Technology & Payments

Oct. 4, 2024: Technology & Payments Articles

Chime’s Free Overdraft Feature Extended $30 Billion to Users

FinTech firm Chime says it has covered billions in overdrafts for its users.

Pymnts.com

Through SpotMe, the banking app’s free overdraft feature, Chime’s members have received a collective $30 billion since 2019 in overdrafts without having to pay a fee, Chime said in a Tuesday (Oct. 1) news release. Noting that traditional banks typically charge $35 for an overdraft fee, Chime said by offering fee-free overdrafts with SpotMe, it is meeting the short-term liquidity needs of its users. SpotMe allows eligible members to overdraw their account by up to $200 without having to pay a fee.

“We’re happy to announce this important milestone,” Chime CEO and Co-founder Chris Britt said in the release. “SpotMe has changed the lives of millions of Americans who need greater flexibility and access to liquidity. Its widespread impact has been felt beyond our members, and we’re pleased to see others in the industry follow our lead.”

Chime is considering an initial public offering (IPO), PYMNTS reported in March, with plans to go public in 2025. Britt said in December that the company was “as IPO-ready as a company can be” and was keeping an eye on the conditions of the economy and the stock market. The FinTech has reportedly selected Morgan Stanley to lead its IPO efforts, PYMNTS wrote last week, citing a report from Bloomberg. When reached by PYMNTS, Chime declined to comment. Morgan Stanley did not reply to a request for comment at the time.

In 2021, Chime was valued at $25 billion and has been seen as a potential IPO candidate, according to the Bloomberg report. Chime recently expanded its partnership with self-service banking provider NCR Atleos. Following the expansion, Atleos will start branding ATMs at 4,000 Walgreens stores with the Chime brand to increase customer awareness, according to an Aug. 7 press release.

Since 2021, Atleos has provided ATM access for Chime members at over 50,000 fee-free ATMs. The expanded relationship will make it “easier than ever for Chime cardholders to identify and use fee-free ATMs to access cash,” Atleos Chief Operating Officer Stuart Mackinnon said in a statement at the time.

Fidelity Slashes Mobile Deposit Limits Following Fraud Wave

Online check-fraud scheme shares some similarities with the fraud wave that hit JPMorgan Chase

Justin Baer and Oyin Adedoyin, Wall Street Journal

Fidelity Investments put stricter guardrails on the deposits customers make through its mobile app, hitting back against a check-fraud scheme that targeted the investing giant earlier this month. Fidelity slashed the amount certain customers can deposit into their cash-management accounts to $1,000 from $100,000, people familiar with the matter said. The Boston firm is also subjecting some account-holders to a 16 business-day hold on deposits before the money is made available for withdrawal or investment.

The restrictions don’t impact retirement accounts, such as 401(k) plans. Instead, they focus on cash management accounts, a type of brokerage account used to make purchases, pay bills online and withdraw funds from ATMs. Deposited checks typically take two to six days to clear. The scheme targeting Fidelity’s mobile-app shares some similarities to the check-fraud scams that have hit JPMorgan Chase and other banks recently.

The organizers rely on social-media platforms such as Telegram and TikTok to recruit customers of those firms. In exchange for access to their accounts, customers are promised a cut of the proceeds. The swindlers deposit fake or doctored checks and then quickly withdraw those funds. Some people who promoted the Fidelity scheme on social media used the hashtag #fidelityboyz.

“We recently identified individuals attempting to commit fraud using their Fidelity checking accounts,” a Fidelity spokesperson said. “To be clear, these individuals were committing fraud with respect to their own accounts: no other customer information, accounts, or assets were at risk.” The company spokesperson added that Fidelity took immediate steps to address the issue. Read more

Who Wins in An Open Banking Future?

Kate Berry, American Banker

When Rohit Chopra, the director of the Consumer Financial Protection Bureau, proposed an open banking rule last year, he framed the proposal as an opportunity for small banks to compete head-to-head with large banks that currently hold most consumer data.

“The business opportunity is about how you can steal the lunch of your bigger competitors — that is going to be key,” Chopra said last October, the day after the CFPB issued its open banking proposal. “You cannot look at open banking as a compliance burden only — you have to look at it as a business opportunity too.”

Chopra has envisioned open banking — known as the 1033 rule, for the section in the Dodd-Frank Act of 2010 that mandates bank customers retain control over their financial data — as a way to potentially level the playing field for small community banks and fintechs, allowing them to better compete with the largest banks that make up a greater share of the consumer banking market.

Open banking would give consumers control over their own financial data, including their ability to share that data with other banks or financial institutions, thus making it easier to switch banks. Increased competition should allow companies to create and offer new and different financial products once a final rule is issued in late October.

Yet Bill Demchak, the chairman, president and CEO of PNC Financial Services, threw cold water on the theory behind the proposal earlier this month. Demchak argued that once the rule is finalized, large and regional banks would be able to draw customers from smaller competitors. Read more

39% of Millennials Say They’ve Used BNPL as a Payment Option in the Last Year

Pymnts.com

Buy now, pay later (BNPL) has emerged as a compelling payment option, particularly among millennials. This shift presents an opportunity for subscription merchants to enhance their offerings, potentially increasing revenue and creating long-term customer loyalty.

A PYMNTS Intelligence report, “‘Adjustable’ Is the New ‘Agreeable’: BNPL Flexibility for Subscription Success,” a collaboration with Sezzle, examines how this trend can enhance revenue growth and help build a more sustainable subscriber base.

subscribers calloutA New Payment Paradigm
BNPL is gaining traction as a preferred payment method, with 16% of U.S. consumers abandoning traditional payment methods in favor of BNPL solutions. This trend is particularly pronounced among millennials, with 39% reporting they used BNPL in the past year. The surge in popularity is underscored by a 28% year-over-year increase in gross merchandise volume for BNPL purchases through a single service, indicating its effectiveness in driving sales. Subscription merchants that adopt BNPL can leverage this to capture a larger market share, transforming casual buyers into loyal subscribers.

The financial impact is significant. On Black Friday, shoppers using BNPL spent an average of $150 more than those using conventional payment methods, showcasing the heightened purchasing power this payment option enables. Millennials exhibit a strong preference for flexible payment methods, making it essential for merchants to incorporate BNPL to meet their demands. Subscribers reliant on BNPL are 2.9 percentage points more likely to cancel if this option is unavailable, emphasizing its importance in maintaining customer satisfaction.

Enhancing Subscriber Experiences
BNPL enhances the overall subscriber experience by offering flexibility that aligns with consumer expectations. In the subscription economy, 30% of subscribers generate 79% of total revenue, highlighting the importance of retaining loyal customers. To combat churn, which has become a solvable issue for 96% of businesses, subscription merchants must adopt data-driven strategies, integrating BNPL into seamless onboarding processes and exemplary customer service. Read more

Sept. 27, 2024: Technology & Payments Articles

The Programmable Money Promise: Potential Advantages and Opportunities at Stake

Imagine a case where a payment sent by a buyer is credited to the seller’s account only after the goods are received, or government assistance for a skill development program is disbursed only after beneficiaries complete their training on an online portal. These are just a few possibilities that programmable money can bring to life.

Rajashekara V. Maiya and Raktim Singh, Fintech Futures

Programmable money is a revolutionary concept poised to enhance monetary and financial systems by enabling seamless securities settlements, tokenized deposits, and regulatory compliance embedded within transactions.

Central banks worldwide are exploring their potential through pilots and adoption programs. For instance, the European Central Bank (ECB) is investigating the potential of a digital euro, which could incorporate programmable features for more controlled and purpose-specific transactions.

In this article, we’ll dive into the transformative promise of programmable money and the vast opportunities it unlocks.

Understanding programmable money and how it works
Programmable money can be understood as a monetary system that can be programmed with predefined rules and conditions, dictating the terms of its usage. According to JP Morgan, “programmable money takes things a step further by embedding rules directly within the store of value itself. These rules dictate or restrict the usage of money, introducing new levels of control and security.” This controlled usage differentiates it from other forms of digital monetary systems.

There are various conditions that can be attached to programmable money. Using contractual agreements, it is possible to even incorporate monetary policies into programmable money and create stability by making rule-based adjustments to interest and inflation rates etc. Or, in the retail context, parents can allocate a portion of their children’s pocket money to healthy snacks, to limit the consumption of junk food. Read more 

Walmart to Offer Instant Bank Payments

Walmart is teaming up with Fiserv to let online shoppers pay directly, and instantly, from their bank accounts.

FinExtra

According to Bloomberg, the retail giant is tapping into Fiserv’s NOW Network, which integrates with The Clearing House’s Real Time Payments network and the Federal Reserve’s FedNow. The feature – coming next year – provides shoppers with an alternative to the card networks, which Walmart and other retailers have long been in conflict with over interchange fees.

The company first dipped its toe into pay-by-bank earlier this year with Walmart Pay. However, with payments processed through the Automated Clearing House, transactions took around three days to finalize. On the latest feature, Jamie Henry, VP, emerging payments, Walmart, tells Bloomberg: “When the transaction processes as a real time payment, customers get immediate access to see that payment come through, I see it hit my account and I can properly budget. It’s not as if I’ve got this phantom payment out there that’s going to take place a couple days down the road.”

The new offering is a sign that FedNow and RTP are maturing, as enough banks connect to the systems to make it attractive to large retailers. Matt Wilcox, head, digital payments, Fiserv, tells Bloomberg: “As an industry we believe we need to create this connectivity. “FedNow and RTP, they don’t necessarily talk to one another. The NOW Network can play that role in the industry of bringing all these networks together to enable applications like pay-by-bank.”

Multi-banking: Convenience or Chaos?

Dharmesh Mistry, Fintech Futures

Since the dot-com boom, I have heard people saying that the end of banks is nigh.

The direction of travel is clear – we are all going to be increasingly “multi-banked.” After the dot-com bubble burst, they said that mobile banking will kill the banks, but that view subsided as banks launched their own mobile services. With the arrival of open banking and the launch of many new digital banks, we again began to hear that the demise of traditional banks is coming. However, as of now, I don’t know of any traditional bank that has closed because their customers went off to digital providers.

It’s difficult to find exact numbers of how many products a customer has with their bank, let alone the number of financial institutions they have to deal with. The picture is complex, so I am actually not surprised these numbers aren’t readily available. However, what is surprising is that although we have more new banks, the rates of attrition from incumbent banks are low.

Neobanks Monzo, Starling and Revolut have 20 million users between them in the UK. Of course, there will be overlapping customers that have accounts with two or even all three. However, at the end of last year, the top three banks that gained customers from switching accounts were Nationwide, Barclays and Lloyds. And the number one reason given as to why they switched was for better online/mobile banking, according to Pay.UK. Read more 

Buy Now, Pay Later Services to Hit Record This Holiday Shopping Season

BNPL firms like Klarna, Afterpay, and Affirm are set to take market share away from debit cards and other forms of payment on purchases.

Fast Company/Reuters

U.S. shoppers are expected to spend a record $18.5 billion using third-party buy now, pay later (BNPL) services for holiday purchases in the last quarter of the year, according to projections by data firm Adobe Analytics released on Wednesday.

With many Americans recently carrying more debt, spending on buy now, pay later services is set to increase by 11.4% over the holiday season a year ago, Adobe said. BNPL services let shoppers expand their purchasing power by paying for merchandise in monthly installments spread out over as many as 36 months; however, the most common payments are four-installment plans.

The expected jump in spending using BNPL exceeds the projected 8.4% increase in overall spending in the upcoming holiday-shopping period, which could reach about $240.8 billion, according to Adobe Analytics. Its forecast applies to the period between November 1 and December 31.

That means that firms such as Klarna, Afterpay, and Affirm are set to take market share away from debit cards and other forms of payment on purchases of electronics and beauty products for the holidays, a time when many shoppers increase their debt by purchasing gifts. Yet some shoppers use credit cards to cover the installment payments due with BNPL services, which consumer watchdogs say could worsen their debt. Read more

 

Sept. 20, 2024: Technology & Payments Articles

Anti-Money Laundering Compliance in High-Risk B2B Payments

Lissele Pratt, Forbes Business Council

While the struggle against illicit gains has been a constant in finance, it’s a battle that has changed over time, with evolving laws, rules, and practices.

What Is Anti-Money Laundering?
Anti-money laundering (AML) aims to stop illegal money from entering the financial system. It’s crucial for high-risk sectors like cryptocurrency, gambling and international trade.

It encompasses a wide range of potential financial crimes—from the more traditional offenses like corruption and tax evasion to newer challenges like money laundering through digital currencies, fraudulent transactions in online gambling or illicit financing linked to cross-border trade.

AML involves verifying customers (“know your customer” or KYC), keeping detailed records, and reporting suspicious activities. Failure to comply can lead to hefty penalties; for example, Binance paid over $4.3 billion in 2023 for violating AML laws.

AML Through The Years
In 1970, the U.S. kicked off its anti-money laundering efforts with the Bank Secrecy Act. By 1989, the Global Financial Action Task Force (FATF) was formed to set international standards and later added terrorism financing to its scope.

The IMF helps 189 countries keep the global financial system stable, while the EU introduced its first anti-money laundering directive in 1990, which is updated regularly. In the U.K., the Proceeds of Crime Act 2002 (POCA) handles AML laws, and even after Brexit, the U.K. still follows FATF guidelines and EU regulations.

Tips For Creating An AML Compliance Framework
Now that you understand AML compliance, here are some tips for creating an effective AML compliance framework. While the examples noted are for high-risk businesses, you should be able to do this whatever business you run. Read more

Consolidation Trend Puts Bank-FinTech Partnerships in New Light

Pymnts.com

Good things tend to consolidate as the cream rises to the top.

The FinTech sector has seen meteoric growth over the past decade, disrupting traditional financial services and revolutionizing how consumers and businesses transact. Recent trends, however, indicate a shift toward consolidation in the space.

However, while bank-FinTech collaborations offered the promise of blending the strengths of both parties — stability from financial institutions and innovation from FinTechs — many smaller players, particularly those with unproven technology, began to fall away as the FinTech ecosystem matured.

The shift marked a departure from the period of rapid expansion and experimentation that characterized the early days of bank-FinTech partnerships. Now, the market is composed of banks that are more selective in choosing partners and FinTechs that have proven their value proposition, Kiewiet said.

The Best of Both Worlds: Using Bank Strengths and FinTech Innovation
At their best, bank-FinTech partnerships allow both parties to use each other’s strengths.

“It’s the promise of the best of both worlds,” Kiewiet said.

