Sept. 29, 2023: Technology & Payments Articles
- Apple Wallet Can Now Show UK Users Their Bank Account Balances
- Related Reading: Apple is Ordered to Face Apple Pay Antitrust Lawsuit
- FCC Announces Plans to Reinstate Net Neutrality
- CFPB Issues Guidance on Credit Denials Involving Artificial Intelligence
- Global Agencies Focus on ESG Data, Climate Litigation, and Nature Risks
It could be the start of more Apple banking services in the UK.
Courtesy of Steve Dent, Engadget
Apple has quietly launched a new iPhone Wallet feature in beta that lets UK users see their current account balance, along with recent deposits and payments, 9to5Mac has reported. It’s powered by the UK’s Open Banking API, and follows Apple’s purchase of Credit Kudos, a company that uses Open Banking to give users a snapshot of their financial health and creditworthiness.
The new feature, which also shows users their balances after purchasing something with Apple Pay, arrives as part of the iOS 17.1 developer beta. Users must first authorize it through the Wallet app, then authenticate using their bank’s app or website. All banking data will be stored strictly on users’ devices and not on Apple’s servers. Supported banks in the beta launch include Barclays, HSBC, Lloyds, RBS, Monzo and Starling.
The Wallet addition is a rare Apple feature that premieres in a territory outside the US. Apple doesn’t even have its Apple Card available in the UK yet, so it’s a relatively minor player in the region so far. At the same time, its purchase of Credit Kudos gives it major connections in Open Banking. The latter company’s API taps into the UK’s open banking platform to analyze bank account data, aiming to help banking providers make faster and better decisions for people seeking loans or other financial services.
Open Banking — which forces the United Kingdom’s nine major banks to to release their data in a secure, standardized form — is unique to the region and doesn’t exist in the US (though the government is working on it). Europe introduced a similar system called PSD2 back in 2020. The two are similar, so Apple could feasibly bring the same features to Europe, where it effectively dominates smartphone-based payment systems with Apple Wallet.
- Related Reading: Apple is Ordered to Face Apple Pay Antitrust Lawsuit
Courtesy of Devin Coldewey, Tech Crunch
Net neutrality is back on the menu, citizens. After a long, long battle ending in eventual defeat during Trump’s presidency, the FCC is set to reinstate rules that broadband providers must treat all traffic equally, giving no sweetheart deals to business partners or their own services.
The effort to revive this popular rule was announced in a speech at the National Press Club by FCC Chairwoman Jessica Rosenworcel, who was one of the original rule’s champions over a decade ago. Rosenworcel said that broadband is “not a luxury, it’s a necessity,” adding: “It is essential infrastructure for modern life. No-one without it has a fair shot at 21st century success. We need broadband to reach 100% of us, and it needs to be fast, open and fair.”
In a fact sheet shared online, Rosenworcel said that the FCC “seeks to largely return to the successful rules the Commission adopted in 2015,” which would classify broadband as essential on a par with water, power and phone service.
As a quick refresher, net neutrality is the principle that internet providers — mobile or “fixed” like fiber — should act as simple pipes for data, not performing any analysis or prioritization beyond what is required to ensure good service. Some data must be prioritized due to the way networks function, of course, but it would be wrong (and illegal under net neutrality) for, say, Comcast to throttle the streaming services of its competitors while giving its own an advantage.
Although behavior that egregious was not particularly common, it had occurred, and non-neutral practices were gaining ground rebranded as “zero rating,” ostensibly a special deal for consumers where some streaming services didn’t count toward bandwidth caps.
The FCC passed net neutrality rules in 2015, and the idea that the companies we pay for bandwidth should have nothing to do with what we used that bandwidth for was extremely popular (especially as this was likely broadband companies’ nadir in terms of public opinion). But other parties were not so pleased with what they perceived as regulatory overreach. Read more
Courtesy of Benjamin M. Saul , Tarrian L. Ellis , Janiell “Alexa” Gonzalez of Greenberg Traurig, LLP – Financial Regulatory & Compliance News
- The Consumer Financial Protection Bureau (CFPB)’s Guidance on Credit Denials by Lenders Using Artificial Intelligence focuses on the accuracy and specificity requirements of adverse action notice obligations, even when creditors rely on complex algorithmic underwriting models driven by data gathered outside of traditional credit reports or applications to make credit decisions.
- The CFPB underscores that a creditor may not rely solely on the unmodified checklists of reasons in sample forms provided by the CFPB (currently codified in Regulation B) if the reasons provided on the sample forms do not reflect the principal reason(s) for the adverse action.
- The emphasis on clear explanations seeks to bolster consumers’ future credit opportunities and safeguard them from illicit discrimination.
On Sept. 19, 2023, the CFPB issued guidance concerning the legal obligations creditors must observe when employing complex algorithms, marketed as artificial intelligence (AI), and other predictive decision-making technologies in their underwriting models.
