Payments News Update – October 1, 2020

Legal and Regulatory Developments

SPOTLIGHT: US Court Agrees With SEC That Kik’s $100 Million Coin Offering Violated the Law
Engadget – October 1, 2020

A US district judge for the Southern District of New York has agreed with the Securities and Exchange Commission’s assessment that Kik’s $100 million initial coin offering (ICO) in 2017 was a securities sale. Judge Alvin Hellerstein has granted SEC’s motion for summary judgment, ruling that Kik violated the Securities Act when it sold its tokens called “Kin” without the blessing of the SEC.

The commission considers tokens as securities and requires their sale to be registered. It has gone after other companies that held ICOs in the past, including Telegram, which was ordered to return over $1.2 billion to investors and to pay an $18.5 million civil penalty. The SEC also fined blockchain technology company Block.one $24 million for running an unregistered ICO. . . .

Is This the End of the Card Payment?
The Paypers – October 1, 2020

Card payments, either debit, credit or prepaid, are one of the most ubiquitous global payment mechanisms. In few countries there is no infrastructure for making card payments at all, yet in many others, they are the most common way to pay. As technology has developed so have payment mechanisms. In Europe we’re familiar with the concept of contactless payments made via devices and NFC readers. In some parts of Asia and Africa, payment methods relying on stored value accounts held by and accessed through mobile phone networks have come to the fore. Meanwhile, in Latin America, systems that involve digital vouchers, cash, and groups of small retailers are widely used.

None of these are as internationally recognised as payment cards because in many cases they have evolved intricacies to suit the specific needs of the region or country in question. And while the acceptance of individual card schemes may vary from place to place, the concept of a plastic card that allows the transfer of value is globally understood. However, there is another payment mechanism, already widely adopted in some places, which has the potential to quickly achieve the same levels of international recognition as cards: Account-to-Account (A2A). . . .

Congress Weighs Crypto Payments and Fintech Lending in Hearing Today
Cointelegraph – September 29, 2020

In a hearing on Tuesday, the Congressional Fintech Task Force heard arguments on new rules that would potentially expand banking regulations to accommodate more technology firms providing financial services. A subunit of the Financial Services Committee, the Fintech Task Force leads the committee’s examinations of emerging technologies. As Task Force Chair Stephen Lynch (D-MA) noted, “Banking is becoming less centralized. Consumers are facing more choices than they ever have.”

Much of the back-and-forth in today’s hearing was as to whether or not loosening the rules of banking — which would allow more firms to, for example, offer loans — would properly extend financial access. Lynch, for one, noted that “One of the great promises of fintech was the idea that it might help us to bank the unbanked. The evidence is really mixed.” In response to a line of questioning from Representative Rashida Tlaib (D-MI) about whether fintechs had lived up to this promise, witness Raúl Carrillo of the Demand Progress Education Fund said: “I have not seen any hard evidence that these private fintech companies are quote unquote saving the day. In fact, I am worried about these transactions happening without proper protections.” . . .

New Security Measures Could Block EU Purchases
Mobile Payments Today – September 28, 2020

More than one-third of online purchases could be blocked by new European rules on Strong Customer Authentication, which could cost merchants to lose as much as $100 billion in sales, according a report in FinExtra. CMSPI, a payments consultancy, ran an analysis that indicated problems will arise for e-commerce merchants beginning in January 2021 with the introduction of 3D-Secure Version 2.0, an authentication protocol developed by the major card schemes. The CMSPI report stated that the technology is “relatively new and unproven”, and added “significant unnecessary friction to the online commerce experience.”

The new security protocol will add between 60 seconds and two minutes to the checkout process. Testing shows 25% of 3DS2 transactions are abandoned by consumers, compared with single-digit numbers without the technology. Additionally, as many as 35% of 3DS2 transactions fail to go through due to technical errors or because the transaction was declined. If not corrected, that would amount to €108.1 billion ($126B) in lost sales based on 2019 sales volume, which is one hundred times the annual amount of card fraud. . . .

EU Releases Proposed Cryptocurrency Rules
PYMNTS – September 24, 2020

A much anticipated first-ever plan to regulate cryptocurrency in Europe was unveiled on Thursday (Sept. 24) by the European Commission. The executive branch of the European Union (EU), the agency responsible for managing the day-to-day business of the 27-nation bloc, proposed legislation crafted to reduce risks for investors, while also giving legal certainty to companies issuing them.

“The future of finance is digital,” said Valdis Dombrovskis, the panel’s executive vice president, in a statement. “During the lockdown, many people shifted to accessing banking and other financial services online. Many more made contactless payments. Developing better financial products for consumers and opening new funding channels for companies will all help the recovery.” The legislation is intended to reduce market fragmentation, as many digital finance providers only operate in one country. As a result, the measure allows crypto companies to provide its services across the other member states with approvals. . . .

Industry Developments

SPOTLIGHT: Square Promotes QR Codes for Eateries as the Contactless Technology Gains a U.S. Payments Footing
Digital Transactions News – September 30, 2020

Square Inc.’s announcement Tuesday of its new QR code service for restaurants helps bring the contactless technology into the limelight, but it’s only the latest in a string of moves payments providers have made in recent months to position the barcode as a payments enabler. In Square’s scenario, eateries that use Square Online can display the barcode at the table or on signage for diners to scan with a mobile phone. The scan will show a menu from which diners can place an order. From there, the order is prepared and delivered much as if the diner had dealt with a server, but the technology eliminates a point of contact between the customer and a waiter or waitress.