He highlighted how banks provide the stability that customers value, ensuring that core functions like safeguarding deposits remain reliable and consistent. On the other hand, FinTechs bring speed and innovation, enabling services such as real-time payments and access to funds that meet modern consumer expectations. This synergy is crucial, as it allows banks and FinTechs to deliver enhanced financial services without each side needing to become what they are not. Read more

U.S. Regulator Proposes Strengthened Rules for Banks Working with Fintechs

Hannah Lang, Reuters

Summary

  • FDIC proposes banks identify beneficial owners of fintech accounts
  • Synapse Financial’s bankruptcy led to freezing of thousands of accounts
  • DOJ withdraws 1995 bank merger guidelines in favor of broader rules

A top U.S. banking regulator on Tuesday proposed that banks bolster recordkeeping requirements for accounts held by fintech companies on behalf of their customers, following the collapse of bank-fintech middleman Synapse Financial Technologies earlier this year that led to the freezing of thousands of accounts.
Taken together, the new requirements would ensure that consumers have timely access to their funds, even in the absence of a bank’s failure, the Federal Deposit Insurance Corp said.

The FDIC also finalized updated bank merger guidance, and separately, the U.S. Justice Department announced it would be withdrawing from its 1995 bank-specific merger guidelines in favor of its broad merger guidelines finalized late last year.

Under the FDIC’s proposal to strengthen recordkeeping, banks that work with fintech companies would need to identify the beneficial owners of each account and its balance. Third parties — like Synapse — would be allowed to maintain those records as long as certain requirements are met, such as a bank retaining unrestricted access to that data even in the event of a middleman’s bankruptcy or insolvency. Read more

Affirm Opens BNPL Offering to Apple Pay Users

Pymnts.com

Buy now, pay later (BNPL) network Affirm is now available for Apple Pay users.

bnplThe integration, announced Monday (Sept. 16), lets Apple Pay users in the U.S. pay for purchases via iPhone and iPad over time using Affirm, breaking down their payments into biweekly or monthly installments. “We are thrilled to bring the power of Affirm to Apple Pay users in the U.S. and the retailers where they shop,” Vishal Kapoor, Affirm’s senior vice president of product, said in a news release. “This integration combines the ease, convenience and security of Apple Pay alongside the features users love in Affirm — flexibility, transparency and no late or hidden fees.”

To use the service, consumers with iOS 18 and iPadOS 18 or later can pick “Other Cards & Pay Later Options” when checking out with their Apple device before undertaking an eligibility check that will not affect their credit score. Users who are approved will see customized payment plans and can select the one that works best for them.

Last month, Affirm released earnings showing a 31% year-over-year growth in gross merchandise volume (GMV), reaching $7.2 billion, as well as a 48% surge in revenue, taking in $659 million. As PYMNTS wrote, these figures “underscore the growing appetite for flexible payment options as consumers deal with financial pressures.” CEO Max Levchin told analysts on an earnings call that potential reductions in interest rates could increase BNPL usage. Read more

Sept. 13, 2024: Technology & Payments Articles

Revolut Sees Jump in Scam Complaints as APP Fraud Grows

Pymnts.com

Revolut enjoys the distinction of being the most valuable FinTech in Europe.

But as a report Wednesday (Sept. 11) by Bloomberg News points out, the company has also been saddled with a less desirable title: it leads its competitors in complaints about authorized push payment (APP) scams.

These are scams in which fraudsters dupe their victims into transferring money to an online account beyond their control. Last year, Bloomberg notes, Revolut began to show greater pushback on requests for reimbursements from thousands of victims. Data from the United Kingdom’s Financial Ombudsman Service says this triggered a wave of customer complaints, more so than the ones made about all other U.K. competitors combined.

According to Bloomberg, Revolut has increased its anti-fraud efforts. The company has a seat on the advisory board of Cifas, the U.K. agency that fights economic crime, and has bolstered advertising on its security features. And Revolut’s lead anti-fraud executive has even given evidence before an inquiry by the British Parliament.

The report also points to recent comments by Revolut U.K. CEO Francesca Carlesi, who argues there is external “misperception” around the company’s approach to fraud. “We have a duty and moral obligation to be a pioneer to fight fraud,” she said, adding that the company considers the problem a “national emergency.”

Last month, the U.K.’s Payments Systems Regulator (PSR) issued a report showing that APP fraud rose in volume last year, from 224,603 in 2022 to 252,636 last year, a 12% increase. However, fraud cases also declined in value by the same amount, coming to nearly 341 million pounds ($433 million) last year. Read more

VIDEO Bank-Fintech Partnerships: Tensions on the Rise

K&L Gates

Our speakers discuss the recent Request for Information promulgated by federal regulators, which is seeking industry input on bank-fintech partnership arrangements. Specifically in light of Synapse’s failure, the RFI solicits information on the nature of these arrangements, effective risk management practices, and the implications of such arrangements.

We have guided both fintech and banking clients (as well as digital asset clients) as they’ve navigated these new waters in forming partnerships. Our panelist—along with a Q&A—discuss problems currently facing the industry as well as possible solutions to enable more robust and compliance solutions, including Banking-as-a-Service. (Registration required to watch, CLE Credit Available)

Speakers (Click here to watch)

  • Jeremy McLaughlin
  • Grant Butler
  • Andrew Glass
  • Jennifer Crowder
  • Greg Blase
Klarna Forges Strategic Alliance to Revolutionize Payment Options in the $1T Air Travel Sector

FinTech Global

UATP, renowned for its robust global payment network that facilitates streamlined payment processes, has entered into a strategic alliance with Klarna, a leader in AI-driven global payments.

This partnership introduces Klarna’s flexible payment solutions, including its popular interest-free Buy Now Pay Later (BNPL) service, to UATP’s extensive network of airlines and travel agencies.

This collaboration represents a pivotal junction for both entities, leveraging their complementary strengths. Klarna will gain unprecedented access to a broad spectrum of airlines and travel agencies across the EU and APAC regions, establishing itself as a preferred BNPL provider. The partnership is strategically positioned to tap into the $1trn air travel market, currently dominated by credit card payments which incur substantial costs for airlines and hefty interest fees for consumers.

UATP stands out in the travel payment sector for its capability to simplify complex payment systems and extend versatile payment options to a global clientele. On the other hand, Klarna, a pioneer in the BNPL space, offers a range of payment methods from immediate settlements to flexible, short-term financing solutions. Klarna’s offerings are particularly appealing due to their transparent terms and high consumer repayment rates, which boast a 99% success rate globally. Read more

PERSPECTIVE: ‘Banks Use About 35% of Their Available Technology, and We Didn’t Want to Be That Bank’: On Evolving Tech Preferences Among Community Banks

Sara Khairi, Tearsheet

Community banks have weathered a storm of challenges in recent years, including macroeconomic pressures and the uncertainty following three regional bank failures in 2023. In particular, young community banks launched during the peak of Covid-19 have had to contend with additional complexities due to their timing.

These community banks may operate on a smaller scale, but their ambitions rival those of Wall Street giants. As the digital wave sweeps across the globe, these banks are not just staying in the game — they’re hustling to keep pace and stay relevant by adopting emerging technologies.

One example is Atlanta’s Craft Bank, which opened its doors in 2020, right when the world was facing a pandemic. Primarily a commercial bank with a business-centric focus, Craft Bank currently operates with a team of 19 employees and manages total assets of $250 million.

Ross Mynatt, CEO of Craft Bank, joins us to discuss his journey as a first-time CEO, the choice of Jack Henry as their core tech partner, and the strategies behind Craft Bank’s $250 million asset growth at a time when most smaller institutions were struggling just to stay afloat.

Throughout our talk, it becomes evident that although 92% of banks aim to maintain or elevate their technology spending in 2024, community banks and large financial institutions take markedly different approaches when it comes to investing, forming partnerships, and selecting technology providers.

Ross also discusses whether community banks could potentially leverage technology more effectively than their larger peers. This first episode kicks off a three-part series exploring the tech and partnership strategies of three emerging community banks. First up: Craft Bank – its origin and its tech evolution. Let’s dive in! Read more

Sept. 6, 2024: Technology & Payments Articles

U.S. Wants EU Members to Give Access to Travelers’ Biometric Data By 2027

Masha Borak, BioMetric Update

The U.S. authorities continue to push for access to EU member states’ biometric databases to conduct traveler screening as part of its visa-free travel regime.

The U.S. wants all countries participating in the U.S. Visa Waiver Programme (VWP) to sign the Enhanced Border Security Partnership (EBSP) agreement by 2027, according to a document circulated by the Belgian Council Presidency in June and published by the non-governmental organization Statewatch last week.

Alongside the International Biometric Information Sharing Program (IBIS), EBSP is designed to gain access to national biometric databases to authenticate travelers’ identities. The EBSP would require direct connections between the biometric databases of participating states and the U.S.’ IDENT/HART system.

Almost all EU member states are covered by the U.S. Visa Waiver Programme. The proposed transfer of biometric data, however, is not covered by any existing EU-U.S. agreement.

In the document, the Belgian Presidency suggests that a new international treaty may be needed for the transfers. At the same time, EU lawmakers are also questioning whether the data exchange would be possible under EU legislation. Read more 

Circle of Trust: How Digital Identities Can Secure the Gig Economy Against Fraud

PYMNTS.com 

Fraudsters, like consumers, love a good deal.

And the gig economy, estimated to be worth half a trillion dollars in 2023 and employing 38% of the U.S. workforce, is becoming their latest target — with more than a third of U.S. consumers report being victims of fraud on gig platforms, a rate 10 times higher than any other fraud circumstance.

“The challenge is that anyone can join these platforms … therefore, the bad folks do as well,” Rodger Desai, CEO at Prove Identity, told PYMNTS’ CEO Karen Webster, explaining that the open nature of platforms like DoorDash and Uber — as well as their fundamental utility — make them attractive targets for bad actors.

Many gig economy platforms allow users to operate under pseudonyms or remain anonymous. While this can provide privacy for legitimate users, it also opens the door for fraudsters to create multiple fake accounts or impersonate others without fear of immediate detection. This anonymity makes it challenging to track and hold scammers accountable.

The challenge in fighting fraud within the gig economy, Desai said, lies in balancing security with the need for rapid onboarding and user convenience.

Establishing a Trust Network
As the gig economy grows, so do the techniques used by fraudsters. From phishing scams and account takeovers to synthetic identity fraud and fake reviews, the evolving nature of fraud in the gig economy requires constant vigilance. Fraudsters often stay ahead of security measures, exploiting new technologies and vulnerabilities as they arise. Read more

Fed Governor Waller Cool on Interlinking Fast Payment Systems

FinExtra Editorial Team

Federal Reserve governor Christopher Waller has cautioned against the clamour to interlink national fast payment systems, insisting that the US is focused on building up its FedNow network domestically.

The interlinking of fast payment systems is a plank of the G20 roadmap for boosting cross-border payments. Several countries have put bilateral agreements in place while many more are experimenting, including via BIS projects. However, in a speech at an event in India, Waller warned about the drive for ever faster cross-border payments.

“Not all frictions that slow payments down are bad. Certain frictions are purposely built into the global payment system for compliance and risk-management reasons. Slowing down the speed at which payments are cleared and settled helps banks prevent money laundering and counter the financing of terrorism, detect fraud, and recover fraudulent or misdirected cross-border payments,” he told his audience.

Not only this, but buyers often have an incentive to wait as long as they can to pay for something they have purchased. Says Waller: “So, I am still left with the larger question of whether we should be incentivising faster cross-border payments.”

The governor also highlighted the practical complications of linking systems, noting that Brazil, India and the US all have very different models. Waller warns that “achieving interoperability is not simple,” and that “technology is probably the easiest part,” compared to the legal, compliance, settlement, and governance challenges. Read more 

Visa Debuts a New Product Designed to Protect Consumers Making Bank Transfers

Ryan Browne, CNBC

Key Points

  • Visa said it plans to launch a dedicated service for account-to-account (A2A) payments, skipping the traditional — and often inflexible — direct debit process.
  • Visa said consumers will be able to monitor these payments more easily and raise any issues by clicking a button in their banking app.
  • The product will initially launch in the U.K. in early 2025, with subsequent releases in the Nordic region and elsewhere in Europe later in 2025.

Visa said it plans to launch a dedicated service for bank transfers, skipping credit cards and the traditional direct debit process. Visa, which alongside Mastercard is one of the world’s largest card networks, said Thursday it plans to launch a dedicated service for account-to-account (A2A) payments in Europe next year.

Users will be able set up direct debits — transactions that take funds directly from your bank account — on merchants’ e-commerce stores with just a few clicks.

Visa said consumers will be able to monitor these payments more easily and raise any issues by clicking a button in their banking app, giving them a similar level of protection to when they use their cards.

The service should help people deal with problems like unauthorized auto-renewals of subscriptions, by making it easier for people to reverse direct debit transactions and get their money back, Visa said. It won’t initially apply its A2A service to things like TV streaming services, gym memberships and food boxes, Visa added, but this is planned for the future. Read more

Aug. 29, 2024: Technology & Payments Articles

OPINION: Are Digital Wallets Safe? New Research Says ‘No’

Masha Borak, Biometric Update

Digital payment wallets have exploded in recent years and are expected to reach 5.2 billion users globally by 2026. But despite the popularity of quick payments offered by ApplePay, GPay, and PayPal, a new study is questioning their security and warning that changes in authentication methods are necessary to avoid identity theft and fraud.

Researchers from the University of Massachusetts Amherst and Pennsylvania State University analyzed the security of financial transactions through digital wallets, focusing on authentication, authorization, and access control security functions.

One of the issues identified is a weakness in how authentication methods are determined. Banks usually delegate the choice of user authentication method to the wallet. Generally, two types of authentication methods are used: knowledge-based authentication (KBA) and multi-factor authentication (MFA). When it comes to cardholder verification methods (CVMs) on smartphones the choices fall to either a passcode, pattern or the biometric authentication native to the device.

But while delegating authority for authentication is efficient and scalable, this compromises security, the researchers argue.

“We identify that a foolproof and uniform authentication policy enforcement by the bank is missing for all wallets,” the study says. “Such delegation of authentication is flawed in that an attacker can dictate the bank to accept a weak authentication procedure which gives birth to a number of security vulnerabilities.”

The paper, titled “In Wallet We Trust: Bypassing the Digital Wallets Payment Security for Free Shopping,” warns that some attacks could lead to serious consequences, including thieves making purchases with stolen bank cards despite banks blocking them. As digital wallets require sensitive personal and financial information, security issues may lead to identity theft and financial fraud. Read more

Aeropay Targets Pay-By-Bank Evolution in U.S.

Lynne Marek, Banking Dive

The Chicago fintech has moved from servicing small merchants to handling cannabis payments, and now it’s catering to gaming clients.

Aeropay CEO Daniel Muller has big dreams for ushering in the next era of payments in the U.S., but that doesn’t mean it’s going to happen anytime soon. Muller, 37, founded Aeropay in 2017 and has been slowly expanding the company’s pay-by-bank brand of payments one vertical at a time.

Pay-by-bank is part of a broader account-to-account, or bank-to-bank, payment method that relies on the ACH Network. It has been gaining ground in the U.S. for years, mainly because it’s a lower-cost means of sending payments, but ACH transfers are often slow, unless a user pays up for same-day service.