The Guidance builds on the CFPB’s previously issued guidance affirming that creditors are not excused from their adverse action notice obligations under the Equal Credit Opportunity Act (ECOA) simply because they rely on complex algorithmic underwriting models in making credit decisions. The Guidance, in conjunction with previously issued guidance, highlights the CFPB’s ongoing focus and scrutiny of the use of AI in financial services.
The ECOA, implemented by Regulation B, requires that when a creditor takes adverse action against an applicant, they must furnish the applicant with a statement of specific reasons for their decision.1 This statement of reasons must be “specific” and indicate the “principal reason(s) for the adverse action”2; moreover, the specific reasons disclosed must “relate to and accurately describe the factors actually considered or scored by a creditor.”3 The purpose of adverse action notice requirements is to promote fairness and equal opportunity for consumers involved in credit transactions. Read more
Courtesy of Regulatory News, Moody’s Analytics
At the global level, supervisory efforts are increasingly focused on addressing climate risks via better quality data and innovative use of technologies such as generative artificial intelligence (AI) and blockchain. One such initiative is the recent Bank for International Settlements (BIS) TechSprint, which calls for technology solutions to address data-related gaps in sustainable finance. While the Network for Greening the Financial System (NGFS) also recently published beta version of the conceptual framework for nature-related risks to guide policy actions, addressing climate-related litigation risk looks to emerge as a new focus area at the supervisory level.
Below are the key highlights of the latest developments in these areas of climate-related financial risks:
- Climate-related litigation risk. NGFS recently published two reports, one of which outlines trends in climate litigation risks while the other report brings in focus the micro-prudential supervision of risks associated with the increase in climate-related litigations. The micro-prudential supervision report sets out potential supervisory options and suggests that supervisors adopt a risk-based approach. Prudential regulators may consider how to assess climate-related litigation risk through exposure analysis at a jurisdictional and entity level. Supervisory options explored include awareness building exercises, risk mitigation and transfer considerations, establishment of governance and risk management expectations to be assessed in prudential reviews, climate-related litigation disclosures, testing of resilience through scenario analysis, and regulatory capital considerations.
- Framework for nature-related risks. This NGFS publication aims to define nature-related financial risks and related concepts that are needed for a high-level understanding of these risks. It also offers a framework to help central banks and supervisors identify and assess nature-related financial risks. The principle-based risk assessment framework consists of three phases: identify sources of physical and transition risks; assess economic risks; assess risk to, from and within the financial system. Finally, it outlines the next steps to be taken by the NGFS Taskforce, including bridging the modeling and data gaps (notably on the development of nature-related scenarios), and using emerging datasets to support the alignment of policies on environmental sustainability and inform the assessment of nature-related financial risks.
- TechSprint on Climate Risk Solutions. BIS, COP28 Presidency, and the Central Bank of the United Arab Emirates (CBUAE) launched a TechSprint to drive progress in climate action. The Sprint calls for the development of technological solutions for sustainable finance and to combat climate change. The Sprint has three problem statements: The first statement is focused on AI, including gen AI, solutions for sustainable finance reporting, verification, and disclosure in the financial services industry. The second calls for blockchain solutions for auditing and enhancing transparency, traceability, and accountability in sustainable finance. The third problem statement is focused on the internet-of-Things and sensor technology solutions for sustainable finance to ensure informed assessments of impact, risk, or compliance. The TechSprint is open to technology developers and innovators from around the world. Potential participants must submit a technology proposal to one or more problem statements by October 06, 2023.
Sept. 22, 2023: Technology & Payments Articles
- It’s Time to Regulate AI Like Cars and Drugs, Top Microsoft Exec Says
- How Generative AI Is Accelerating Disinformation
- GOP Senator Urges Feds to Hold Off on AI Crackdown as White House Readies New Executive Order
- California Passes Bill to Set Up One-Stop Data Deletion Shop
Courtesy of Steven Overly, Politico
Microsoft wants federal licenses for any AI powerful enough to be a public safety risk, the company’s president said in an interview on POLITICO Tech.
In a Senate subcommittee hearing yesterday, and in an interview, Microsoft President Brad Smith endorsed the idea of a federal licensing regime and a new agency to regulate powerful AI platforms — a position that puts it at odds with Google and some other tech giants, which would rather see voluntary guidelines with limited penalties for the creators of artificial intelligence technology.
With Congress in a flurry of hearings on AI this week, Smith is among the tech leaders expected at a closed-door session with Senate Majority Leader Chuck Schumer on Wednesday, along with Elon Musk of Tesla, Mark Zuckerberg of Meta, Sam Altman of OpenAI and Satya Nadella, also from Microsoft.
“A licensing regime is fundamentally about ensuring a certain baseline of safety, of capability,” Smith said. “We have to prove that we can drive before we get a license. If we drive recklessly, we can lose it. You can apply those same concepts, especially to AI uses that will implicate safety.”
