Legal and Regulatory Developments

SPOTLIGHT: Australia Unveils Draft Law to Regulate Digital Payment Providers
Reuters – October 10, 2023

The Australian government said on Wednesday it planned to introduce laws that would empower the central bank to regulate digital wallet providers including Apple Pay (AAPL.O) and Alphabet’s (GOOGL.O) Google Pay.

Apple Pay, Google Pay and China’s WeChat Pay, which have grown rapidly in recent years, are not currently designated as payment systems, putting them outside Australia’s financial regulatory system.

The proposed rules would enable the Reserve Bank of Australia (RBA) to monitor digital wallet payments in the same way as credit card networks and other transactions. It would also give powers to the treasurer to order regulators to check if any payment platforms pose risks to the country. . . .

President Biden Looks to Trash ‘Junk Fees’ in New Rule Aiming to Protect Consumers
USA Today – October 11, 2023

The Biden administration is proposing a new rule to prohibit companies across the private sector from hiding fees from consumers, the president’s most sweeping action yet on “junk fees.”

The Federal Trade Commission’s rule would require all industries under its jurisdiction to show the full price upfront to consumers, including for concert and sports tickets, hotel rooms, and apartment and car rentals. Violators would be subject to financial penalties and be required to compensate customers.

President Joe Biden, in remarks Wednesday from the White House Rose Garden, called the proposal his administration’s “most comprehensive action ever” to eliminate junk fees. “If these rules are finalized, they won’t just be voluntary, they’ll be made mandatory. It will do more than embarrass companies, it will make it mandatory,” Biden said. . . .

Kickstart: A Gift From California
Plastics News – October 11, 2023

Here’s an unexpected gift for the plastics industry from California: Gov. Gavin Newsom ended the legislative year with a veto on some sustainability measures involving plastics. Those vetoes included a measure that would have banned plastic gift cards. Senate Bill 728 would have prohibited the sale and distribution of the cards after January 2027 with a fine of up to $100 per day.

“While I support the … goal to reduce our reliance on single-use plastic materials, I am concerned that an outright ban without any incentives for compliance will disproportionately impact the state’s small business community as digital gift cards may not be a feasible option for many businesses or consumers,” Newsom said in an Oct. 8 letter that accompanied his veto. . . .

CFPB’s Chopra Warns of ‘Financial Censorship’ in Payments
Payments Dive – October 9, 2023

Citing concerns of “financial censorship,” Consumer Financial Protection Bureau Director Rohit Chopra said last week the agency is weighing regulatory steps to better protect consumers in the payments market. Chopra’s warning came during a payments-focused event Friday at The Brookings Institution, a Washington, D.C.-based think tank. Toward the end of his remarks, Chopra laid out a number of steps the CFPB seeks to take to protect U.S. consumers.

Those include getting more information from big tech firms about personal data use and private currency issuance; examining non-banks that offer consumer payment platforms; and publishing a proposed rule about personal financial data rights, Chopra said during the event, titled “Making America’s payment system work for a digital century.” That proposed rule will be published later this month, Chopra noted. . . .

COMMENTARY: Why the Credit Card Competition Act Falls Short
Digital Transactions News – October 9, 2023

The Credit Card Competition Act (CCCA) looks to be headed for a vote before the end of the year, spurred in part by Sen. Dick Durbin’s recent urging that it be brought to the Senate floor. While the Illinois Senator is of the mind it will help increase industrywide competition with Visa and Mastercard, the bill deserves more outside scrutiny prior to its formal passage.

Proponents argue it will help fight inflation, as more choice in network providers could force competition for merchant business, lessening credit card and interchange fees—savings that could then be passed on via lower prices to consumers. Opponents of the bill argue there is no guarantee that customers will reap any of the benefits, while new, unestablished networks could create additional problems. In any case, the issues the CCCA is trying to address are inherently complicated and require a more nuanced look. . . .

Industry Developments

SPOTLIGHT: Breaking Down the Pros and Cons of Loyalty Points
C-Store Dive – October 11, 2023

As retailers look to create or revamp their loyalty programs, they have to size up various rewards options for their customers, including those that offer extra discounts or coupons, punch-card programs and points-based loyalty programs where customers earn rewards for their purchases.

While the first two may be easier to run, they leave a lot of data on the table, experts say. With basic discounts and free product offers, “you’re simply using the incentive to hopefully get people to come more often,” said Matt Sargent, director of strategy analytics for Sargent Up North and a former director of loyalty analytics for CPG consultancy Big Chalk.

Points-based loyalty programs, on the other hand, tie in directly with shoppers’ accounts and purchases, offering up valuable information for retailers. . . .

Fed’s Waller Pushes Back on Criticism of FedNow’s Adoption Rate
Banking Dive – October 10, 2023

Participation in the Federal Reserve’s real-time payment settlement service, FedNow, has expanded from an initial group of 50 banks and credit unions to more than 100, Fed Gov. Christopher Waller said Friday at a payments conference held by the Brookings Institution.