Last year’s launch of FedNow, the Federal Reserve’s instant payments system, has the potential to speed up bank-to-bank money movement, and that could increase the allure of such payments. However, that requires the uptake of FedNow by more banks.

“There is a lot of interest around this concept of pay-by-bank, being able to use your bank account essentially as the way that you would use cash,” said Peter Tapling, a payments industry consultant based in the Chicago area.

Nonetheless, merchants and consumers aren’t that familiar with the concept at this point. “Pay-by-bank is evolving — everybody doesn’t understand how it works yet,” Tapling said. “So, one of the things that Aeropay offers is portions of that ecosystem that help the merchants and the consumers understand how it works.” Read more

Apple Set to Open Up Access to NFC Tech to Third-Party App Developers

Cameron Emanuel-Burns, FinTech Futures

Apple has announced it will soon grant third-party app developers in a number of locations access to its near-field communication (NFC) contactless payment technology.

The company says that starting with iOS 18.1, developers in the US, Australia, Brazil, Canada, Japan, New Zealand, and the UK will be able to offer in-app contactless transactions “from within their own apps on iPhone, separate from Apple Pay and Apple Wallet”, by leveraging its NFC technology and the Secure Element (SE) chip, which safely stores sensitive information on the device.

Following the release of the iOS 18.1 update, supported transactions will include in-store payments, closed-loop transit, corporate badges, car keys, event tickets, home and hotel keys, student IDs, and merchant loyalty and rewards cards. Apple also announced that support for government IDs is planned for the future.

The move comes after the European Commission earlier this year accepted commitments by Apple to open up access to tap-and-go technology on iPhones to several European nations for the next 10 years to settle an antitrust investigation by the commission.

Apple, which recently declared it was discontinuing its BNPL service in the US, adds that to offer NFC transactions, developers will need to enter into a “commercial agreement” with the firm and “pay the associated fees”. The tech giant explains the fees will ensure only “authorised developers” who meet specific industry and regulatory requirements and adhere to Apple’s “ongoing security and privacy standards” can access the company’s technology.

Fast-Growing Immigrant-Focused Neobank Comun Has Secured $21.5M In New Funding Just Months After Its Last Raise

Mary Ann Azevedo, Tech Crunch

Comun, a digital bank focused on serving immigrants in the United States, has raised $21.5 million in a Series A funding round less than nine months after announcing a $4.5 million raise, TechCrunch is the first to report.

This is a crowded space, filled with a number of startups, including Tanda, Bloom Money, Majority, Welcome Tech, Maza and Pillar. So the fact that Comun was able to raise capital in back-to-back rounds in such a short amount of time is notable. PitchBook estimated its previous valuation, after its last raise, to be $62 million. CEO and co-founder Andres Santos said PitchBook’s valuation was “inaccurate” and that the company’s current valuation “has increased by more than 50%.”

The New York-based startup’s traction is what drew investors to double down. Comun grew monthly revenue by “50x” in the first six months of 2024, according to Santos. While that growth implies that its initial revenue was low, it does show a fast rate of adoption. He also said the company has grown in users and increased revenue per user by about 4x since the start of the year after launching new products.

Santos and his co-founder Abiel Gutierrez started Comun in late 2021 after facing financial exclusion in the U.S. when they migrated from Mexico. They set out to offer digital banking services, including instant payments and cash withdrawal at numerous locations, check deposits and early paychecks, to Latino immigrants.

For instance, they provide native Spanish-speaking reps seven days a week, and allow customers to apply for an account using 100 ID types from Latin America, including foreign country passports. Most traditional banks require customers to have a U.S. Social Security card or proof of address, for example a mortgage or utility bill. Read more

Aug. 23, 2024: Technology & Payments Articles

Klarna Takes on Banking with New Savings, Cash-Back Offerings

Mary Ann Azevedo, TechCrunch

Swedish fintech giant Klarna is rolling out two new products on Thursday that could make its buy now, pay later offerings more enticing to use.

The company is offering consumers in the U.S. and 11 European countries the ability to store money in a Klarna “balance” account, where they can deposit money directly from their bank account. They can use the money to pay for purchases in full or to pay for their installments when they use Klarna’s BNPL service.

Klarna’s marketing slogan for this is “save now, pay later,” the company said. Klarna isn’t offering shoppers interest on that cash account like a typical savings account in the United States yet but “the plan is to get there,” according to a company spokesperson. It does pay interest of up to 3.58% in Europe, she added.

The company is also offering consumers the ability to get cash back on shopping without using a Klarna-issued credit card. Consumers making purchases through the Klarna app will now be able to earn a percentage of those buys at participating retailers. That money will be stored in their Klarna balance account. The cash-back percentage varies by retailer but can be as high as 10%. It is funded by the merchants, not Klarna.

It’s an interesting twist for 19-year-old Klarna, which started out as a buy now, pay later company and has gradually evolved its model over the years. It moved toward offering more traditional banking products several years ago when it unveiled the Klarna card first in Sweden in mid-2019 and then in Germany in 2021 and the United Kingdom in 2022. The card was released to a waitlist in the United States in April, marking the first time consumers in the U.S. could apply for one. It is now available to consumers in the U.S. Read more

OPINION: Big Tech Threatens Legacy Financial Services Market with Biometric Payments

Kris Cooper, GlobalData/Yahoo Finance

Big Tech poses a significant threat to established financial services companies with biometric payments products, according to a new report.

GlobalData’s Future of Financial Services report examines how disruptive technologies such as AI, cryptocurrencies, and quantum computing are impacting the financial services industry. Over the past two decades, Big Tech companies have have set their sights on payments products within financial services. Various companies have launched financial products such as buy-now-pay-later schemes and mobile wallets.

As Big Tech looks to create super-apps incorporating marketplaces, financial services will integrate directly into these platforms. Both Amazon and Apple have launched retail banking products, but GlobalData warns that the companies may face regulatory challenges in doing so.

Biometric payments as standard
As new technologies disrupt the industry, one of the most significant advancements in the financial services sector is the capacity for biometric payments. According to the report, biometric payments will be mainstream by 2035, with traditional financial institutions becoming more involved in utilising the technologies.

By 2035, financial services companies will be utilising biometric-based national IDs from payment authentication, with retailers installing biometric scanners such as fingerprints, facial recognition and iris scanners at point-of-sale terminals. This payment method will replace traditional methods like cards and PINs. Read more

Zip to Offer BNPL to US Merchants Using Stripe

PYMNTS.com

Zip’s buy now, pay later (BNPL) offering will be generally available later this year as a payment method for U.S. merchants using Stripe. Its availability in the United States is currently limited to beta users.

These merchants will be able to enable Zip as a payment method with a single click in their Stripe dashboard, thereby offering BNPL to their customers at checkout, Zip said in a Thursday (Aug. 15) press release. “Our goal at Zip is to provide customers transparent and flexible credit solutions that enhance their financial autonomy while providing merchants access to a new and motivated customer base,” George Eliopoulos, chief commercial officer at Zip, said in the release.

Zip’s algorithm enables more people to access credit, enabling merchants to reach a new segment of customers and increase both conversion rates and basket sizes, according to the release. The company’s payment method is currently used by 6 million consumers and 79,000 merchants across the United States, Australia and New Zealand, according to the release.

The partnership of Zip and Stripe in the U.S. marks an extension of a collaboration that began last year in Australia, per the release. Zip teamed with another payments and commerce infrastructure provider, Primer, in September to expand its share of the U.S. BNPL market. The BNPL provider said at the time that its partnership with Primer will let merchants in the retail, fashion, travel and mobility sectors make Zip part of their payments stack.

Read more

JPMorgan, Zelle May Have Upper Hand If Litigation Ensues

Patrick Cooley, Banking Dive

If the banks that own Zelle’s parent battle the Consumer Financial Protection Bureau in court, they may find some federal judges open to their arguments, said lawyers specializing in the area. With the Consumer Financial Protection Bureau investigating the peer-to-peer payment tool Zelle, its bank owners are on the defensive.

However, Zelle’s owners might find a friendly reception in the federal courts if they follow through on threats to litigate, according to lawyers familiar with the industry. Zelle is owned by seven banks through the parent company Early Warning Services.

JPMorgan Chase, the biggest U.S. bank and an EWS owner, has said it would consider suing the CFPB over the investigation of the payments tool, if the agency issues an enforcement action against the bank over transfers through Zelle. Bank of America, Wells Fargo, Capital One, Truist, PNC and U.S. Bank also share ownership of Zelle.

Business-friendly rulings have made headlines in recent years, including a decision that undercut the Chevron doctrine. That was one of several rulings in the Supreme Court’s past term that limited the power of federal regulators. Attorneys following the CFPB’s Zelle probe say the seven banks that own the payment platform may be able to find a judge sympathetic to their cause.

The agency is looking into “the transfers of funds through the Zelle Network,” a recent JPMorgan filing said. The filing does not elaborate, but regulators and lawmakers have long criticized Zelle over scammers using the service. Victims have testified before Congress about losing their life savings to scammers who convincingly impersonated legitimate business executives and government investigators. Read more

Aug. 16, 2024: Technology & Payments Articles

OPINION: What the U.S. Open Banking Rule Means for Consumers, FIs, and Fintechs

Scott Hamilton, FinExtra

Interest is growing quickly – no doubt accompanied by some deep-seated indigestion as well – as US financial institutions, fintechs, and related service providers await the expected release of a key new US rule on Open Banking (Section 1033).

While most agree it will bring positive advances for consumer data control and protection to the customer banking experience as a whole, many industry experts are throwing up caution flags to 1033’s proponent agency, the Consumer Financial Protection Bureau (CPFB), about growing operational and compliance concerns they have with the pending regulation’s complexity and timing.

As the American Bankers Association said to preface a letter posted as a formal comment on behalf of its members to the proposed rule, “While some components may be functional, others may appear reasonable in the abstract but will break down in practical application.”

Others around the industry are also sharing questions or objections they’re hearing regarding the new regulation. They recognise that legitimate process and authority enhancement – primarily in data handling and banking relationship portability – are coming, and in fact many welcome the business expansion opportunities that being out front of their competitors on this landmark consumer-empowering rule might bring. Yet they’re still concerned about the short period of time allocated for them to do a great deal of preparation, in light of the CFPB’s proposal for an unusually aggressive implementation timeline. Read more

How Embedded Payments Are Changing the Way We Pay

Patrick Cooley, Banking Dive

There was a time when ride-share company Uber’s almost imperceptible app-based payments system was an outlier.

Uber’s payments process was one of the earliest forms of embedded payments, a concept that entails the streamlining of a checkout process so consumers barely know they’re hitting the ‘pay’ button. Businesses take a consumer’s payment information when that person signs up for services, and never asks for it again. Instead, the service provider charges automatically for each transaction.

Now, embedded payments are a part of a broader move toward service providers’ use of embedded finance, by which merchants and retailers offer consumers not only payments services, but also sell them other services such as insurance, bank accounts and loans.

As use of embedded payments rises, this primer is intended to give industry professionals and others a better understanding of the role this advancing technology plays in the marketplace.

When a payment is “embedded,” that means the process of paying is woven so seamlessly into an app or website that it is almost invisible to the consumer, Vinay Prabhakar, chief marketing officer for the Jersey City, New Jersey-based payments company Volante Technologies, said of embedded payments. Read more

Moneyhub Research Highlights Customer Dissatisfaction with Digital Financial Services

The Fintech Times

Many consumers are dissatisfied with the digital services offered by financial institutions, with a significant number seeking better access to financial products and personalised advice, research has revealed.

Moneyhub‘s new research highlights this gap, suggesting that financial firms have an opportunity to innovate by adopting technologies like open banking to better meet customer expectations and enhance their service offerings.

Its study found that 50 percent of consumers want easier access to financial products and services without the need to visit physical branches, reflecting a clear demand for more convenient digital solutions. Additionally, 47 percent of respondents expressed a desire for more personalised advice, highlighting the need for financial services to offer tailored solutions that address individual needs.

As the UK government pushes forward with initiatives such as the Digital Information and Smart Data Bill to enhance data usage for economic growth, the research indicates that financial institutions are at risk of falling behind if they do not modernize their digital offerings.

The report also revealed that 36 per cent of customers believe open banking could positively impact the quality and range of available products, with this sentiment even stronger among younger consumers aged 18 to 34. Read more

Credit Unions vs Big Tech: Winner Gets the Customer

PYMNTS.com

For banks — and especially for credit unions — the battle with Big Tech for the hearts, minds and wallet share of consumers may seem a more than challenging proposition.

After all, Big Tech’s role across all facets of everyday life is pervasive, touching on everything from commerce to search to social media to the actual devices in one’s hand (think Android and Apple) where banking services and products can be delivered.

In the report “How Top-Performing Credit Unions Innovate to Stay Competitive,” a collaboration between PYMNTS Intelligence and Velera, we found that even among top-performing credit unions (CUs), who have relatively high scores on membership satisfaction, a majority (at 56%) view Big Tech firms as key competitors. Overall, 28% of CUs say they compete with Big Tech companies.

Digital Wallets and Big Tech Supervision
There are, of course, signs that the competitive landscape will only get more competitive. As has been seen through the past several months, and as noted here, last year the Consumer Financial Protection Bureau (CFPB) sought to extend the same supervision to Big Tech firms that already is in place for banks and credit unions.

The supervision would apply to companies that see volumes of more than 5 million transactions annually, which of course covers everyone from Apple to Amazon to Meta’s financial ambitions. All told, the CFPB’s rule-making would add 17 new entities to its purview, companies that facilitated about 12.8 billion transactions in 2021, with an estimated value of about $1.7 trillion, covering 88% of known transactions in the nonbank sector. Read more 

Aug. 9, 2024: Technology & Payments Articles

JPMorgan threatens to sue CFPB over Zelle

Dan Ennis, Banking Dive

The bank in May flagged government inquiries over its handling of disputes involving the P2P platform. But Friday, it said it would consider litigation if the agency issues an enforcement action.

JPMorgan Chase may sue the Consumer Financial Protection Bureau if the agency issues an enforcement action against the bank over transfers of funds through peer-to-peer payments platform Zelle.

In a quarterly filing Friday, JPMorgan said it is “responding to inquiries” from the CFPB on the matter. The agency “has informed” JPMorgan “that it is authorized to pursue a resolution of the inquiries or file an enforcement action,” the bank said. “The Firm is evaluating next steps, including litigation,” JPMorgan said Friday.

Banks’ responses and responsibilities when customers report being scammed or defrauded have long been topics of discussion among regulators and lawmakers.

Three Democratic lawmakers last week introduced companion bills in the Senate and House aiming to expand the circumstances under which consumers are protected through the Electronic Fund Transfer Act.

Sens. Richard Blumenthal, D-CT, and Elizabeth Warren, D-MA, pushed a measure Thursday that would require the harmed customer’s bank, the institution that received transferred funds, and other entities that “materially help facilitate the payments” to all share liability when consumers are defrauded into initiating a transfer to a bad actor.