Smith testified Tuesday in the Senate in support of a regulatory framework proposed by Sens. Richard Blumenthal (D-Conn.) and Josh Hawley (R-Mo.) that would create a licensing entity for sophisticated or potentially dangerous AI models. The framework also calls for companies to be held accountable when their AI models “breach privacy, violate civil rights, or otherwise cause cognizable harms.” Read more
Courtesy of Kyle Wiggers, TechCrunch
People are more aware of disinformation than they used to be. According to one recent poll, nine out of ten American adults fact-check their news, and 96% want to limit the spread of false information. But it’s becoming tougher — not easier — to stem the firehose of disinformation with the advent of generative AI tools.
That was the high-level takeaway from the disinformation and AI panel on the AI Stage at TC Disrupt 2023, which featured Sarah Brandt, the EVP of partnerships at NewsGuard, and Andy Parsons, the senior director of the Content Authenticity Initiative (CAI) at Adobe. The panelists spoke about the threat of AI-generated disinformation and potential solutions as an election year looms.
Parsons framed the stakes in fairly stark terms.
“Without a core foundation and objective truth that we can share, frankly — without exaggeration — democracy is at stake,” he said. “Being able to have objective conversations with other humans about shared truth is at stake.” Both Brandt and Parsons acknowledged that web-borne disinformation, AI-assisted or no, is hardly a new phenomenon. Parsons referred to the 2019 viral clip of former House Speaker Nancy Pelosi (D-CA), which used crude editing to make it appear as though Pelosi was speaking in a slurred, awkward way.
But Brandt also noted that — thanks to AI, particularly generative AI — it’s becoming a lot cheaper and simpler to generate and distribute disinformation on a massive scale.
She cited statistics from her work at NewsGuard, which develops a rating system for news and information websites and provides services such as misinformation tracking and brand safety for advertisers. In May, NewsGuard identified 49 news and information sites that appeared to be almost entirely written by AI tools. Since then, the company has spotted hundreds of additional unreliable, AI-generated websites.
Courtesy of Ryan Lovelace, The Washington Times
Sen. Mike Rounds wants federal regulators to wait for Congress to act before throttling artificial intelligence, but President Biden’s team is preparing new executive action to address the tech danger.
Confrontation between lawmakers and regulators on AI is increasingly likely as the South Dakota Republican’s request for patience on Wednesday comes as federal officials brace for Mr. Biden to sign an executive order on AI in the coming months.
Tension between Congress and the Biden administration over who will set America’s AI policy spilled into public view at a Senate Banking Committee hearing examining the tech’s effect on financial services.
Mr. Rounds said U.S. officials need to ensure any regulations do not inhibit innovation, or policymakers will risk letting China dominate the emerging tech market.
“Although we will have many discussions about the dangers, we must also acknowledge that halting progress can be dangerous, especially as our global competitors such as China have no intentions of slowing down,” Mr. Rounds said. “Financial regulators should allow Congress to act and resist the urge to overregulate new technology as they run the risk of unintended consequences.” Read more
Courtesy of Brandon Vigliarolo, The Register
Californians may be on their way to the nation’s first “do not broker” list with the passage of a bill that would create a one-stop service for residents of the Golden State who want to opt out of being tracked by data brokers.
SB 362, or the DELETE Act, like the right to repair bill passed earlier this week, is now on its way to Governor Gavin Newsom’s desk for signature – or not. “We don’t typically comment on pending legislation. Each bill will be evaluated on its merits,” the Governor’s office told us.
If signed, the bill will require the California Privacy Protection Agency (CPPA) to set up a website by 2026 where residents could go to, listing every single data broker registered in the state of California, to delete whatever data they had on the individual – and to keep deleting anything new they acquired every 45 days. The bill would also prohibit the selling or sharing of any newly collected personal data of an individual who requested deletion.
To ensure that the brokers follow the law, SB 362 would also shift responsibility for data broker registration from the California Attorney General’s office to the CPPA so all the enforcement could happen under one roof. The bill will also require data brokers to undergo triennial audits to ensure they’ve been complying with the bill’s provisions, and would impose civil penalties on violators.
Californians have every right under the law, as it stands, to request their data be deleted from a broker’s database, but it’s difficult. There are around 500 data brokers registered in the state of California, and consumers have to contact every single one individually to request their data be wiped.
“Data brokers currently have the ability to use data on reproductive healthcare, geolocation, and purchasing data to sell it to the highest bidder,” California state Senator Josh Becker, who introduced the bill, said of SB 362. Read more
Sept. 15, 2023: Technology & Payments Articles
- Why It’s Time for Credit Unions to ‘Double Down’ on Innovation
- OPINION: Pros and Cons of ChatGPT in the Financial Space
- Google’s Big Antitrust Trial Kicks Off, with Even Bigger Implications
- CBDCs Compete for Relevance in Cross-Border Payments
Courtesy of PYMNTS
Two heads are frequently better than one, and good things often come in pairs.
That could be why, when Brian Scott, chief growth officer at credit union service organization PSCU, was asked as a part of PYMNTS new executive series “The One Thing” about what people always ask him, he came back to us with two.
“It is always ‘what’s next?’ — that’s what people want to know, it’s the bygone. And then, it’s ‘how do we compete with what’s coming next?’” Scott said.
