Payments News Update – July 30, 2021

Legal and Regulatory Developments

SPOTLIGHT: Why Biden’s Executive Order Is a Green Light for Us Open Banking
Finextra – July 28, 2021

On July 9 2021, President Biden didn’t just throw a bone to US open banking, he underwrote the mortgage, laid the welcome mat, and set the table to officially welcome open banking to the neighbourhood. Yes, open banking is nothing new to the US. With numerous American unicorns storming out of the gates there is little doubt around the demand for open banking solutions across the pond. Yet, the glaring absence of a regulatory scaffold  to solidify these efforts has left many scratching their heads around where open banking would ultimately end up.

It appears that the journey has now been mapped out. What was the purpose of Biden’s executive order? Biden’s ‘Executive Order on Promoting Competition in the American Economy’ (the Order), is based on a very simple but important intuition that having competition is a fundamental ingredient of a healthy capitalist economy, explained Brian Deese, director of the National Economic Council under Biden. . . .

Crypto Allies Rally Against ‘Ignorant’ New Tax Rules in Bipartisan Infrastructure Deal
MarketWatch – July 29, 2021

The Senate’s bipartisan infrastructure deal includes new tax-reporting requirements on cryptocurrency and digital-asset transactions, and the industry’s supporters in Washington are warning of the severe impact it could have on the nascent industry. According to a draft copy of the deal reviewed by MarketWatch, the bill would require any person who regularly provides a service that executes transfers of digital assets to report those transactions to the IRS, like securities brokers must do for stock and bond trades today. It would also require businesses to report digital-asset transactions of more than $10,000.

These requirements would enable the IRS to collect money already owed by law, but which often go untaxed because the government doesn’t know about these transactions. According to a summary of the plan by the Joint Committee on Taxation, the changes would raise $28 billion over ten years. . . .

Elizabeth Warren Presses Janet Yellen, Regulators to Address ‘Growing Threats’ in Crypto Market
CNBC – July 27, 2021

Sen. Elizabeth Warren urged Treasury Secretary Janet Yellen on Tuesday to identify and remedy risks posed by cryptocurrencies and to craft a “comprehensive and coordinated” framework through which federal agencies can continually regulate virtual coins. Warren, a member of the Senate Banking Committee and a longtime critic of the nation’s largest banks, pressed the Treasury secretary to use her powers on the Financial Stability Oversight Council to bring about a safer crypto market.

“FSOC must act quickly to use its statutory authority to address cryptocurrencies’ risks and regulate the market to ensure the safety and stability of consumers and our financial system,” the Massachusetts Democrat wrote in a letter to Yellen. “As the demand for cryptocurrencies continues to grow and these assets become more embedded in our financial system, consumers, the environment, and our financial system are under growing threats,” she added. . . .

Visa, Mastercard Lose Bid to Appeal on Swipe Fee Defense
Law360 – July 26, 2021 (subscription required)

A tribunal has refused to grant Visa and Mastercard permission to appeal decisions that prospective damages resulting from a Supreme Court decision should be limited because retailers would have faced higher costs regardless of whether they had breached competition rules.

The Competition Appeal Tribunal said on Friday that the two companies had no prospect of succeeding in reversing its finding that some elements of a hypothetical argument called an “asymmetric counterfactual” should not be included in their defenses. The CAT said last month that while Mastercard can’t argue retail customers would have used Visa, it can allege that they may have switched to PayPal. The tribunal wrote on Friday that its decision to refuse the appeal was based on a European Court of Justice ruling that a counterfactual cannot be based on an unrealistic assumption. . . .

Australia Considers Requiring Apple to Support Apple Pay Rivals
Apple Insider – July 26, 2021 (click here for Apple’s response)

An Australian committee has heard arguments from Apple, Google, and others regarding the opening up of iPhone NFC payment systems to more than just Apple Pay. As the European Union has considered forcing Apple to open up its contactless payment technology, so Australia is hearing arguments for and against the same issue. On Monday, an Australian Parliamentary committee heard from Apple, Google, and more.