The bill is also meant to bolster consumer protection in cases of wire transfer and payments authorized over the phone, and to ensure that banks’ error resolution processes don’t stop when an account is frozen or closed. Read more

Banks Want More Fintechs Regulated Under CFPB Open Banking Rule

Kate Berry, American Banker

Banks remain concerned about the security risks and liability from unregulated fintechs and data aggregators when consumers gain control over their financial data under the Consumer Financial Protection Bureau’s data access rule.

Banks and some data aggregators have asked the CFPB for an extended two-year timeframe to comply with the CFPB’s final rule on personal financial data rights. The CFPB has received more than 11,000 comment letters on its proposed open banking rule — known in the industry simply as “1033” for its section of the Dodd-Frank Act — which is expected to be finalized in October.

The CFPB’s proposal would require financial institutions that offer checking accounts, prepaid cards, credit cards and digital wallets to allow customers to share their data safely with, or transfer the information to, another provider such as a fintech company or data aggregator.

Banks already have built applications that allow more than 50 million consumers to share their bank transaction data with third-party fintechs and data aggregators. All the parties in the data sharing ecosystem will have to update public-facing websites, ensure that data is provided in an as-yet unestablished standardized format and enable support for data elements — some which, like bill payment data, are not currently shared. Read more

Paycheck-to-Paycheck Consumers More Than Twice as Likely to Use BNPL

PYMNTS

By the Numbers
The PYMNTS Intelligence report “Redefining Retail: Consumer Finance Trends Driving the Evolution of Pay Later Plans” drew from a survey of more than 2,600 United States consumers to understand how and why shoppers were using various types of installment plans.

Consumers likely to use BNPL

When it comes to BNPL, the study noted higher adoption among those facing economic challenges than those with a financial safety net. Specifically, 26% of those who live paycheck to paycheck with difficulties paying their bills said they were very or extremely likely to use BNPL in the next 12 months. A slightly lower 21% of those who live paycheck to paycheck without difficulties paying their bills said the same.

For consumers not counting on their next paycheck to get by, that share dropped. Only 10% of those who do not live paycheck to paycheck reported that they expected to use BNPL in the next year.

The Data in Context
BNPL payments are becoming more common, but the regulatory environment is in flux. Last month, Adobe Commerce announced the ability for merchants to offer their customers Klarna’s BNPL services. Since the start of the year, Klarna has also rolled out partnerships with Uber, Expedia and travel retail brand Away, among others.

Meanwhile, the Consumer Financial Protection Bureau (CFPB) ended its commentary period for its proposed BNPL regulations, leaving questions about what companies will have to do to comply with new obligations to consumers and when.

As BNPL services gain traction among consumers, particularly those facing financial hardships, the evolving regulatory landscape will play a role in shaping the future of these payment options.

A Global Look at Real-Time Payments Adoption

PYMNTS

The global demand for real-time payments continues along an upward trajectory. Nations on every continent are taking steps to accelerate transactions for both consumers and businesses.

The Central Bank of Kuwait (CBK) has approved the launch of WAMD, a new instant payment system. This system enables account-to-account money transfers using phone numbers. Facilitated by FinTech K-Net and supervised by the CBK, WAMD is being adopted by major financial institutions across the country. The system aims to enhance the national payment infrastructure, provide a safe and advanced payment option, and accelerate digital transformation in Kuwait’s financial sector.

In Australia, ANZ has become the first major bank to execute a cross-border payment into the country in near real-time. The bank utilized the New Payments Platform (NPP) network through its Express Payments service. The inaugural transaction, conducted for BNP Paribas on July 2, demonstrated ANZ’s ability to swiftly settle inbound international Australian dollar (AUD) payments to eligible non-ANZ beneficiaries. This service simplifies and accelerates payments, improving customer experience and cash flow.

Meanwhile, the European Payments Initiative (EPI) recently rolled out its digital wallet and instant payment solution, Wero, in Germany. This move marks a significant step toward creating a unified European payment system. Initially offered to customers of select banks, Wero enables rapid peer-to-peer (P2P) transactions via QR codes, email addresses or phone numbers. The EPI, comprising 16 European banks and payment service providers, will soon expand Wero service to other European countries.

Finally, the Reserve Bank of India and several Southeast Asian countries are collaborating on Project Nexus. This multilateral initiative aims to establish a platform for instant cross-border retail payments by 2026. This project seeks to connect the fast payment systems of India, Malaysia, the Philippines, Singapore and Thailand. Doing so will facilitate seamless P2P and retail transactions across borders. Read more

Aug. 2, 2024: Technology & Payments Articles

Did Regulators Send Warning Shot at Already Roiled BaaS Space?

It’s clear the Synapse debacle was on regulators’ minds when they issued last week’s statement highlighting risks associated with banks’ third-party partnerships, analysts said.

Caitlin Mullen, BankingDive

Federal banking agencies’ recent statement on bank-fintech ties points to more change on the horizon, which could lead to a rulemaking, greater engagement between regulators and non-banks, or an even smaller roster of lenders in the banking-as-a-service space, analysts say.

The Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency issued a joint statement July 25 outlining risks that may be heightened when banks deliver deposit products and services through a third party, such as risks related to compliance, liquidity and “end user confusion.”

“A bank’s use of third parties to perform certain activities does not diminish its responsibility to comply with all applicable laws and regulations,” the statement advised. It underscored that banks need to prioritize rigorous due diligence and monitoring when forging such ties.

The agencies also issued a request for information, seeking input on bank-fintech partnership arrangements.

Underscoring risk management
Both reaffirmed regulators’ heightened focus on BaaS and third-party risk. The key messages of the statement and RFI aren’t new, but “the emphasis is,” noted Michele Alt, a partner at consulting firm Klaros Group. Even though the agencies aren’t creating new supervisory requirements, “banks and their third parties should be reading this very carefully.”

While banks working with third parties for some activities isn’t novel, regulators “have observed an evolution and expansion of these arrangements to include more complex arrangements” that rely on third parties to deliver deposit products and services, the statement said. Banks tap third parties for various reasons, including to perform compliance or customer service functions, provide consumer-facing technology applications or handle dispute resolution functions. Read more

Inside Fintech’s Newest Unicorn: A Credit Card Backed by Your Home

Aven has hit a $1 billion valuation and is backed by big-name investors. But is it a good idea?

Jeff Kauflin, Forbes

In 2019, Sadi Khan was in his mid-30s, had been rising through the ranks at Facebook for six years, and felt ready for his own startup. He began looking for market inefficiencies that someone with tech smarts could profitably exploit. One that caught his attention related to consumer borrowing. For years, annual interest rates on credit card debt had been stubbornly high and rising, with the average now nearly 23%, or 14% over the current 8.5% prime lending rate. Meanwhile, the interest rate on home equity lines of credit (HELOCs), which treat a borrower’s home as collateral, were averaging less than 1% above prime, according to data from Intercontinental Exchange.

Why didn’t more consumers tap into low-rate HELOCs instead of carrying high-rate credit card debt? A big reason, Khan concluded, was convenience–it took a “ridiculous” amount of paperwork and time (often four weeks or longer) to set up a HELOC. What if he could use technology to speed up the HELOC approval process and then inject that borrowing power into a credit card, making home equity lines easier to both obtain and draw down?

Five years on, after painstaking product development, Khan’s brainchild, Aven, has 33,000 customers for its HELOC credit card and has issued $1.5 billion in credit lines. Revenue has more than tripled over the past year at the 53-person startup and is now running above $100 million on an annualized basis. Aven’s Home Card is already available in 32 states, and Khan plans to reach all 50 by the end of this year. Read more

Why Robust Compliance Is Key to Harnessing BaaS Opportunities

FinTech Global

Banking as a Service (BaaS) has been celebrated as a significant catalyst within the European FinTech industry, driving its influence on a global scale. Napier AI, which offers a financial crime compliance solution, recently explored why a risk-based compliance approach is vital for BaaS.

BaaS is an innovative approach, which separates technological solutions from traditional banking services, and has been crucial in addressing regulatory goals that aim to enhance consumer choices in financial services, Napier AI explained.

However, as the prominence of BaaS grows, so does the scrutiny from regulators, particularly concerning financial crime compliance. Initially marked by a culture of rapid innovation and development, BaaS providers are now urged to scale their anti-money laundering (AML) strategies in line with their expanding user bases, ensuring compliance is integrated from the onset.

BaaS operates under a model of embedded finance, where licensed banks integrate their digital banking services into other businesses via APIs. This model, also known as embedded banking, not only accelerates the introduction of new digital banking products but also allows non-financial businesses to incorporate financial services into their offerings.

Despite the benefits, the implementation of AML measures often remains secondary for many providers. Established financial institutions like Goldman Sachs Developer and BBVA have been participants in the BaaS landscape for years, but recently, FinTechs and neobanks have taken a leading role. The potential market value of BaaS is expected to reach $25bn by 2026, indicating a significant opportunity for the banking sector. Read more

When Does Personalization Become ‘Surveillance’? Chase and Mastercard Are Swept Up in FTC Probe

Steve Cocheo, The Financial Brand

AI and other digital technologies enable merchants to tailor prices to individuals based on past actions and purchases. Proponents call it “personalization,” but critics call it “surveillance pricing.” Banks have a role in this controversy as the Federal Trade Commission digs in.

It’s become a cliché that “data is the new oil.” Now the Federal Trade Commission wants to find out if huge troves of consumer data married to artificial intelligence and related technology is making the wheels of commerce slippery.

Sophisticated technology has spurred the development of “surveillance pricing,” in which different people are charged different prices for the same goods and services, based on their tracked, observed behavior. (One source credits the New York State attorney general’s office with coining the term.)

As portrayed by FTC in a blog post and other materials, the older practice of “targeted pricing” was based on such factors as a consumer’s address, shopping history or demographic makeup. (In banking, some such moves can trigger fair-lending violations.) Now, advanced technology and the ability to track more than ever has opened the door to “price changes based on information like your precise location, your shopping habits, or your web browsing history,” according to the blog.

“Firms that harvest Americans’ personal data can put people’s privacy at risk. Now firms could be exploiting this vast trove of personal information to charge people higher prices,” said FTC Chair Lina Khan in a statement. “Americans deserve to know whether businesses are using detailed consumer data to deploy surveillance pricing.” Read more

July 26, 2024: Technology & Payments Articles

6 Ways the CFPB Wants to Keep Its Eyes on Fintech Middlemen

Clearer guidance around “rent-a-bank,” open banking and buy now, pay later will ensure more consumers benefit, Director Rohit Chopra said in remarks last week.

Suman Bhattacharyya, Banking Dive

Fintech firms continue to face scrutiny as regulators work to ensure tech intermediaries aren’t subjecting consumers to high fees, surveillance of transactions and anti-competitive activities.

Speaking in Washington at a Semafor event last week, Consumer Financial Protection Bureau Director Rohit Chopra said the activities of fintech middlemen — particularly those with data-based business models — will continue to be the subject of rigorous oversight.

“We are on the lookout for people who want to be gatekeepers and charge tolls through the whole system,” he said. “We want to see who’s exploiting, misusing, abusing data. And we also want people to build businesses on something real, not just regulatory arbitrage.”

The CFPB is watching for companies “trying to insert themselves into the middle as a must-have resource for everyone, and then totally price-gouge people,” Chopra said, adding that the phenomenon is widespread. He cited the example of credit scoring and reporting companies that take advantage of consumers’ need for credit reporting information and scores, which operate with minimal competition.

Here are six takeaways from Chopra’s remarks:

  1. Stronger oversight and guidance for fintechs
    The rules under which fintechs operate need to be simpler and shouldn’t only benefit incumbents, Chopra argued. Clearer guidance means companies avoid a “shakedown of lawyers” as they strive to navigate uncertainty. “We inherit laws that are written by Congress,” Chopra said. “They’re often written sometimes for very specific circumstances; sometimes they’re written just very, very broadly, and we have to deal with that.” The CFPB, he said, has long had an issue with “rent-a-bank” partnership models. Read more
Supreme Court Rulings May Shake Up Banking Entry Decisions in Fintechs’ Favor

Michele Alt, The Financial Brand

Analysis: The ink is barely dry on four Supreme Court decisions that intersect in a way that could clear the way for fintech applicants to obtain charters and deposit insurance as well as Federal Reserve master accounts. It’s early days, but lawyers are already figuring how to use the change in the Court’s stance.

In recent years, federal banking agencies have approved very few new bank applications and the Federal Reserve has been reluctant to grant master accounts to nontraditional banks.

These situations — and potentially more — may be about to change in light of four recent Supreme Court decisions that together have seriously curbed the powers of administrative agencies. That would be a boon for fintechs and other nontraditional applicants seeking entry into the banking system.

Capsules of the Four Cases that Will Amend Banking Regulation
Here’s a quick rundown on the four cases the Court decided:

  • In Loper Bright v. Raimondo, the Court ended the deference to federal agency expertise that originated with its 1984 decision in Chevron v. Natural Resources Defense Council. This will trigger lawsuits claiming the agencies have exceeded their authority or abused their discretion in adopting various rulemakings or guidelines.
  • Because a second decision, in Corner Post Inc. v. Board of Governors of the Federal Reserve System, effectively eliminated the statute of limitations on federal agency rulemaking, even decades-old rules could be challenged.
  • In the third case, Cantero v. Bank of America, the Court determined that an evidentiary hearing is required to determine the applicability of any state or local law or ordinance to nationwide banking operations.
  • And in the fourth case, SEC v. Jarkesy, the Court determined that an agency must seek civil money penalties from alleged wrongdoers through the courts rather than through its internal administrative enforcement processes.

Taken together, the Supreme Court’s message to the agencies in the cases couldn’t be clearer: We do not trust you to interpret and apply the law. It doesn’t matter how long you’ve been doing so. And your internal processes are no substitute for judicial ones. Read more

Join Us on July 29, 2024, from 3:00 pm – 4:00 pm EST
NASCUS is pleased to announce the next topic in our series of complimentary webinars for all members: What Comes After Chevron?
Lawmakers Say Banks Aren’t Doing Enough for Zelle Fraud Victims

Claire Williams, American Banker

Sen. Richard Blumenthal, D-Conn., the chairman of the Senate Permanent Subcommittee on Investigations, said banks should fully reimburse victims of fraud on Zelle, the culmination of a monthslong investigation into the payment app.

Senate Democrats, in a report led by Blumenthal and in an accompanying hearing late Tuesday afternoon, argued that banks who own and operate peer-to-peer payment network Zelle should do more to help fraud and scam victims.

“While this problem affects all peer-to-peer apps, nowhere is it more problematic than on Zelle, which is the largest of them,” Blumenthal said. “Sending a payment on Zelle is fast, easy and irreversible. Zelle and the big banks who own it know that its speed and convenience makes it a target, and they’re well aware that every day some of their customers will be hurt.”

Representatives of JPMorgan Chase, Wells Fargo and Bank of America — the three largest banks that share ownership of Zelle’s parent company Early Warning Services, suggested that lawmakers should also focus on the criminals who are defrauding customers.