After all, the financial services and payments industries are rapidly undergoing significant developments that require financial institutions to adapt and innovate.
“There are a lot of things that are coming next. Some of them we’re aware of because we can look around the rest of the world and see them coming, like open banking… and faster and instant payments with the new FedNow® Service,” Scott said. “I wouldn’t even say that those are what’s next — they are happening now,” he added.
Evolving in concert with industry innovations are the ever-shifting expectations of consumers. As many financial players know, understanding the changing needs of consumers is crucial in providing them with the best service.
“A lot of financial institutions have pulled back a little bit on innovation, kind of taking that wait-and-see approach,” Scott said. “And I’d say just the opposite. Now is a great time to double down on the innovation.”
Meeting Consumers Where They Are
Staying ahead of the curve is a great way for financial organizations to delight their current customers, while at the same time differentiating themselves in the marketplace to acquire new consumers.
“Financial education and financial wellness are two important areas for financial institutions to focus on right now — as is capitalizing on the emergent idea around delivering personalized and connected experiences,” Scott said. Still, these advancements require financial institutions to adapt their systems and processes to meet consumers’ changing demands. Read more
AI’s disruptive trend continues.
Courtesy of Pedro Ferreira, FinanceMagnates
The incorporation of artificial intelligence (AI) in numerous industries is revolutionizing the way we do business and engage with technology in the digital age. The financial sector, in particular, has seen the rise of AI-powered products such as ChatGPT, an OpenAI language model.
While ChatGPT provides great opportunities for improving customer experiences and optimizing operations, it also poses problems that must be carefully considered. In this article, we look at the benefits and drawbacks of ChatGPT’s involvement in the financial sector.
Benefits of ChatGPT in Finance
Improved Customer Service: Customer support is one of the most potential applications of ChatGPT in banking. Chatbots powered by ChatGPT may respond to client enquiries instantly, boosting response times and overall user happiness. Clients can get rapid answers to questions concerning account balances, transaction history, and general financial matters.
Availability 24 hours a day, 7 days a week: ChatGPT-powered chatbots, unlike traditional customer service, are available 24 hours a day, seven days a week. This ensures that clients, regardless of time zone, can get help and information at any time. Such accessibility is especially advantageous for multinational financial institutions with a broad customer.
The Drawbacks of ChatGPT in Finance
Contextual Understanding Is Limited: While ChatGPT is capable of creating text, it falls short of full contextual awareness. The model may struggle to grasp nuances in sophisticated financial discussions, resulting in erroneous or inappropriate responses. This limitation can be troublesome in circumstances requiring exact information.
Concerns About Security: The financial industry prioritizes security, and incorporating AI-powered solutions raises worries about data privacy and confidentiality. Sensitive financial data shared with chatbots may be subject to security breaches, providing a major risk to both customers and institutions. Read more
Courtesy of Taylor Hatmaker, TechCrunch
The Justice Department’s landmark antitrust case against Google kicked off in court today, marking the beginning of a trial that will stretch on for months, potentially upending the tech world in the process.
At issue is Google’s search business. The Justice Department says that Google has run afoul of antitrust laws in the course of maintaining its top spot in search, while the tech giant argues that it maintains its dominance naturally by offering consumers a superior product.
The Justice Department filed the civil antitrust suit against Google in late 2020 after examining the company’s business for more than a year.
“If the government does not enforce the antitrust laws to enable competition, we will lose the next wave of innovation,” then Deputy Attorney General Jeffrey A. Rosen said at the time. “If that happens, Americans may never get to see the ‘next Google.’”
A large coalition of state attorneys general also filed their own parallel suit against Google, but Judge Amit Mehta decided that the states did not clear the bar that would allow them to go to trial with their own complaints about Google’s search ranking practices.
The present case against Google, centered on its search business, is separate from another federal antitrust lawsuit filed earlier this year. In that lawsuit, the Justice Department argues that Google employed “anticompetitive, exclusionary, and unlawful means” to neutralize threats to its digital advertising empire.
On Tuesday, Justice Department attorney Kenneth Dintzer set the stakes for the trial, which is the first major tech antitrust trial since Microsoft’s historic reckoning in the late ’90s. “This case is about the future of the internet, and whether Google’s search engine will ever face meaningful competition,” Dintzer said. Read more
Courtesy of PYMNTS
As it continues to grow, it has the potential to simultaneously transform cross-border payments and spur the interoperability of faster payments schemes around the globe.
As PYMNTS reported Wednesday (Sept. 13), the global messaging platform SWIFT said that three central banks are testing its solution for interlinking CBDCs — and the solution is being utilized by another 30 FIs to examine other use cases for CBDCs.
The three central banks and monetary authorities — among them the Hong Kong Monetary Authority (HKMA) and the National Bank of Kazakhstan — have agreed to integrate SWIFT’s connector solution into their infrastructures.
Cost Structures Improve
The far-flung (geographically speaking) nature of these banks and monetary authorities, we’d add, speaks volumes to the ways in which the digital currencies could be used along various trade corridors, and that an “on ramp” is critical for various domestic CBDCs to move beyond a given country’s borders.