According to ZDNet, Apple argued that security is the reason iPhone does not support alternatives while Android does. It also said in a written response [attached] to the Parliamentary Joint committee on Corporations and Financial Services, that Apple Pay “is available to all banks in Australia on fair and non-discriminatory terms.” . . .

How Wyoming Is Leading on Cryptocurrency
Law360 – July 23, 2021 (subscription required)

Despite being the legal home of 67.8% of all Fortune 500 companies, Delaware faces an unlikely competitor in the blockchain space. This competitor has outpaced Delaware’s legislative progress, is purported by Forbes to be the “Delaware of digital asset law,” and has sparked rumors that it could chip away at Delaware’s dominance as the corporate capital of the United States.

That unexpected first mover is Wyoming. This year, Wyoming became the first state to legally recognize decentralized autonomous organizations, or DAOs, as a new form of LLC. This is important because it marks the dawn of a new kind of business with the potential for lower transaction costs and large-scale cooperative efforts between people who do not even need to know each other, let alone trust each other, as they would in a traditional business structure. . . .

Commentary: Could PayPal’s Latest Fee Boost Make It the Merchant Lobby’s Next Target?
Digital Transactions News – July 23, 2021

The yin and yang of political, and ferociously commercial, PayPal was vividly on display with its announcement last month of a massive price hike. The e-commerce phenom attaches itself to an array of woke causes but remains a wonderfully hard-nosed commercial enterprise, keen to be fully compensated for the enormous value it delivers. If its powerful brand conveys one thing, it’s the promise of low-friction electronic and mobile commerce. In the first quarter, the e-commerce titan’s payment volume, transactions, revenue, and active users, increased year-over-year a sizzling 50%, 34%, 31%, and 21%, respectively.

But, while chief executive Dan Schulman should be applauded for this growth, management takes for granted the freedom to charge what the market will bear. It shouldn’t. The U.S. payments market is the world’s most competitive. . . .

Industry Developments

SPOTLIGHT: Rising Chargebacks Loom Over Industry
Green Sheet – July 26, 2021

Merchants, still reeling from the economic fallout from the COVID-19 pandemic, now have an added problem to contend with: rising chargebacks. The implications for ISOs and merchant level salespeople (MLSs) are real and quantifiable. “It all comes down to the cost of incremental residuals, and increasing chargebacks are going to be a knock against that,” said industry attorney Adam Atlas.

A 2020 report by the Deloitte Center for Financial Services put an even starker spin on the problem. “The increase in chargebacks could create a liquidity challenge among some cash-strapped acquirers and independent sales offices (ISOs) or member service providers (MSPs),” the report warned. Chargebacks were on the rise before 2020 but have been spiraling out of control since the pandemic forced merchants and consumers to move most of their buying and selling to online venues. . . .

PayPal’s CEO Promises an ‘Aggressive’ Play for Merchant Business in the Wake of New Pricing
Digital Transactions News – July 28, 2021

PayPal’s boss made a declaration Wednesday afternoon that may have been as much a warning to incumbent merchant acquirers as it was a promise to storefront merchants. Referring to PayPal’s new transaction pricing schedule, expected to go into effect Aug. 2, chief executive Dan Schulman made it clear PayPal will be playing for all the marbles.

“We’re going to be very aggressive about moving into in-store [acquiring],” Schulman told stock analysts during PayPal’s second-quarter earnings call. “If a merchant does all of its business with us, they can see their overall cost go down. We’re going after that.” PayPal made headlines last month when it announced it planned a dramatic increase in its online rate to 3.49% plus 49 cents per transaction from its current standard toll of 2.9% plus 30 cents—pricing that hadn’t changed in 20 years. . . .

The Point of Sale Isn’t Just Changing — It Could Disappear
American Banker – July 28, 2021 (subscription required)