“By removing wait times and improving the process for handling payment between waiters and patrons, self-serve ordering can improve table turn times and reduce labor costs. The feature can also improve order accuracy when customers are in control of the ordering process,” Square says in an article on its Web site announcing the QR code service. Information on how many Square clients have adopted the service was not  immediately available. “It’s a new feature so still in early days and [we] don’t have any numbers or metrics to share just yet,” says a Square spokesman.. . .

SWIFT Launches Service for Low-Value Cross-Border Payments
PYMNTS – October 1, 2020

SWIFT, a global provider of secure financial messaging, announced a new service Thursday (Oct. 1) that promises to improve the experience for small and medium-sized businesses (SMBs) and consumers who send low-value payments across borders. The Belgium-based cooperative said the initiative will enable customers to make faster, easier, predictable and competitively-priced payments worldwide. It is working with more than 20 banks to develop the service, which builds on SWIFT gpi and the high-speed rails that are already powering high-value payments.  SWIFT said this latest improvement is another building block for its new strategy.

Last month, the company announced its cross-border platform will be retooled to enable financial institutions to deliver instant transactions. Over the next 24 months, Swift said the project will provide transaction management services to create new value-added services to support business growth. The platform pledges to improve communications between financial institutions, optimize speed and provide transparency and predictability from one account to another anywhere. The move has the potential to provide instant transactions between 4 billion accounts serviced by financial institutions across SWIFT’s network, the company added. . . .

B2B Payments Drive Instant Payments, Crypto Innovation
PYMNTS – September 29, 2020

While Momentum Builds for Real-Time Payments, Research Tags the U.S. Market as a Laggard
Digital Transactions News – September 28, 2020

Real-time payments are gaining momentum in the United States, but research released Monday indicates the U.S. market remains a laggard. The total value of so-called instant payments will reach $18 trillion in 2025, but the U.S. share of that market will total just 8%, or $1.4 trillion, according to a forecast by Juniper Research. The Basingstoke, United Kingdom-based firm defines an “instant payment” as one in which the transaction is complete within 10 seconds.

The primary movers behind real-time payments in the U.S. market are The Clearing House Payments Co. LLC, based in New York City and owned by the nation’s biggest banks, and the Federal Reserve. TCH’s Real Time Payments network has been operational since 2017, while the Fed, which links virtually every financial institution in the country, projects its FedNow service will come online in 2023 or, at the latest, 2024. That will put pressure on U.S. processors as they work to catch up with advances made overseas, particularly in Europe, Juniper projects. “With the proposed FedNow service from the … Federal Reserve not coming into service until 2023/24, the U.S. is rapidly falling behind in instant payments. Payments vendors must concentrate on creating innovative digital payments products to bridge this gap or be faced with an outdated system,” says Nick Maynard, a Juniper analyst and the report’s author, in a statement. . . .

FIS, the Clearing House Bring Real-Time Payments to US Financial Institutions
The Paypers – September 28, 2020

FIS, a US-based financial services provider, has teamed up with The Clearing House to bring real-time payment processing (RTP) and settlement to small-to-mid-sized banks and credit unions along with their customers.The financial software provider assists financial institutions to connect to the RTP network, the real-time payment system in the US provided by The Clearing House. This system provides instant settlement of payments and availability of funds for participating banks and their customers.

According to the press release from FIS published on IBS Intelligence, the new managed service will be offered to the targeted customers using its core banking systems. The service connects financial institutions to the RTP network from The Clearing House, enabling them to initiate and receive real-time payment transactions. FIS stated that Nano Banc and First Bank are amongst the first core banking clients to initiate real-time payments through the new managed service. . . .

Eye on IoT: More Wearables Gain Payment Functionality and Loop Insights Makes a Property Deal
Digital Transactions News – September 28, 2020

Despite the slowdown in manufacturing as a result of the Covid-19 pandemic, shipments of wearable devices, which are often fitted for payments, are forecast to hit 396 million units in 2020, a 14.5% increase from 2019, says International Data Corp. During the first half of 2020, 38% of all wearable devices had mobile-payment functionality via near-field communication (NFC) technology, no change from the first half of 2019, but the proportion could be set to grow dramatically. “Given how NFC—the primary connection for mobile payments—continues to gain salience, I’d expect almost half of volumes to have this capability by end of year,” Ramon T. Llamas, a research director for IDC, says by email.

Driving consumer demand for wearables is health and fitness and the devices’ ability to connect consumers to information. “Ever since the wearables market began in earnest, health and fitness has been the common denominator across many of them,” Llamas says. “We can go back and forth on how this has progressed: gamification of health, revealing insights to one’s health, making recommendations to live a better life, etc. The other part is connection. Wearables provide bite-size information from the smart phone, ranging from notifications and calendar updates to text messages and social media updates.” . . .

Contactless Is Gaining Favor Fast Among Consumers and Merchants, AmEx Data Show
Digital Transactions News – September 25, 2020 

Consumer demand is so strong that 81% of merchants surveyed by American Express Co. intend to make contactless payments a permanent option at the point of sale. Some 70% of merchants say their customers have asked for contactless payments, J.J. Kieley, vice president of the AmEx Payments Consulting Group, tells Digital Transactions News. His group works with merchants on new products and helps them with processing their AmEx transactions. Most merchants—73%—prefer their customers to pay with a card or mobile app instead of having to handle cash.

That’s in contrast to how contactless adoption was faring in 2019 and prior to the pandemic earlier this year. On the merchant side, it was part of the normal terminal replacement process, Kieley says. Though the POS terminal was contactless-enabled, the near-field communication technology was not activated in many cases. Indeed, some merchants Kieley’s group talked with last year didn’t even realize they could accept contactless payments. In these cases, his group would try to explain the benefits of NFC payment technology. . . .

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