And if cross-border transactions see settlement times shrink from, say, several days to a few seconds, it’s conceivable that the FX-related costs of those transactions would be drastically reduced.
Banks and enterprises may also wind up keeping less capital “locked up” on their books, or may reduce the practice of holding foreign currencies, since they no longer have to mitigate those costs. Greater transparency and speed of those cross-border payments also has the positive knock-on effect of improving supply chains, as buyers, banks and suppliers all are integral components of those chains.
Cross-Border Pain Points
According to recent PYMNTS Intelligence, 27% of SMBs see the complexity of cross-border payments as a hindrance to their ability to grow.
Less than a quarter of small businesses found their current cross-border payment solutions to be “very or extremely” satisfactory. The opportunity, and the need, to smooth the channels across which cross-border funds flow is illustrated by the fact that 38% of SMBs saw an increase in cross-border payments sent or received in 2021, and 81% of merchants who used online cross-border payment methods say these transactions have helped their businesses grow, per PYMNTS Intelligence. Read more
Sept. 8, 2023: Technology & Payments Articles
- Data Consent and Infrastructure Could Stop FI Hyper-Personalization
- Hyundai Introduces In-Vehicle Payment Service, Hyundai Pay
- PYMNTS Intelligence: Countering Rising Fraud Threats to CUs
- Embedded Lending vs. BNPL: An Investigation into the Key Variations
Personalization has become an essential component of how fintechs bring value to customers.
Courtesy of Isabelle Castro Margaroli, FinTechNexus
In a survey conducted by Twilio, 62% of consumers said they expect personalization from brands, and a further 49% stated they would become repeat buyers if it was offered. As the facility becomes even more integral to online experiences, hyper-personalization becomes the next port of call.
Building on the utilization of data and AI seen in the personalization of online services, hyper-personalization creates a real-time personalized experience for consumers. “It’s a word that we’re using, in my opinion, to describe a tactical bridge that will take us to the promise of open finance and the democratization of finance,” said Farouk Ferchichi, President of Envestnet Data & Analytics.
He explained that, currently, traditional financial institutions are facing three key challenges when adapting to consumer needs.
- Keeping up with the rapidly changing consumer profile as new generations and demographics with different needs access the market.
- Growing competition, particularly from fintechs.
- A mismatch between the speed of innovation and the company’s vision for their service.
As development continues on AI and data processing capabilities, hyper-personalization could pose an opportunity for financial institutions to address these challenges. “Data and analytics, AI, all of this is really the emerging oil that powers the Financial Engines of the future,” said Ferchichi. However, he explained, two things could stand in its way: the dialogue around data consent and financial institutions’ ability to adjust their systems to allow for the new technology.
Data Consent: A Critical Piece Of The Puzzle
“We are in very early stages. We’re scratching the surface,” said Ferchichi. “I think the emergence of artificial intelligence and responsible use of artificial intelligence is built upon a consent-based, consumer data sharing.”
The conversation around consumer data sharing is a tumultuous one. As financial services are powered ever more by data, the need to find the balance between sharing data and maintaining privacy has come ever more to light. On the one hand, consumers understand that sharing more data may allow access to better, personalized services but may be deterred by a lack of clarity about who that data will be shared with. Read more
Courtesy of Hyundai Motor America/PRNewswire
Hyundai Motor America is bringing in-vehicle payments to customers with the introduction of Hyundai Pay. The Hyundai Pay system allows customers to find and pay for things with their vehicle’s touchscreen using securely stored credit card information. Hyundai has partnered with Parkopedia to launch Hyundai Pay’s first service, a new parking payment system.
This system enables U.S. drivers to locate, reserve, and pay for parking at 6,000 locations – all from inside their vehicle, after an initial set-up. Hyundai Pay launches with the all-new 2024 Hyundai Kona available in dealerships this fall. An additional nine Hyundai models will get Hyundai Pay via model year changes or over-the-air updates and include Parkopedia parking payment services. In the future, the Hyundai Pay platform will also have additional features and electric vehicle-related use cases.
Hyundai Pay Platform Highlights
- Offers customers features via the vehicle’s touchscreen and the Bluelink connected car system to enhance the driving experience
- The scalable in-car payments system will expand to include other uses and selected scenarios that are part of daily drives and longer trips
- Offering this level of convenience is part of Hyundai’s ongoing effort to create best-in-class digital ownership experiences
- Offering easy-to-use payment options as part of navigation will simplify the driving experience
- Payments are kept secure using tokenization (replacing card account details with a unique digital identifier, or token, that keeps data from being compromised)
- Hyundai Pay is the Foundation for Exciting Future Use-Cases for In-Vehicle Payments
- Hyundai Pay Launches with Parkopedia, Providing a Leading In-Car Parking Reservation and Payment System
- U.S. Hyundai Drivers Can Now Make Parking Reservations and Payments at 6,000 Locations From Inside the Car
- Parkopedia Parking Data and Payment Platform Provides Drivers with a Convenient Experience for Finding and Paying for Parking Through the Vehicle’s Touchscreen
Courtesy of PYMNTS
Fraud attacks against banks and credit unions (CUs) are nothing new, but consumers are taking them much more seriously than they used to. A study found that 74% of consumers rate fraud protection as a top-three priority when opening a new financial account, outstripping ease of use at 61% and good value for money at 46%.