The Electronic Fund Transfer Act, a decades-old law, requires that banks and other payment providers investigate and reimburse unauthorized funds transfers. But Blumenthal and other Democrats on the committee said some of the most rampant fraud problems with Zelle involve authorized fund transfers where victims are tricked into sending money to scammers who might pose as a bank employee or use an AI-generated voice scheme. Read more

Fed Cites Digital Bank Jiko Over Capital Planning Woes

Dan Ennis, Banking Dive

The central bank is requiring the startup, which bought a bank in 2020, to submit a liquidity risk management plan with steps to diversify its funding sources and enhanced stress test scenarios.

The Federal Reserve cited digital bank Jiko last week over “significant deficiencies” the San Francisco Fed found in capital planning, cash flow, liquidity, strategic planning and earnings — particularly at the institution’s holding company — during an October 2023 supervisory inspection.

The Fed is requiring Jiko, within 60 days, to submit a written plan detailing how the bank’s board will effectively control and supervise its financial condition. That includes measures to strengthen risk oversight and improve the “quality, accuracy, comprehensiveness and granularity” of the data it includes in financial reports, the central bank said.

Jiko also must, within 30 days, write a plan establishing short- and long-term goals meant to improve the company’s condition, as well as detail how the board and senior management intend to achieve them, according to the order.

In the same time frame, Jiko must submit a liquidity risk management plan that includes steps the bank will take to diversify its funding sources, details enhanced liquidity stress test scenarios and pledges periodic independent review and evaluation of each part of its liquidity risk management process.

Jiko also must, within 30 days, submit a written plan on how it aims to maintain sufficient capital. That will include a detailed description of how the bank assesses capital adequacy and a discussion of any expected changes to Jiko’s business plan that would have a material impact on the bank’s capital adequacy or liquidity. Read more

July 19, 2024: Technology & Payments Articles

Recent Supreme Court Decisions Could Significantly Impact the Payments Industry

Jeremy M. McLaughlin, Gregory N. Blase, Andrew C. Glass, Joshua Durham of K&L Gates – FinTech Law Watch; National Law Review

The Supreme Court issued two decisions at the end of its term that will significantly alter how federal courts review challenges to federal regulations. The decisions could have a significant impact on the highly regulated payments industry.

In Corner Post v. Board of Governors of the Federal Reserve System, the Court clarified the time within which a party may bring suit against an agency for harm caused by final agency actions. The Administrative Procedure Act (APA) sets forth a 6-year statute of limitations for bringing such a suit. The Court held that the right of action under the APA “accrues”—that is, the limitations period starts to run—only when the plaintiff suffered the alleged harm rather than the date of the agency’s final action.

The Corner Post case is significant to the payments industry because it involves a challenge to Regulation II, implementing the Durbin Amendment and setting the maximum interchange fee permissible for debit cards. In disposing of Corner Post, the Court remanded the case so that the plaintiff may continue its challenge to the regulation. The plaintiff asserts that the rate set by Regulation II is higher than what was authorized under the statute.

In Loper Bright Enterprises v. Raimando, the Court overturned the 40-year-old Chevron doctrine. Chevron had directed federal courts to defer to federal agency interpretation of ambiguous statutory language in certain circumstances. Under Loper Bright’s new holding, a court reviewing an agency’s final action is directed to exercise “independent judgement” in deciding whether the agency acted within the statutory authority afforded by Congress. The Court also instructed that “when a particular statute delegates authority to an agency consistent with constitutional limits, courts must respect the delegation, while ensuring that the agency acts within it.” Although courts may give “careful attention to the judgment” of agencies, they no longer must defer to an agency’s legal conclusions about ambiguous language. Read more

How a Technology Startup Fills Credit Risk Gaps for Cannabis Businesses

Christopher Buchanan, American Banker

Cannabis retailers usually do not have an extensive debt record when applying for credit, creating a niche that CTrust is trying to fill with a specialized score to inform lending. CTrust’s recently launched Cannabis Trust Score, or CTS, considers financial data as well as ongoing regulatory and operational changes that affect the cannabis industry.

Banks and credit unions have long avoided cannabis businesses because of the uncertain legal environment — cannabis is still illegal on the federal level and in some states, and banks are subject to different state laws and regulations regarding the type of cannabis that a retailer is selling. But as more financial institutions approach the cannabis market, there’s a potential market for firms that can provide data that improves lending decisions.

“We’re hoping that these institutions will view us as a trusted third-party nonaffiliated objective data source that is able to provide the intelligence they need to build their loan policies,” said Dotan Y. Melech, CEO of CTrust.

Cannabis businesses share traits with more conventional businesses that are considered in both the CTS and traditional credit scores, including revenue, inventory and fiscal history. However, Melech said the CTS also considers “assets, structure and character,” of a cannabis-related business when formulating a score, providing a more comprehensive analysis of cannabis-specific businesses.

In an email, Will Bowden, CEO of Michigan-based Grasshopper Farms, said that his cannabis farm had challenges obtaining loans, which prompted it to seek out private fundraising and credit unions as primary lenders. Read more

Regulators are Ratcheting Up Data Privacy Oversight. How are Bank Marketers Responding?

Joey Pizzolato, The Financial Brand

Federal and state regulators demand that banks collect, store and use consumer data responsibly — forcing bank marketers to adapt their processes, increasing transparency in how data is used and being more deliberate in obtaining consumer consent.

As digitization becomes more prevalent, bank marketers have access to troves of consumer data to help them personalize the customer experience.

But state and federal regulators have taken note and are ratcheting up consumer data privacy requirements for banks and financial institutions, putting a particular emphasis on how banks collect, store, protect and use consumer data.

Increased regulatory oversight, coupled with the forthcoming phase-out of the web cookie, is forcing bank marketers to adapt their processes and procedures to a new era where consent is king and transparency in how — and where — the data is used and shared is more crucial than ever before.

Unpacking State and Federal Data Privacy Regulations
In financial services, several U.S. regulatory bodies set data privacy standards and provide frameworks and guidelines that financial institutions must follow to ensure the privacy and protection of consumer data in their marketing efforts, says Anna Kooi, partner and national financial services leader at Milwaukee, Wis.-based advisory and accounting firm Wipfli. Read more

Facebook Ads for Windows Desktop Themes Push Info-Stealing Malware

Lawrence Abrams, Bleeping Computer

Cybercriminals use Facebook business pages and advertisements to promote fake Windows themes that infect unsuspecting users with the SYS01 password-stealing malware.

Trustwave researchers who observed the campaigns said the threat actors also promote fake downloads for pirated games and software, Sora AI, 3D image creator, and One Click Active.

While using Facebook advertisements to push information-stealing malware is not new, the social media platform’s massive reach makes these campaigns a significant threat.

Facebook advertising
The threat actors take out advertisements that promote Windows themes, free game downloads, and software activation cracks for popular applications, like Photoshop, Microsoft Office, and Windows.

These advertisements are promoted through newly created Facebook business pages or by hijacking existing ones. When using hijacked Facebook pages, the threat actors rename them to suit the theme of their advertisement and to promote the downloads to the existing page members. Read more

 

July 12, 2024: Technology & Payments Articles

What Happens When Your Bank Isn’t Really a Bank and Your Money Disappears?

For unsuspecting depositors of online financial start-ups, the unraveling of a little-known intermediary has separated them from their life savings.

Rob Copeland, New York Times

For close to a century, putting your savings into a federally insured bank has been a sure thing: If the institution fails, up to $250,000 of your money will be protected.

What if it isn’t anymore?

The promise of bank insurance — a tenet of U.S. consumer protection since the Great Depression — is now being tested by a crisis swirling around online-only lenders with hundreds of millions of dollars of deposits between them. Customer accounts have been frozen, preventing people from cashing out their life savings. Most depositors have little clue where their money has gone, and whether they will get any of it back.

The turmoil was set off this spring with the bankruptcy of Synapse Financial Technologies, the kind of company you’ve probably never heard of unless you suffered through all the fine print of your account statements. It operated banking software for fast-growing online lenders with names like Juno, Yieldstreet and Yotta.

Backed by some of Silicon Valley’s bigger venture capitalists, the start-ups offer accounts that charge lower fees and pay far higher interest rates than traditional brick-and-mortar banks. Their slick websites advertise insurance from the Federal Deposit Insurance Corporation, the U.S. agency that pledges to pay back lost funds.

Unlike stodgy brick-and-mortar institutions, this group’s pitch is that banking can be downright fun. “Play Games. Win Big,” says Yotta, which features a lottery-like system that boosts returns for some lucky customers.

This model is increasingly popular — especially among 20- and 30-somethings — and legal. Read more

Traditional Banks Go Digital as Neobanks Face Regulatory Heat

As regulators draw a bead on neobanks, traditional financial institutions are acting more like neobanks.

PYMNTS.com

Open banking looks set to transform financial services in the United States, and the approach, in contrast to what has been seen in Europe, is market-driven rather than government-driven. A spate of announcements has served to highlight digital innovations that are changing the ways accounts can be opened and bundled with other offerings that go beyond direct deposit.

In other words, the age-old practice of walking into branches to get onboarded into a bank’s client base or take advantage of new services added on to new accounts is becoming increasingly reliant on digital workflows. Back in October, the Consumer Financial Protection Bureau noted that its proposed open banking rule would make it easier to switch accounts, as consumers permission and control their data.

Stage Set for More Digital Innovation
The stage is seemingly set for individuals and businesses to establish more digitally based relationships with their financial institutions.

As detailed in PYMNTS Intelligence’s most recent “How the World Does Digital” report, across 60,000 consumers studied in 2023 — a sample representative of about 800 million people living in 11 countries — 42% engage with online banking. A total of 46.8% do their banking through mobile means. About two-thirds of consumers used an app on their phone for banking (mobile banking, 68.6%) or from their desktop with a browser (online banking, 66.6%) at least monthly.

Banks are examining and re-examining their tech stacks to more fully tap into instant payments, digital account openings and embedded finance, among other initiatives. In a panel discussion with PYMNTS in June, Galileo Head of Product Strategy Michael Haney said composable banking is “becoming an imperative to improve the operational efficiency at these legacy banks and be more responsive to client needs and industry trends.” The new generation of platforms is based on MACH principles: microservices, APIs, cloud and headless. Read more

Why Buy Now, Pay Later Debt Could Become a Problem for the U.S. Economy

Charlotte Morabito, CNBC

Buy now, pay later options are becoming more accessible to consumers. A quarter of Americans surveyed in April 2024 said they used buy now, pay later services in the past 12 months, according to a recent report from NerdWallet.

The number of buy now, pay later loans increased nearly 1,100% between 2019 and 2021, according to data compiled by the Consumer Financial Protection Bureau. The rapid growth has some analysts concerned because where there are loans, there is debt — but exactly how much debt is still unclear.

A December 2023 report from Wells Fargo concluded that the “Buy Now, Pay Later market may be small now, but if we don’t know how fast it’s growing, it logically follows that we simply cannot know when it will be a problem.” “We’ve often referred to this as phantom debt, where it’s sort of flying under the radar and not really something that anybody has a good grasp on,” Shannon Grein, one of the authors of the December note, told CNBC.

“The notion of this phantom debt being out there is just not true,” said Penny Lee, president and CEO of the Financial Technology Association, or FTA. The FTA is a trade group that represents four of the largest buy now, pay later providers: Klarna, Afterpay, Zip and PayPal. “We know from publicly reported information how many folks are taking out loans and how many of them default. And it’s a very, very low number.”

Grein emphasizes that she does not think the debt is so bad that it will explode, but rather the concern is around not being able to track how much is out there and how many consumers are behind on payments. Read more

Neobanks See an Opportunity as Banks Move Away from Free Services

PYMNTS.com

The arguably natural consequences of fee caps and limits on debit interchange — and the uncertainty of the regulatory climate — are now showing up with an anticipated pullback by banks on traditionally “free” services and products.

Amid that pullback, there’s opportunity for neobanks, the digital-only upstarts that have been seeking to make inroads against their larger brethren, to take some market share. But that’s only if they craft business models that are less dependent on interchange/transaction volumes in an environment where consumers are fickle about how much they’re spending, and where.

As reported by The Wall Street Journal on Friday (July 5), JPMorgan has noted that potential new rules that trim overdraft fees and card fees will make it more expensive for banks to provide checking accounts and other offerings — so new fees are going to be levied on consumers.

Broad Changes, Broad Impact
“The changes will be broad, sweeping and significant,” said Marianne Lake, CEO of consumer and community banking at JPMorgan, per the Journal. “The people who will be most impacted are the ones who can least afford to be, and access to credit will be harder to get.”

As PYMNTS has documented, the Consumer Financial Protection Bureau has sought to lower the typical late fees charged by card issuers from an average of $32 to — in most cases — $8. Elsewhere, the Supreme Court ruled last week that a suit by merchants group challenging debit card interchange fees can proceed. JPMorgan is not alone here, of course. All manner of banks may seek to offset the loss of fee income in other ways. And there’s some historical indication, already, that consumers wind up missing out on innovations and rewards they value when new regulations are rolled out. Read more

 

June 28, 2024: Technology & Payments Articles

OPINION: We Need a Plan to End QR Codes in Fintech

David Birch, Forbes

Earlier this year The Federal Trade Commission (FTC) issued a warning about the “growing abuse” of QR codes and it is certainly the case that QR crime is growing. So given that today is the 50th anniversary of the first barcode transaction, perhaps we should start thinking about what will come next.

Golden Anniversary
Yes it was fifty years ago today, on 26th June 1974, that the first swipe of a Universal Product Code (UPC) standard black and white stripes barcode occurred at a Marsh’s Supermarket in Troy, Ohio. (It was for a 67-cent pack of Wrigley’s Juicy Fruit gum, by the way).

Twenty years on from that, in 1994, Mr. Masahiro Hara got tired of having to scan six or seven barcodes on every box of parts that zoomed past him on the assembly line at the Toyota car parts factory where he worked. He couldn’t help but wonder why they were still using those limited capacity 1970s barcodes when there was so more data that needed to be read. After studying a game of Go, he came up with the two-dimensional barcodes that we now know as the QR Code.

Twenty years on and in 2014, QR codes were being used for all sorts of things and Mr. Hara was awarded the Europen Inventor Awards “Popular Prize” at which point he said that that QR codes would likely only last about a decade before they were replaced by something more sophisticated. Read more

Trending: Banking-as-a-Service Upheaval Will Stabilize

PYMNTS.com

The Banking-as-a-Service (BaaS) model is under pressure right now.

Synapse declared bankruptcy, while Evolve Bank and Trust was issued a cease-and-desist order, which in part requires the company to get approval from the Federal Reserve to set up any new FinTech partnerships.

Ingo Payments Chief Revenue Officer Lydia Inboden told PYMNTS in an interview that the BaaS industry might be going through a period of upheaval — but there’s long-lived staying power. Inboden’s take is that while Synapse doesn’t represent a systemic shutdown of BaaS, it also doesn’t represent a one-off event, but rather a confluence of different scenarios that shed light onto an overall picture.

