processing, cross-border remittance, and charitable donations.
The technology stack has the ability to process and support one billion user accounts and one billion transactions every day. Currently, over 100 million digital assets are uploaded onto AntChain on average every day. Geoff Jiang, Ant Group VP, says: “With the launch of the AntChain brand, we look forward to contributing to the acceleration of blockchain-enabled industry transformations, and to working with our partners to make blockchain technology more accessible for users, as well as creating tangible value for SMEs, consumers and clients across a spectrum of industries.” . . .
Google Announces Test With No Commissions for Sellers Using Its Shopping Platform
Digital Transactions News – July 23, 2020
Expanding on an initiative it began April that offered free listings for some merchants, search-engine leader Google on Thursday announced a test that charges zero-percent commissions to online sellers when they sell a product through its Shopping Actions service. In addition, sellers can use Shopify Inc.’s payment service as well as PayPal if they want to stick with their current third-party payment providers. Google, the chief subsidiary of Mountain View, Calif.-based Alphabet Inc., had said in April that new merchants on its shopping site could link their Google and PayPal accounts. Google calls it the Buy on Google checkout experience.
“These changes are about providing all businesses—from small stores to national chains and online marketplaces—the best place to connect with customers, regardless of where a purchase eventually occurs,” Bill Ready, Google’s president of commerce, said in a blog post. “With more products and stores available for discovery and the option to buy directly on Google or on a retailer’s site, shoppers will have more choice across the board.” . . .
Discover’s Credit Volumes Take a Hit, but the Pulse Debit Network Posts a 12% Increase
Digital Transactions News – July 22, 2020
Discover Financial Services on Wednesday became the first major payment network operator to report its second-quarter performance, and things weren’t pretty on the credit card side in the wake of the Covid-19 pandemic. Volumes on Discover’s Pulse debit network, however, rose by double digits. Taking the biggest hit was the Diner’s Club International network, which posted quarterly volume of $4.34 billion, down 49% from $8.47 billion a year earlier. Diner’s Club volume depends heavily on travel-and-entertainment spending outside of North America and is especially sensitive to the slowdown in business activity caused by the pandemic.
Reflecting reduced Discover credit card purchase volume, volume on the proprietary Discover Network declined 15% to $32.3 billion from $37.9 billion in 2019’s second quarter. But with consumers using debit cards more during the pandemic months, Pulse posted volume of $52.9 billion, up 12% from $47.4 billion a year earlier. Pulse’s higher volume was “driven by higher average spend per transaction related to the pandemic, the impact of [federal] stimulus funds available to consumers, and growth in e-commerce transactions,” Riverwoods, Ill.-based Discover said in an investor presentation. . . .
– By Kristian Soltes. For questions about this newsletter or its content, contact [email protected].