CUs will need to implement strong measures to protect themselves and their members from fraud — or watch members take their business elsewhere. This month’s PYMNTS Intelligence explores emerging fraud threats within the CU landscape and the strategies institutions can deploy to safeguard their members, including artificial intelligence (AI).
New AI Tools Intensify and Multiply Existing Fraud Threats
Phishing attacks have long been a threat to financial institutions (FIs) and their customers. Scammers pose as FIs to trick customers into disclosing account numbers, passwords and other sensitive information, which the fraudsters can then exploit for their own gain or disseminate on the dark web. A study showed that the rate of phishing attacks has grown by 150% annually since 2019, with more than 1.3 million being recorded in Q4 2022 alone.
Generative AI programs like ChatGPT have made phishing not only more effective but also easier to conduct on a larger scale. These programs can effectively replicate a natural writing style with minimal input from fraudsters, allowing them to generate and send persuasive phishing emails to thousands of victims every hour. Read more
Courtesy of Yaacov Martin, FinTechNexus
With the cost of living skyrocketing and rising interest rates, consumers and businesses have been turning to brands that offer seamless, flexible payment and lending options.
And as customers and businesses navigate this difficult financial time, there’s a rising star: embedded lending. But this lending is not only a short-term solution to see customers through recessions or difficult times. Rather, it’s a sustainable solution that helps people with financial planning, becoming a major factor in every transaction and providing financing accessibility when needed. So, how is this different from Buy Now, Pay Later (BNPL) as we know it? Let’s explore.
The rise and almost-fall of BNPL
BNPL solutions addressing pain points with high credit card fees became popular during the pandemic alongside the rise of online shopping. This led various fintechs and intermediaries, like Klarna, to release customer-facing Pay in 3 or Pay in 4 options. These solutions became the standard deferred payment methods on every online site. However, the issue was many BNPL providers offered it to everyone without credit checks or reporting, resulting in late fees and untraceable debt for consumers.
Then came the perfect storm: Regulators started to closely observe the popularity of BNPL alongside a shift in the economy. This timely duo rattled the BNPL sector and caused responsible lending concerns, plummeting valuations, and rising interest rates. Large providers knew they’d have to either adapt—by limiting approvals and becoming more transparent—or suffer a major blow in the market.
Aug. 25, 2023: Technology & Payments Articles
- One-Third of Credit Union Members Would Leave for Better Credit Products
- Buy Now, Pay Smarter: How Digital Solutions Reshape Credit Behavior
- Digital Dollar Project and Western Union Pilot CBDC For Cross-Border Remittances
- Factbox: Governments Race to Regulate AI Tools
Courtesy of PYMNTS.com
Consumers in the United States rely less on their primary financial institution (FI) for major credit products than they used to. Many are shopping around for better deals on rates and terms and for a larger variety of products, resulting in increased competition from non-bank and non-credit union financial entities such as FinTechs.
Although 63% of account holders have at least one of four major credit products with their primary FI, our research found that other banks or CUs provide 48% of mortgages and 41% of auto loans to the same audience. This shows that customers are willing to look elsewhere for better terms on these loans to help them lower the cost of credit and increase their savings.
This is one of the key findings in “Credit Union Innovation: How Credit Products’ Rates and Terms Impact FI Selection,” a PYMNTS and PSCU collaboration. The report examines consumers’ criteria for choosing credit products, which could determine their choice of FIs. Our findings are based on three surveys with responses from 4,097 consumers, conducted between April 3 and April 24; 100 CU executives who influence financial management, conducted between April 3 and April 27; and 54 FinTech executives who provide services to most FIs, conducted between April 3 and April 26.
More key findings include the following:
FIs can persuade consumers to move accounts away from their primary FIs by offering credit products with favorable conditions, with 29% of consumers saying that they would be very or extremely likely to do so. PYMNTS’ research found that consumers are more likely to cite interest rates and terms as most influential to their decision of where to apply for credit than any other factor.
While most FIs face comparable constraints on interest rates, they can compete for business by offering different services and terms, including lower fees and commissions, longer loan terms, larger credit limits and faster credit approval. Read more
Courtesy of PYMNTS.com
Americans credit card payment delinquencies are starting to pile up. Per the latest Federal Reserve report, credit card balances rose past $1 trillion for the first time in the survey’s history. But things aren’t that simple. “When we talk about consumers and credit, you really have to segment it into generational silos,” Jacqueline White, president at i2c, told PYMNTS CEO Karen Webster.