“These incidents highlight the vulnerabilities in different business models,” she said for the “What’s Next in Payments” series on BaaS. Regulators are just now creating additional frameworks governing how FinTechs — and partnerships with financial institutions — should be governed, she said.

A shakeout of at least some players is looming, said Inboden. The models that have traditionally been in place — the commoditizing of the bank charter, the disintermediation of the bank from the FinTech program, which she called the “marketing arm for consumers … that’s where we’re starting to see things break down.”

Only a few years ago, in the early days of BaaS, there were maybe a half dozen sponsor banks that focused on money movement and card issuance. We’re at 30-plus sponsor banks, and 76% of banks are now saying some form of FinTech partnership is where they see their future growth. Read more

Apple Kills Off Its Buy Now, Pay Later Service Barely A Year After Launch

Ken Sweet, Associated Press

Apple is discontinuing its buy now, pay later service known as Apple Pay Later barely a year after its initial launch in the U.S., and will rely on companies who already dominate the industry like Affirm and Klarna.

It’s an acknowledgement from a company known for producing hit products that building a financial services business from scratch as Apple has been doing for several years is difficult and highly competitive.

Apple Pay Later launched with fanfare in March 2023 as a way for iPhone customers to split purchases of up to $1,000 into four equal payments with no fees or interest. The service was Apple’s answer to the growing popularity of buy now, pay later services globally, and considered a sizeable threat to companies like Klarna, Affirm and others.

But Apple Pay Later was only available where Apple Pay was accepted whereas the other buy now, pay later companies had deeply integrated themselves into millions of merchant websites. Read more

Judge Rejects $30B Visa, Mastercard ‘Swipe Fee’ Settlement

Taylor Giorno, The Hill

A federal judge Tuesday rejected a $30 billion antitrust settlement between Visa, Mastercard and a select group of retailers that was decried by the larger industry. Visa and Mastercard, which control a combined 80 percent of the credit card network market, agreed in March to limit interchange fees they charge retailers who accept their card.

As part of the preliminary agreement, which was subject to approval by the judge, the credit card giants agreed to roll back so-called swipe fees by at least 4 basis points for at least three years and cap their fees at 2023 levels for the next five years.

The full order appears to be sealed, but according to the docket entry, “the Court finds that it is not likely to grant final approval to the Settlement and accordingly denies Plaintiffs’ motion for preliminary settlement approval.”

“As we noted earlier this month, we are disappointed by this development. We believe the settlement presented a fair resolution of this long-standing dispute, most notably by giving business owners more flexibility in how they manage their card acceptance activities,” Seth Eisen, senior vice president of communications at Mastercard, told The Hill.

Eisen also said Mastercard would pursue other options to resolve the long-standing legal matter. Read more

June 21, 2024: Technology & Payments Articles

OPINION: Fintech Needs to Grow Up, and Quick, to Survive

James Lichau, The Hill

The fintech startup funding ecosystem has changed significantly over the past 24 months, creating an entirely new rulebook for companies chasing investor capital. Plans to scale at all costs will no longer win over investors, so fintech founders need to show a path to smart, sustainable, and ultimately profitable growth.

Prior to 2022, fintech startups were exploding. The pandemic fueled visions of agile, mobile financial services. Low interest rates meant that investors were chasing returns by deploying large amounts of capital into fintechs, focused primarily on scaling quickly.

Startups of all kinds were a huge beneficiary, with 2021 shattering all records for startup financings and 2022 setting the all-time mark for second place.

But after inflation spiked, so did interest rates. And as the banking system teetered briefly with the collapse of Silicon Valley Bank and First Republic Bank, venture capital firms slammed their checkbooks shut. Funding for startups plunged more than 50 percent as investors grew more cautious. Many companies were simply left for dead by their investors.

That conservatism in turn shut down the market for mergers and acquisitions, dramatically shifting the startup capital conveyor belt, as paths to successful exits diminished. Mid-market fintechs in particular were suddenly stranded with no obvious place to turn for help. Read more

Business Owners Increasingly Worry About Payment Fraud

Mae Andersen, Associated Press

Small businesses are increasingly concerned about payment fraud.

That’s according to a small business survey from regional bank KeyBank. Nearly 2,000 small-to-medium size business with annual revenue of less than $10 million were surveyed.

The top concern among survey participants was payment fraud of various types. Forty-four percent were worried about unauthorized transactions or unauthorized electric fund transfers; 37% were concerned about identity theft; 28% said malware and ransomware attacks were their biggest concern; and 27% were worried about phishing and email scams.

“With the introduction of new technology over the last several years, small businesses are some of the many that have fallen victim to fraudulent activity,” said Mike Walters, President of Business Banking at KeyBank. He stressed the importance of owners having a plan in place to combat fraud.

Aside from fraud, the survey found that the top three anticipated economic challenges in coming months include high overhead costs, delayed payments from clients or customers, and fluctuating revenue. But businesses remain confident in their ability to weather challenges, with 65% of small business owners saying they feel confident they could fund their operating expenses for one month with their cash reserves if an unexpected need arose.

Small business owners’ “resilience is a testament to years of weathering financial uncertainty, and with their confidence remaining strong, they’re able to power through the last leg of inflation and keep themselves on track for economic growth,” Walters said.

Visa Preps for U.S. Pay-By-Bank Services

Lynne Marek, Banking Dive

The card network is focused on “stubborn categories” where large account-to-account payments have taken hold, such as in healthcare.

Dive Brief:

    • Card network giant Visa is preparing to offer pay-by-bank services in the U.S. following its extension of such services in Europe by way of its 2022 acquisition of the open banking firm Tink, which enables banks, merchants and fintechs to move money.
    • Visa has refined the Tink service, initially rolled out in Europe, and it’s gearing up to launch in the U.S. now with some pilot customers, Visa Chief Product and Strategy Officer Jack Forestell said at an investor conference last week.
    • “We’ve been working behind the scenes to create the foundations for deploying it here,” Forestell said at JPMorgan Chase’s global technology, media and communications conference on May 21. “That includes bank connectivity, that includes agreements with banks and processors to make sure that we’ve got high-quality ability to authenticate customers and link back into them. We signed some pilot customers and now we’re ready to go, and launch a pay-by-bank service.”

Dive Insight:

A spokesperson for Visa didn’t immediately respond to a question about when the card network’s pay-by-bank services would start in the U.S.

While Visa’s business has long turned on its card services, the San Francisco-based company is increasingly branching out to offer other types of money transfer services, seeking to complement its credit, debit and prepaid card offerings. Read more

What Does Upcoming Regulation Mean for The Payments Sector?

FinExtra

Moderating the panel discussing the upcoming PSD3, PSR and IP regulations, Daniel Hellmann, director, risk advisory, payments at Deloitte spoke with Simone Del Guerra, head of central institutions & international sales at Nexi Group; Nuno Epifânio, policy officer – retail financial services at the European Commission; Kevin Flood, director – payments ecosystem strategy at FIS; and David Malley, payment industry engagement lead at NatWest.

Before diving into the panel discussion, Hellmann asked the audience what theme of the upcoming regulation has the highest priority for their institutions. Matching the key theme of the conference, 79% of respondents stated that instant payments is the clear priority.

Picking up on the poll result, Hellmann turned to Epifânio first, who gave a detailed overview from the European Commission’s perspective on what has been happening in the regulatory landscape. Epifânio explained that, while he cannot say much that the audience wasn’t already aware of, the European Commission is working together with the council and cabinet in drafting updated versions of the PSR and PSD3 proposals. “Regarding the [European] council, we just finished the last meeting and are preparing the progress reports on the PSR and PSD3.”

Adding to Epifânio’s updates, Del Guerra explained that they are working together to ensure readiness for instant payments. He noted that instant payments are a big opportunity in the market and key to survival for SMEs, so his priorities are working together to develop solutions and value added services in that space. Read more

June 14, 2024: Technology & Payments Articles

How Credit Unions Are Playing David Against Industry Goliaths

PYMNTS.com

Regardless of a credit union’s size, members expect digital-first capabilities that can compete with what for-profit financial institutions (FIs) offer. While many CUs are rising to the innovation challenge, there are differences across the CU landscape. To measure CUs’ current and planned innovations, PYMNTS Intelligence developed the Innovation Readiness Index (IRI). Scores indicate how well CUs’ current products, features, and planned innovations align with what members want, and the products and features are linked to higher satisfaction levels.

On average, credit unions earned an IRI score of 44.2 out of 100. This indicates that the average CU’s current and future portfolio matches members’ preferences approximately 44% of the time. In contrast, the most innovative CUs, or top performers, average an IRI score of 65.

17%: Portion of CUs with less than $1 billion in assets that are top performersPYMNTS Intelligence data shows smaller credit unions are punching above their weight. Seventeen percent of CUs with less than $1 billion in assets are top performers. These smaller CUs are 35% more likely to be top performers than those with more than $5 billion in assets. This indicates that CU size does not necessarily correlate with high performance. In fact, smaller CUs are finding their own path to innovation.

These are some findings from the “2024 Credit Union Innovation Readiness Index,” a PYMNTS Intelligence and Velera (formerly PSCU/Co-op Solutions) collaboration. The report examines how CUs can reap the benefits of digital innovation to gain members and reduce churn. The index is based on two surveys. First, a survey of 200 CU executives from March 7 to April 2 explored CUs’ current product and feature offerings and their plans for future innovation. Second, a census-balanced survey of 4,551 U.S. consumers from Feb. 29 to April 8 investigated which products and features consumers want and expect from CUs. Read more

How to Build a Chatbot: Lessons from Bank of America, Klarna, and Lili

Rabab Ahsan, Tearsheet

      • Everything from the UX, to the scope of a chatbot can impact how meaningful customers find interacting with a digital assistant.
      • While larger companies are able to heavily involve their own product and software development teams in building a chatbot, smaller firms in the industry should keep their focus narrow, find the right partners, and ensure they are responding to how customers are engaging with their chatbot.

Building chatbots that add value to the customer experience is hard. Mostly because incorrect design decisions can make the customer feel confused about who they are speaking to (computer or human) or frustrated, if they feel like they aren’t getting what they want.

So there is a strong case to be made that chatbots can hurt customer experience, but we have also recently seen a growing number of financial industry firms deploy chatbots and implement them well.

So what enables a chatbot experience to go from making the customer spam “I want to speak to a human” to actually feeling like they are being assisted?

1) Focus on the task: A lot of chatbots never really evolve beyond the Q&A realm and help automate tasks. However, some of the better chatbots out there like Bank of America’s Erica are quite adept at solving basic tasks like sending money, locking/unlocking a debit card, or overviewing spending habits. What really allows Erica to stand out is how it steps beyond the text-based approach and provides the customer with relevant charts and images when appropriate like in the case of keeping track of finances. The magic is in the UX expanding and contracting depending on the task at hand.

2) Know what and who you are designing for: One of the more recent debuts in the chatbot realm comes from Klarna, which powers its digital assistant through OpenAI. While the agent covers most of the run-of-the-mill tasks associated with a chatbot in the ecommerce space like checking on refunds, the standout features are its ability to explain and breakdown transactions, as well as provide support in multiple languages. Read more

Tap to Cash Lets You Pay by Touching iPhones

Brian Heater, TechCrunch

Apple’s WWDC 2024 keynote was packed, including a number of key new updates for iOS 18. One of the more interesting additions is Tap to Cash, which is more or less what it sounds like, letting users pay for things by tapping together a pair of iPhones.

As the name also suggests, the feature is effectively an outgrowth of Apple Pay’s longstanding Tap to Pay feature. Similarly, the new addition likely uses the device’s NFC functionality. Apple notes that the feature transfers money without having to share any personal info — a nice added privacy element.

Apple isn’t the first to bring this feature to market, but one wonders what effects this feature will ultimately have on standalone payment device/platforms like Square.

The company also announced the ability to customize icons, as well as a new password manager app.

How Fintech Lenders Can Help Capture Small Business Opportunity

Jake Osborne, FinTech Nexus

aSince 2021, U.S. entrepreneurs have submitted five million new business applications per year, according to the U.S. Census Bureau. And in 2023, the number of new small business formations increased by nearly 9% compared to the previous year, suggesting that the growth of the small business sector shows no signs of abating. This creates a massive opportunity for fintech lenders.

When seeking a loan, small businesses will often look first to their depository bank. That’s natural when you consider that a relationship of trust is already in place.

Further, the depository bank has a lot of data on the small business. This allows the bank to conduct outbound marketing – a banker may anticipate a small business’ need for credit even before the owner does – and can create a smoother process as the loan moves through the system.

Fintechs, however, have an opportunity to approach small businesses from a different angle. The best way to do this is by offering a superior lending experience, which could include a simpler application process, faster decisioning and funding, and a more flexible credit box that enables the approval of candidates that were declined by their depository bank.

From equipment loans to working capital credit lines, the opportunities are substantial in the small business market, but fintech lenders must have safeguards in place and do their due diligence using the most up-to-date technology and methods. As of February 2024, small business default rates have increased for 18 months straight, according to Equifax Commercial trends data. Lenders need the best available information to pursue a high volume of loans that also fit within their risk parameters.

Tech tools evolving quickly

Providing an improved customer experience while managing risk requires embracing technology. Luckily, fintech lenders have a greater array of data and analytics resources available to them than ever before. These tools can help better identify quality leads and securely vet and onboard new loans. They can also assist with business verification; provide comprehensive risk scores that assess business viability; and aggregate and consolidate data from many sources, as well as leverage alternative data such as merchant commercial data. Read more

June 7, 2024: Technology & Payments Articles

What’s Next for Embedded Finance? A New Realism

The embedded finance gold rush is waning, thanks to mixed results and intensifying regulatory scrutiny. But a recent report suggests how it can still be an important driver of growth for banks, if pursued with discipline and focus.

McKinsey & Company/ The Financial Brand

The report: Embedded finance: The choices and trade-offs for U.S. Banks  

Why we picked it: High-profile failures and a torrent of consent orders have raised questions about the future viability of the embedded finance and BaaS models. It’s time for a sober but balanced appraisal.

Executive Summary
Embedded finance presents both opportunities and risks for U.S. banks. By partnering with non-financial brands and platforms, banks can expand distribution and access new customer segments with relatively low costs. However, embedded finance also risks ceding customer relationships and product commoditization. The optimal strategy depends on a bank’s size, distribution footprint, customer base, and products. Smaller banks can leverage embedded finance for deposits with minimal cannibalization risk. Regional and segment-focused banks can extend lending products through partnerships. Large diversified banks face higher risks but can capitalize on specialized capabilities like credit decisioning at scale.

Key Takeaways

  • Banks must navigate the embedded finance trend carefully, weighing distribution gains against potential revenue losses.
  • Six potential strategic postures enable different approaches based on a bank’s strengths and risk tolerance.
  • Smaller banks can safely pursue deposit partnerships, while larger banks should focus on differentiated lending capabilities.
  • Partnering with software vendors/marketplaces is higher risk but allows banks to reach new customer segments.
  • Building in-house “challenger” offerings can replicate the seamless embedded finance experience.