Since FedNow’s launch in July, the sign-ups have been growing, while internal projections indicate the number could rise to approximately 350 by year-end, Waller added. Uptake of the long-awaited payments settlement service remains robust, he said when asked about the lower-than-expected adoption among banks. . . .

Card Network Non-Interchange Pass-Through Fees
Green Sheet – October 9, 2023

Visa and Mastercard have been inserting fees and increasing others so that the total paid to the card networks is far in excess of the traditional assessments. Many newer fees are designed to shape behavior and are dependent on merchant actions and the solution provider’s capabilities. Merchants, especially large merchants, must be more aware of these fees and ensure solution providers assist in minimizing or avoiding them. They also must consider these fees—in addition to interchange, processor discount and related fees—when considering total payments costs. Payfacs and platforms also need to be aware of these fees and ensure they are properly accounted for and billed to the ISO or merchant responsible for the activity.

To be fair, Discover and American Express have these fees as well; however, because they represent a smaller percentage of total processing, the non-interchange and penalty fees are correspondingly less, but merchants and payfacs should consider them with their strategy and solution selection. . . .

How Buy Now/Pay Later Fintechs Are Reframing Consumer Credit
American Banker – October 9, 2023 (subscription required)

Initial concerns about buy now/pay later loans cannibalizing credit card issuers’ market share haven’t come to fruition, but as BNPL fintechs tweak their products, their loans are looking more like traditional credit cards.

Large BNPL fintechs like Klarna, Affirm and Afterpay, which saw strong adoption with online merchants during the pandemic, are moving aggressively into brick-and-mortar stores, with branded debit cards sporting credit card-like features and fees. Touted as convenient for everyday use, the debit cards frequently enable users to convert a purchase into a loan at the point of sale or afterward. Another significant change is BNPL fintechs’ recent introduction of subscription fees averaging about $5 a month for users to continue accessing zero-interest loans, not unlike the cost of a credit card’s annual fee. . . .

Can Pay by Bank Play Into Consumers’ Growing Preference to Resist Credit Cards?
Tearsheet – October 6, 2023 

Total US credit card debt surged $45 billion in the second quarter from $986 billion in Q1 2023 and has now crossed the $1 trillion mark. While the record debt spike provides insight into the deteriorating financial health of consumers, it also tends to open the door to new upticks in delinquencies and charge-offs.

Consumers are facing mounting pressure to manage their finances and simultaneously pay down revolving debt. This situation is drawing consumers’ attention to different payment methods other than card-based payments. Less familiar payment methods like pay-by-bank are coming to the fore as consumers resist the use of credit cards to stay out of a debt cycle or debt build-up, according to a new report by MX. . . .

Amex Pilots Biometrics in Online Checkout
Payments Dive – October 5, 2023

American Express aims to speed up identification checks for online transactions with its fraud prevention service, and the addition of biometric capabilities could further that goal. Consumers have grown weary of passwords and PINs as they’ve become more comfortable unlocking mobile and other devices with their faces or fingerprints. The use of biometrics to authenticate payments is poised to bring greater speed and security to transactions, consultants have said.

Currently, Amex cardholders may be asked to confirm whether they’re actually making a purchase through the use of codes or app notifications. With this rollout, face or fingerprint identification become additional options to authenticate purchases. The new authentication features will be available on all major web browsers, iOS and Android platforms, according to the press release. . . .

Electric Vehicles May Spark a New EMV Standard
American Banker – October 5, 2023 (subscription required)

It wasn’t that long ago that the EMV migration was one of the largest and most expensive point of sale upgrades in U.S. history. The organization that helped drive that migration is turning its attention to electric vehicles, which currently have fragmented payment methods at charging stations — and may necessitate a new standard.

EMVCo, which is collectively owned by American Express, Discover, JCB, Mastercard, UnionPay and Visa, has formed the Electric Vehicle Open Payments Task Force. The task force will engage with EV industry participants to look for ways to apply EMV payment technology or standardized transaction processing to EV charging. . . .

How Merchants—And Software Developers—Are Leveraging Embedded Payments
Digital Transactions Magazine – October 1, 2023

It’s no wonder embedded payments are quickly moving into the mainstream. After all, small and mid-size businesses are increasingly looking to deliver better and better experiences for customers within their app or software platform. For these merchants, embedded payments provide consumers the ability to pay without being redirected to a third-party site at checkout. It’s meant to be a simple, streamlined process that speeds the purchasing process, reduces friction, and improves customer satisfaction by embedding the purchase within the act of shopping.

What’s more important, embedded payments—a term for payment solutions natively built into an app developer’s or fintech’s software—are said to give merchants more control over payments flows. That’s because they can embed payment capabilities across a variety of digital touchpoints beyond the merchant’s app. Such touchpoints can include micro-stores on a social media site, a marketplace, or within an email. . . .

Read Payments News Update – October 13, 2023 at constantinecannon.com