“What we are seeing is that the up and coming and younger generations are really approaching the entire concept of credit, their relationship with credit tools and products, very differently than older generations,” she said. That’s because in today’s fast-paced world, consumers are constantly seeking ways to manage their cash flow in a predictable and efficient manner — and this desire for certainty extends to their purchasing habits.
“Younger generations,” White said, “are a lot of times more interested in buy now pay later at point of sale as opposed to using a line of credit. And when they do use credit, they’re much more interested in paying off those balances every month. It’s a more conscious use of credit.”
This craving for financial stability has given rise to the popularity of embedded finance and buy now pay later (BNPL) options across various industries, including eCommerce, retail, travel, hospitality, healthcare and education. “When you get into older demographics, those numbers tell the story. Those are big, astronomic mind-boggling numbers,” White said.
Credit is a Reflection of the Economy
The integration of embedded finance and BNPL options into various industries is driven by businesses recognizing the potential of these offers in increasing sales and customer acquisition. “When there’s an opportunity to spend $50 instead of $400, it’s just too easy. We’ve made embedded finance very, very simple and straightforward, which I think is a good thing,” White said. Read more
Courtesy of FinExtra
The Digital Dollar Project says a pilot carried out with Western Union into the use of CBDCs for cross-border remittances has found a host of potential benefits.
The Digital Dollar Project is the brainchild of former CFTC chair Chris Giancarlo, ex-CFTC chief innovation officer Daniel Gorfine and Pure Storage CEO Charles Giancarlo, who have set up a not-for-profit to encourage research and public discussion about a CBDC. The project worked with Western Union, BDO Unibank in the Philippines, and Accenture on the latest pilot, designing and configuring a platform using DLT to simulate the payments infrastructure necessary to transfer digital dollars to Philippine pesos.
The partners say that they saw reduced counterparty and credit risk thanks to instant settlement. In addition, CBDC settlement allows for transferring value and message in a single transaction, settled atomically, thereby reducing the cost of capital held in pre-funded accounts.
Meanwhile, a digital dollar increases the accessibility and portability of money in a digital form to benefit the unbanked and underbanked. A verified digital wallet can help reduce fraud, enable faster settlement, harmonise jurisdictional requirements, and minimize failed transactions.
“Through this pilot study, Western Union has identified several advantages for customers and financial institutions, laying the groundwork for ongoing evaluations of the feasibility and viability of utilizing retail CBDCs for cross-border remittances,” says Kevin Mole, global head, digital assets, Western Union.
Courtesy of Alessandro Parodi and Amir Orusov, Reuters
Rapid advances in artificial intelligence (AI) such as Microsoft-backed OpenAI’s ChatGPT are complicating governments’ efforts to agree laws governing the use of the technology. Here are the latest steps national and international governing bodies are taking to regulate AI tools:
AUSTRALIA (* Seeking input on regulations)
The government is consulting Australia’s main science advisory body and considering next steps, a spokesperson for the industry and science minister said in April.
BRITAIN (* Planning regulations)
The Financial Conduct Authority, one of several state regulators that has been tasked with drawing up new guidelines covering AI, is consulting with the Alan Turing Institute and other legal and academic institutions to improve its understanding of the technology, a spokesperson told Reuters.
Britain’s competition regulator said in May it would start examining the impact of AI on consumers, businesses and the economy and whether new controls were needed. Britain said in March it planned to split responsibility for governing AI between its regulators for human rights, health and safety, and competition, rather than creating a new body.
CHINA (* Implemented temporary regulations)
China issued a set of temporary measures in July to manage the generative AI industry, requiring service providers to conduct security assessments and perform algorithm filing procedures. A day before, billionaire Elon Musk hailed the country’s interest in a cooperative international AI framework.
China’s cyberspace regulator had in April unveiled draft measures to manage generative AI services, saying it wanted firms to submit security assessments to authorities before they launch offerings to the public.
EUROPEAN UNION (* Planning regulations)
EU lawmakers agreed in June to changes in a draft of the bloc’s AI Act. The lawmakers will now have to thrash out details with EU countries before the draft rules become legislation.
The biggest issue is expected to be facial recognition and biometric surveillance where some lawmakers want a total ban while EU countries want an exception for national security, defence and military purposes. Read more
Aug. 18, 2023: Technology & Payments Articles
- Elon Musk’s Next Target Is Your Finances. The Government May Say No.
- Neobank Zolve Offers Immigrant Customers Mobile Plans
- Visa’s Pricing of Token Technology Under DOJ Probe
- UK Launches £1 Billion Fintech Fund to Compete with Silicon Valley
Lawmakers warn that Musk could face scrutiny if he pushes ahead with plans to turn the social media giant formerly known as Twitter into a financial services provider.
Courtesy of Jasper Goodman, Politico
Mark Zuckerberg has a lesson to offer archrival and potential cage-match opponent Elon Musk: Beware of Washington when trying to build an “everything app.” Lawmakers are warning that Musk could face scrutiny if he pushes ahead with plans to turn X, the social media giant once known as Twitter, into a financial services provider. It’s a key step to achieving Musk’s long-held goal of building a mega-app that serves as a hub for messaging, payments and more.