What we liked about it: The report is direct and precise in its recommendations for specific institution types and does not shy away from looking hard at the risks. Read more

California Digital Bank Reaches $1 Billion Deposit Mark in Six Months

John Reosti, American Banker

Jenius Bank is starting to pay dividends for its parent, Tokyo-based Sumitomo Mitsui Banking Corp. Six months after introducing its high-yield savings account, Jenius has reached $1 billion of deposits.

Jenius operates as the digital division of SMBC’s 62-year-old Los Angeles-based subsidiary, SMBC MANUBANK. It began operations in June 2023 with personal loans as the inaugural product. Since then, Jenius has originated more than $700 million. The savings account, with its 5.25% yield, has caught on equally quickly, President John Rosenfeld said.

“With both products, we kind of rolled them out slowly, to make sure that everything worked as intended,” Rosenfeld said in an interview. “We listened to our customers. We watched, we waited and when we saw things were going well … we kind of turned up the volume by opening the marketing doors, making ourselves more prominent in various places.”

While Jenius’ new customers are, no doubt, attracted by the rate it offers, the company is working to develop stronger bonds. Consumers increasingly are decentralizing their financial lives, Rosenfeld said. They’re open to a long-term relationship with a digital bank, even as they leave their primary checking account parked at another institution. Going forward, they’ll have the option of tapping Jenius for personal loans and — soon — credit cards.

“We’re working on other products as we speak,” Rosenfeld said. “Don’t be surprised when you see your first credit card from Jenius Bank, or your checking account from Jenius Bank or other types of loans from Jenius Bank. … The long-term vision is to create a bank [offering] a full suite of products that does things a little better than most.” Read more

Fraud is Rising. Are Your Cardmembers Protected?

Elan Credit Card / The Financial Brand

chart showing total value of fraud losses by yearSophisticated fraud attacks are more difficult to detect and can lead to greater losses. Although data suggests that financial institutions have successfully thwarted more basic attempts — which are no longer working as effectively — they must ensure that the proper protections are in place to guard against new and evolving fraud methods.

As guardians of sensitive cardmember and account data, financial institutions running credit card programs must monitor cybersecurity trends closely to protect cardmembers.

Perhaps not surprisingly, credit card and cardmember information are a key target for cybercriminals due to their high value, and data confirms credit cards are one of the most reported fraud incidents.

In 2023, global fraud losses exceeded $36 billion and the Nilson Report forecasts global losses from card fraud to total $397.4 billion over the next 10 years. From 2022 to 2023, fraud losses increased by over $3 billion continuing an upward trend over the last three years.

Sophisticated attacks are more difficult to detect and can lead to greater losses. Although data suggests that financial institutions have successfully thwarted more basic attempts — which are no longer working as effectively — they must ensure that the proper protections are in place to guard against new and evolving fraud methods. Read more

The Biggest Fintech Trends in The Next 10 Years

Bernard Marr, Forbes

If a week is a long time in politics, then ten years is an eternity in the world of technology. I often write about tech trends that will be relevant in the near to mid-term, as these are most likely to be useful to my business clients. But sometimes, it’s interesting to look a bit further ahead.

Of course, it’s far harder to guess what will be important in ten years than what will be on the agenda over the next 12 months. But by extrapolating current trends we can still come up with some interesting ideas.

So, here’s what I believe will be the hottest topics of conversation around financial technology when 2035 is just around the corner rather than a dot on the distant horizon. Some are exciting, and some are more than a little scary – but all are real possibilities.

Autonomous Financial Ecosystems
Within a decade, it’s possible that AI will have evolved from its current role in assisting with financial decision-making and automating customer services to autonomously managing entire financial systems. Dynamic risk assessment, asset management, financial forecasting and fraud detection will no longer be carried out across disparate, siloed systems. Instead, they will be managed as integrated services, with advanced, centralized AI predicting and reacting to market movements, customer behavior and regulatory changes in real time.

Human intervention will be greatly reduced as these autonomous systems increasingly manage back and front-office services. Financial services institutions will offer hyper-personalized services to customers based on an intimate understanding of their individual circumstances. This will increase access to finance and investment opportunities for many currently under-served segments of the population. However, ethical concerns over privacy, data protection and the potential dangers of systemic bias being magnified by AI will be more pressing than ever. Read more

May 31, 2024: Technology & Payments Articles

Pay-by-Bank Solutions Signal New Era of Payments

PYMNTS.com

Solutions in search of problems rarely scale — something especially true when it comes to payments, where the focus remains on enhancing user experience and efficiency. With that focus in mind, PYMNTS sat down with Trustly Vice President of Enterprise Growth Ross McFerrin to hear his thoughts on the key drivers of payments modernization for the series “What’s Next in Payments: Payments Modernization.”

“The payments industry is constantly evolving, and when you look at the U.S. in a very card-dominated market, you’re seeing a material shift right now,” McFerrin said. He cited open banking, changing consumer preferences, and technological advancements including the rise of artificial intelligence as driving this shift.

While open banking is not a new concept globally, the potential for its upcoming regulatory adoption in the United States could demarcate a new era as banks are mandated to provide secure access to their data to third-party service providers, facilitating more integrated and user-friendly financial services.

As open banking regulations mature and faster payment systems become more prevalent, McFerrin emphasized that the landscape should expect a broader adoption of seamless, real-time payment solutions that create “very tangible benefits” for both businesses and end-users.

This regulatory shift will reshape how financial data is accessed and used, fostering a more competitive and innovative environment for payment solutions. Read more

More Neobanks Are Becoming Mobile Networks

Paul Sawers, TechCrunch

mobilNubank is taking its first tentative steps into the mobile network realm, as the NYSE-traded Brazilian neobank rolls out an eSIM (embedded SIM) service for travelers. The service will give customers access to 10GB of free roaming internet in more than 40 countries without having to switch out their own existing physical SIM card or eSIM.

The launch comes shortly after news first emerged that Brazil’s National Telecommunications Agency (ANATEL) had quietly greenlit plans for Nubank to become a mobile virtual network operator (MVNO) in partnership with wireless giant Claro. While that plan remains in the early stages and Nubank hasn’t confirmed any of the launch details (the company also declined to comment for this article), we can now confirm that it’s at least tiptoeing into the mobile network sphere — a growing trend within the fintech fraternity.

From neobanks to neo-MVNOs
Neobanks — a new breed of financial institution that serve as digital-native challengers to established banking incumbents — follow in the footsteps of traditional banks by offering ancillary services to target new customers, such as budgeting tools, data and spending insights, and easy access to the stock market. While neobanks have surged in popularity, so has the MVNO (mobile virtual network operator) market, driven by the rise of eSIM, the cloud and the proliferation of third-party software that makes all-digital distribution strategies a cinch. Read more

Five Things to Watch as Synapse Bankruptcy Impact Shakes Up FinTechs

PYMNTS.com

At this writing, on Tuesday (May 28), the ripple effects of Synapse’s bankruptcy keep rippling. But with each filing, with the reports that customers can’t retrieve their money, that sponsor banks and other FinTechs have walked away from relationships with the funds … and even that other firms are facing existential threat, there’s one theme that’s emerging:

The interconnectedness of it all. At almost every level, the banking-as-a-service (BaaS) model may be sorely tested.

Less than two years ago, as detailed in this space, Synapse, which among other offerings provided U.S. checking accounts to clients, had been eyeing expansion in Latin America and India. Back in 2019, and in previous years, the company had raised $33 million in a Series B funding round that was led by Andreessen Horowitz and existing investors Trinity Ventures and Core Innovation Capital.

Fast forward to April of this year, and the company filed for Chapter 11 bankruptcy, struck a deal to be acquired by TabaPay, and then the $9.7 million deal to be bought out was gone seemingly as quickly as it had materialized.

Court filings note that Synapse exists as “one of the first, if not the first, tech company to pioneer a Banking as a Services (Baas) platform for fintechs and Partner Financial Institutions which have agreements … to efficiently interface each other to allow for transactions (i.e., the buy and sell) of their financial products and services to the fintechs’ end users.” Read more

UK Payments Regulator Criticizes Visa and Mastercard Over Fee Hikes

Competition Policy International

The U.K.’s Payment Systems Regulator (PSR) has released a critical report highlighting the lack of significant service improvements following fee increases imposed by Visa and Mastercard on retailers. The interim report, issued on Tuesday, indicates that the two U.S.-based card giants, which dominate 95% of U.K. card transactions, have not faced effective competition.

Over the past five years, Visa and Mastercard have raised their scheme and processing fees by over 30% in real terms, according to the PSR. This increase has resulted in an estimated £250 million in additional annual costs for U.K. businesses. Despite these substantial fee hikes, the PSR found “little evidence” that the quality of services provided by Visa and Mastercard has significantly improved.

The PSR is contemplating requiring Visa and Mastercard to offer greater transparency in their U.K. operations and to justify their pricing decisions. The regulator noted difficulties in obtaining adequate data from the card schemes, which currently prevents it from imposing price caps on their fees. “The issues we have encountered gathering suitable data from the card schemes mean that it is not an appropriate response, at the present time, to the harm we have identified,” the report stated. Read more

May 23, 2024: Technology & Payments Articles

Sen. Blumenthal Says Financial Institutions Must Take Responsibility for Zelle Fraud

David Baumann, Washington Credit Union Daily

Financial institutions must assume more responsibility for helping people who are defrauded by Zelle and other peer-to-peer payment systems, Sen. Richard Blumenthal, D-Conn., chairman of the Homeland Security and Governmental Affairs Permanent Investigations Subcommittee said Tuesday.

“The banks of America have a dirty little secret,” he said, as he opened a hearing focusing on Zelle and allegations of fraud. Zelle and the financial institutions that participate in the Zelle Network contend that there is little they can do when someone is a victim of fraud.

“By the time a consumer knows that they’ve been scammed, it’s too late to do anything about it,” Blumenthal said.

Zelle, the largest peer-to-peer payment service, is owned by the nation’s largest banks but it is used by credit unions, community banks and minority depository institutions. In a letter to the subcommittee, Jim Nussle, president/CEO of America’s Credit Unions pointed out that those institutions comprise more than 95% of the financial institutions that participate in the Zelle Network.

“For credit unions that do not have the resources of larger financial institutions, Zelle levels the playing field with respect to customer payment choices,” Nussle wrote. For that reason, he does not think credit unions should have added liability for this type of fraud.

Nussle argued that consumer vulnerability to fraud “is most often the result of sophisticated social engineering; scams that exploit weaknesses in human judgment as opposed to the secure foundation of payments processing infrastructure.” Read more

Podcast: How Affirm Built the Buy Now Pay Later (BNPL) Industry, with President Libor Michalek

In this conversation, we chat with Libor Michalek – President at Affirm. Libor oversees engineering, risk, operations, product and design. He previously served as Affirm’s President of Technology and Chief Technology Officer. Prior to joining Affirm, Libor was an Engineering Director at YouTube and Google where he was responsible for Application Infrastructure & Site Reliability Engineering across multiple sites. During this tenure, YouTube tripled in page views, hours of video watched and revenue.

Earlier in his career, Libor was the Chief Technology Officer of Slide, a personal media-sharing service, which was acquired by Google in 2010. Libor also served in software architecture and management positions at Topspin (acquired by Cisco), Egroups.com (acquired by Yahoo!), Talarian (acquired by Tibco), Thinking Machines Corporation and the National Center for Supercomputing Applications.

Libor earned his B.S. in Computer Science from University of Illinois at Urbana-Champaign.

Google Pay Lets Customers Ditch CVVs for Biometrics

FinExtra

Google Pay has received a revamp to make it easier for shoppers to see card benefits, use BNPL on more sites, and ditch CVV codes in favour of biometrics at checkout.

Shoppers using autofill on Chrome or Android at checkout now have the option to automatically fill in their full card details with a fingerprint, face scan or screen lock PIN, eliminating the need to enter a CVV security code.

Google started piloting BNPL – with providers Affirm and Zip – when checking out online earlier this year. The practice is now being expanded to more merchant sites and Android apps across the US. Shoppers can either link their existing account or sign up with a provider at checkout.

Finally, American Express and Capital One cardholders checking out on Chrome desktop will now see select benefits for specific cards in the autofill drop-down, making it easier to pick the best option. Google plans to expand this to more cards in the future.

Offline Digital Payments to Deal with Financial Exclusion of the Non-Digital World

FinTech Nexus

Access to the internet already seems something widely accessible and ordinary. Most of our daily activities, including remote work, communication with friends and relatives, payments, and more, depend on this facility. But is it as accessible as we think? You may be surprised, but only 66.2% of the population globally has access to the internet. Consequently, around 2.65 billion people don’t have access to online services and, most importantly, to digital banking and similar services.

The problem may seem distant; however, I’m not talking about some emerging economies here. Almost six million Americans are unbanked. Meanwhile, 1.4 billion people outside of the US don’t have or can’t have a bank account. So, in the times when we tap or scan to pay, and businesses refuse to take cash, those people find themselves cut off from the civilized world.

The dependency of digital payments on the internet or telecoms connectivity is a big problem. While we hear lots of talks about racial wealth gaps and gender-based income inequality, financial exclusion is kept low on the agenda. However, the latter is one of the contributors to global poverty, where people can’t access digital financial institutions to save, invest, or borrow. They aren’t welcome in the digital-first world and are forced to apply to alternative financial organizations, pay high fees, get buried in this vicious poverty cycle, and use cash. Worldpay’s Global Payments Report 2024 found that cash transaction value totaled $6.1 trillion in 2023, compared to $6.7 in 2022. Let’s admit it: the YoY difference of 8% is minimal.

Tapping into offline digital payments, still not  
Developing offline digital payment solutions could significantly address the issue of financial inclusion. However, that is easier said than done. The concept in a nutshell looks promising, but it faces operational, security, and technological hurdles. These solutions represent an untapped market with substantial potential, highlighting the need for further research and development to quantify this opportunity accurately. Read more

May 17, 2024: Technology & Payments Articles

OPINION: Digitalization Can Become a Magic Wand for Banks in the Era of Strict Regulation

Roman Eloshvili, FinTechNexus

Over the past few years, many issues have surfaced in the banking and fintech sectors due to the growing complexity of financial crimes. This has resulted in fines for non-compliance, and AML violations doubled in value, reflecting the severity of the regulatory response. The main problems in 2023 were not reporting suspicious activity, lacking proper customer verification, and failing to align with sanctions.

Additionally, against the rapid pace of digitalization processes, difficulties introducing technologies and the lack of up-to-date systems have made the aforementioned problems more severe. Why does the banking sector, typically seen as well-developed, face these issues, and how can they be solved? Let’s delve deeper into this.

Banking struggles to adapt to the era of digitalization
The rise of digitalization has rapidly transformed our world, impacting every facet of daily life. The global banking system is no exception, with the penetration rate of digital technologies in banks increasing every year. Moreover, the emergence and growing influence of neobanks intensify competition within the sector.

As banks compete to capture market share, adopting digital technologies has become imperative for staying competitive and meeting evolving consumer expectations and needs. The integration of digital platforms allows banks to offer personalized and user-friendly services, streamline operations, and improve customer accessibility.

However, numerous banks, particularly in the European Union, continue to rely on outdated infrastructure and operational software, posing significant challenges to their digital transformation efforts. On the one hand, transitioning to modern digital systems is relatively expensive for some banks, especially smaller ones, due to the significant upfront investment required for new technology, infrastructure, and employee training. Read more

Gen Z Credit Card Use is Outpacing Millennials’ Amid Financial Stress and Ballooning Debt

Steve Cocheo, The Financial Brand

At one time, Generation Z said it wanted to avoid credit cards. But a new study finds they are charging more now than Millennials did at the same age. With less than half of Gen Z even old enough to use credit, are they already shaping up to be ‘Generation Debt’?

Not so long ago, studies and surveys reported Generation Z loved debit cards and avoided credit. It wasn’t the first time a generation said it felt that way: For a while, Millennials were wary of credit cards and hesitated to get into debt, having seen the troubles parents or older siblings faced during the mortgage crisis.

But Gen Z’s relationship to credit cards has changed big time, according to research by TransUnion, as well as analysis of its extensive credit database.

The company compared Gen Z to Millennials when they were in the same age range—22-24 years old — and adjusted dollar figures for credit use and income for inflation.

The research found that, as of yearend 2023, 84% of Gen Zers who are 22-24 years old had general purpose bank card accounts — 23 percentage points more than the proportion of Millennials at the end of 2013. While Gen Z held fewer private label credit cards (see the table below), the 23 point rise in bank cards exceeded the 18 percentage point fall in private label cards. Read more 

Visa Unveils Suite of New Products for The Digital Age

FinExtra

Visa has unveiled a suite of new digital-first products and services that it claims will revolutionise the card and address the future needs of businesses, merchants and consumers and the financial institutions that serve them. Set for roll out over the coming, year, the new product roadmap was unveiled at the annual Visa Payments Forum in San Francisco.

“The industry is at a pivotal point – new technologies like Gen AI are rapidly shifting how we shop and manage our finances,” says Jack Forestell, chief product and strategy officer, Visa. “We’re announcing the next generation of truly digital-native payment card experiences. Today we unveiled new card features and digital innovations that will bring consumers into a more customized, convenient and secure future.”

The new products and services include Visa Flexible Credentials, which will allow a single card product to toggle between payment methods, enabling users to set parameters or choose whether they use debit, credit, ‘pay-in-four’ with buy now, pay late,r or pay using rewards points. Visa Flexible Credential is live in Asia and will be launching with Affirm later this summer in the US.

Visa is also introducing a slew of new ways to use the card when tapped on a mobile device, such as:

  • Tap to Confirm: Easily authenticates identity when shopping online
  • Tap to Add Card: Enhances security when adding card into a wallet or app
  • Tap to P2P (person-to-person): Allows money to be sent between family and friends

To bolster security and protect user identities, the card scheme is introducing a Payment Passkey service to replacing the need for passwords by confirming a consumer’s identity and authoring online payments with a quick scan of their biometrics like a face or fingerprint. When shopping online, Visa passkeys replace the need for passwords or one-time codes, enabling more streamlined, secure transactions. Read more

Cannabis And Gaming Payments Startup Aeropay Is Now Offering an Alternative to Mastercard and Visa

Christine Hall, TechCrunch

The key to taking on legacy players in the financial technology industry may be to go where they have not gone before.

That’s what Chicago-based Aeropay is doing. The provider of pay-by-bank solutions for businesses started out helping cannabis retailers and gaming companies with their payments and is now entering into Visa’s and Mastercard’s territory by innovating the payment networks.

Co-founder and CEO Dan Muller has a background as head of product for a company that built digital solutions for brands and retailers. At the time, mobile was coming online, so he ended up building native mobile apps for brands like Best Buy, Adidas and Express, which gave Muller firsthand experience in payments.

“When you peel back the layers of the legacy way to solve digital payments, it was either make it easier to accept the card online, like Stripe or Square, or you could attempt something really grand, which was to go around the system,” Muller told TechCrunch.

With Aeropay, businesses can offer regulatory compliant, cashless and contactless digital payments to their customers, both in-store and online. To do this the company created its own bank aggregator, called Aerosync, that connects bank accounts and enables customizable integrations using open APIs.

It can connect over 12,000 banks, and once the merchant connects to a bank account, they can enable customers to pay just like they would in any e-commerce environment. Merchants can also utilize a QR code for payments and not pay fees on the transaction, or bother with cash. This would allow, for example, the merchant’s customer to choose the amounts to pay and confirming in checkout. If customers are using a digital wallet, merchants choose the amount and confirm a submission to a digital wallet, Muller said. Read more

May 10, 2024: Technology & Payments Articles

Identity Verification Industry Mulls Solutions to Flood of Synthetic IDs

Masha Borak, BioMetricUpdate

The advent of AI-powered generators such as OnlyFake, which creates realistic-looking photos of fake IDs for only US$15, has stirred up the ID verification and authentication industry. The availability of cheap and convincing fake documents brings real dangers – not just of fraud but also to national borders – and is prompting experts working in the field to come up with solutions.

“Looking at documents to see if they are real in a remote setting, I would say that’s impossible and our tests show that as well,” says Wil Janssen, co-founder of Inverid, the company behind identity verification solution ReadID. “It’s very easy to get through many of the tools that say that they can detect a fake identity.”

Janssen talked about countering document spoofing and detecting synthetic IDs alongside Jens Mayer from the Centre for International Fraud Prevention in a webinar organized by trade publication KYC AML Guide.

In synthetic identity theft, the criminal combines stolen personal information with fabricated details to create a completely new identity. This fake identity can then be used to obtain loans open bank accounts and apply for credit cards. Digital injection attacks are used to serve fake data to identity verification platforms.

During the webinar, Janssen and Mayer discussed solutions such as training AI to detect abnormalities and introducing physical security measures such as NFC and chips which can be more difficult to replicate. Read more

When Will Mobile Banking Finally Kill the Plastic Credit Card?

Emily Rueth, Vicuse Payments Advisors LLC, The Financial Brand

What bank and credit union issuers should do is give Gen Z consumers a choice. Many have no interest in cards, having enthusiastically adopted digital wallets as part of this generation’s digital concentration. You may even benefit by making optional cards something special, such as going with metal cards for premium accounts. But always make cards an option, because many still see them as safer than digital payment formats.

Generation Z is driving a transformative shift in payment preferences. Marked by a reliance on smartphones and digital wallets, the transition from traditional payment methods to modern digital alternatives reflects a seismic shift that could potentially render the physical debit and credit card obsolete.

But before you shred your card stock, consider the nuances in the youngest banking generation.

Gen Z’s Digital Lifestyle and Payment Choices
As the first U.S. generation to be considered true “digital natives,” this well-educated, 68 million strong cohort has no memory of a world that existed before smartphones or social media. Growing up with a smartphone no more than an arm’s length away, Gen Z uses their devices in ways formerly associated with traditional physical wallets. Thanks to third-party apps, documents such as driver’s licenses, passports, concert tickets and insurance cards can all be downloaded and stored digitally alongside their debit and credit cards. Read more

How Fintechs Can Succeed on Campus and Grow with Generation Z

Tony Zerucha, FinTech Nexus

Fintechs are learning that college campuses and the Generation Z students on them are valuable markets with unique ecosystems. The paths of two, Transact Campus and Frich, are models for companies seeking to entrench themselves in academia.

Unlike Frich, Transact Campus has been around for nearly 40 years. CEO Nancy Langer said Transact Campus has three lines, beginning with a payment platform that manages $53 billion annually in tuition and room and board payments. The second is identification software that organizes credentials for building access, meal management and other services. Transact Campus also operates a commerce system including mobile ordering, dining transactions and access for third-party brands. Roughly 1,500 of the company’s 2,000 clients are higher education institutions.

Leveraging campus-wide data to provide an optimal experience
Langer said Transact Campus’ value proposition is delivering an optimal student experience. That means mobile, real-time and text messages (no email) across most campus touchpoints.

“That’s the holy grail for our clients,” Langer said. “They want to, through a mobile experience delivered to students, provide everything they need, in a modern experience: efficient, real-time and convenient.” Read more

Overall U.S. Customer Satisfaction with BNPL Grows

Craig Ellingson, FinTech Nexus

As scrutiny of Buy Now Pay Later increases, so too do satisfaction scores among customers using the short-term financing mechanism structured like an installment loan.

While the United States federal government’s Consumer Finance Protection Bureau has been monitoring BNPL for years now — more recently calling into question some BNPL firms’ sales practises and use of personal data — J.D. Power‘s annual report on customer satisfaction for it has found the payment option continues to grow in popularity.

Overall, contentment among all 4,135 users the firm specializing the examination of consumer behavior surveyed for its 2024 U.S. Buy Now Pay Later Satisfaction Study — be they financially healthy, vulnerable, stressed or overextended — is up 16 points on their 1,000-point scale to 634 from a year ago.

J.D. Power considers the rise significant. Financially healthy customers are the most-satisfied of all, financially vulnerable the least-satisfied. Today, 28 per cent of customers are using BNPL as a payment option, says Miles Tullo, the managing director of banking and payments at J.D. Power.

“The No. 1 reason people state, when they use Buy Now Pay Later, is they want to defer their payments to later, but … No. 2 is repayment terms are reasonable. That’s like No. 11 or 12 or somewhere in that range for credit cards.

“Consumers look at a credit card, and they can defer their payments to later on a credit card as well, but the terms they don’t find reasonable most of the time. As we know, credit card debt is large, and there are a lot of people that have it, so to the extent that a Buy Now Pay Later solution works for a consumer in terms of the repayment schedule, they’re going to be potentially more likely to use that going forward as they get more comfortable with it than they would be revolving on a credit card purchase.” Read more

 

May 3, 2024: Technology & Payments Articles

Busting Three Myths About Community Banks and Open Banking

Shanda Purcell, The Financial Brand

Open banking holds promise for banks and credit unions — and the fintechs it can join them to. But the traditional players must avoid bogging down in this promising technology’s mythologies. Healthy doses of facts and common sense can go a long way to getting past crippling misconceptions.

The popularity and promise of open banking have spawned myths and misconceptions about this technology. Some banking institutions expect them to be universal problem-solvers or accelerants that can lead to instant growth and revenue gains. Such misconceptions can be more than misleading — they can be dangerous. They can lead institutions with limited tech resources or tech budgets down paths that bring little return on investment, don’t align with overall tech strategy, or don’t add value for their account holders.

Banking institutions best-positioned to succeed will be those able to make strategic decisions free of the many myths that exist about open banking’s use cases and potential. Here are three of the most common misconceptions that community banks should avoid as they explore how to deploy open application programming interfaces (APIs) within their tech strategies.

Myth 1: Open Banking is Just for Big Banks
Open banking has become trendy. Community banks can feel intimidated and overwhelmed by it. Many reach the conclusion that it’s too much to tackle. Busting the myth: With hot-button issues like embedded finance, embedded fintech and payments-as-a-service dominating conversations about the future, community banks might not even realize that they’re likely already embracing the most important idea behind open banking: third-party integrations. Read more

FCC Fines Major U.S. Wireless Carriers for Selling Customer Location Data

KrebsOnSecurity

The U.S. Federal Communications Commission (FCC) today levied fines totaling nearly $200 million against the four major carriers — including AT&T, Sprint, T-Mobile and Verizon — for illegally sharing access to customers’ location information without consent.

The fines mark the culmination of a more than four-year investigation into the actions of the major carriers. In February 2020, the FCC put all four wireless providers on notice that their practices of sharing access to customer location data were likely violating the law.

The FCC said it found the carriers each sold access to its customers’ location information to ‘aggregators,’ who then resold access to the information to third-party location-based service providers.

“In doing so, each carrier attempted to offload its obligations to obtain customer consent onto downstream recipients of location information, which in many instances meant that no valid customer consent was obtained,” an FCC statement on the action reads. “This initial failure was compounded when, after becoming aware that their safeguards were ineffective, the carriers continued to sell access to location information without taking reasonable measures to protect it from unauthorized access.”

The FCC’s findings against AT&T, for example, show that AT&T sold customer location data directly or indirectly to at least 88 third-party entities. The FCC found Verizon sold access to customer location data (indirectly or directly) to 67 third-party entities. Location data for Sprint customers found its way to 86 third-party entities, and to 75 third-parties in the case of T-Mobile customers. Read more

Fed Seeks 8,000 Financial Institutions for FedNow

James Pothen, BankingDive

About 700 financial institutions have connected to the Fed’s instant payment network since last July, with at least 1,000 more in the pipeline, a FedNow official said this week.

The Federal Reserve plans to attract up to about 8,000 financial institutions to FedNow, its new instant payments network, and it has at least 1,000 in the pipeline to add, a Fed official said this week.

While there are nearly 10,000 financial institutions in the country, only about 9,200 of those banks and credit unions are actively using Fed services, so the central bank’s goal for FedNow isn’t necessarily to draw them all, FedNow’s head of payments product, Dan Baum, said Wednesday.

So far, about 700 financial institutions have connected to the network since it was launched last July, and the central bank has been eager to lure more in the interest of creating as much reach for the network as possible. The new system will allow consumers and banks to settle payments in seconds, as opposed to days, and provide services at all hours and on weekends.

“We see the policy objective to be to get everyone that’s willing to, and can, and can make a business case,” Baum told Payments Dive. “We expect that to be somewhere in the 7,000 to 8,000 range at the end of the day.”

There are some 1,500 smaller financial institutions largely dependent on paper checks, so the Fed doesn’t expect to lure them all to FedNow, said Baum, a senior vice president at the Federal Reserve Bank of Atlanta. Read more

Embedded Finance: Transforming Financial Services

Louis Thompsett, FinTech Magazine

In this roundtable, we speak to industry leaders about the rise of embedded finance and its pivotal role in the future of financial services. Embedded finance has revolutionized financial services over the past few years, integrating fintech services with non-financial business and changing how we shop, pay, and work.

Insurance offerings integrated into e-commerce platforms, one-click payments via a coffee shop app and branded credit cards are all changing the way businesses and consumers interact with financial services.

In this roundtable, we speak to industry experts on the transformative impacts of embedded finance, how it can innovate further, and how organizations can overcome barriers to its adoption.

Meet our speakers:

  • Radha Suvarna, Chief Growth Officer, Payments & BaaS at Finastra
  • Peter O’Halloran, VP and Head of Enterprise and Digital Commerce, EMEA at Fiserv
  • Karine Martinez, Head of Sales for Edenred Payment Solutions
  • Ryan O’Holleran, Head of Sales, Enterprise at Airwallex  Read more