Musk, the world’s richest man, will need to avoid the political and regulatory pitfalls that killed Zuckerberg’s plan to launch a cryptocurrency payments system alongside Facebook. Zuckerberg and his partners scrapped the project following resistance from Capitol Hill, banking regulators and European officials. “As a big company, you have a bullseye on your back — from the average consumer, from politicians,” said Morgan Beller, who co-created the failed Facebook crypto venture first known as Libra. “You have to ask for permission, not forgiveness.”
And that’s just not Musk’s style, as evidenced by his attempt to face off with Zuckerberg in hand-to-hand combat. Zuckerberg said Sunday on his X competitor Threads that Musk “isn’t serious and it’s time to move on.” “You have a cowboy at the helm of a big company,” Beller said. “So, who’s to say what he will try to do or not do?”
Zuckerberg’s experience revealed broad concerns in Washington and Brussels about the intermingling of social media and finance that still linger. He faced fatal opposition even as he pledged to delay the project and address officials’ objections. It’s questionable whether Musk, who has long taken a more combative approach to dealing with regulators — and who has also become a political lightning rod — would fare any better.
Courtesy of FinExtra
Zolve, a neobank for immigrants to the US, has teamed up with telecom-as-a-service platform Gigs to launch its own branded mobile phone plan service. The Zolve app already offers new arrivals to the US a FDIC-insured bank account, and a high-limit credit card. Now, customers can also activate their phone plan in the Zolve app with just a few taps – bypassing the bureaucracy of providing an address, credit card, and social security number that often faces new arrivals.
The firm says that by bundling financial services with a phone plan, it provides expats with two essential needs from one and the same app, ensuring a smooth start to life in the US. The company claims it is the world’s first fintech to introduce its own mobile virtual operating network, helping it boost customer engagement and loyalty while generating recurring revenue.
The deal comes shortly after Gigs hired Stripe and Nubank veteran Rafael Plantier as head of financial services to win business from fintechs. Raghunandan G, CEO, Zolve, says: “For expats seeking access to financial services or a SIM card in the US, the process has traditionally been time-consuming, complicated, and overwhelming.
“However, by enriching our suite of financial products with our own phone plan, we can significantly simplify the lives of the international community and transform the Zolve app into a launch pad for global ambitions.”
Courtesy of Pritam Biswas, Reuters
Visa is under fresh investigation by the U.S. Department of Justice over allegations it is charging retailers more for not using the payment firm’s proprietary tokenization technology, Bloomberg News reported on Wednesday, citing people familiar with the matter. The DOJ’s antitrust probe against Visa, which began in early 2021, is investigating if the company uses anticompetitive practices in the debit card market.
The tokenization technology, launched by Visa in 2014, swaps debit card numbers with tokens that can exclusively be used on a particular device or with a merchant, replacing users’ sensitive account information with a unique digital identifier, the report said. The DOJ declined to comment and Visa did not immediately respond to a Reuters request for comment.
Both Visa and rival Mastercard are facing increasing scrutiny for their dominance in the payments market. The U.S. Federal Trade Commission started an investigation last October into whether Visa and Mastercard’s security tokens restrict debit-card routing in online payments. Visa disclosed last month that the DOJ’s antitrust division had on May 2 demanded additional documents and information on its debit card practices in the United States and competition with other payment networks.
Mastercard also disclosed in April that it was being asked to provide additional information by the DOJ. In 2019, Visa had settled a European Union antitrust probe relating to card fees.
Courtesy of Ryan Browne, CNBC
- A new U.K. investment fund with up to £1 billion ($1.27 billion) in capital raised has been launched to back growth-stage financial technology companies.
- The fund, which is backed by Mastercard, Barclays and the London Stock Exchange Group, aims to address the issue of fintech companies struggling to reach scale and pursue public listings.
- The U.K. has faced criticisms from some in the industry that it is posing barriers to its fintech entrepreneurs and forcing them to consider listings overseas.
The U.K. has created an investment vehicle to back growth-stage financial technology companies until they can go public, in a bid to bolster Britain’s global image as a fintech investment hub.
Backed by the likes of Mastercard, Barclaysand the London Stock Exchange Group, the Fintech Growth Fund aims to invest between £10 million to £100 million into fintech companies, ranging from consumer-focused challenger banks and payments tech groups to financial infrastructure and regulatory technology.
The fund, which is being advised by U.K. investment bank Peel Hunt, looks to support companies at the growth stage of their funding cycle, as they seek Series C rounds and above. The venture was created in response to a 2021 government-commissioned review helmed by former Worldpay Vice Chairman Ron Kalifa and examined whether the U.K.’s listings environment is unattractive for tech firms.
“It’s definitely a start,” Gautam Pillai, an equity analyst at Peel Hunt covering fintech, told CNBC in an interview Wednesday. It marks a rare commitment to a specialized fund focused on fintech backed by mega-industry players. While fintech-focused funds like Augmentum Fintech and Anthemis Group exist, the U.K. has yet to see a fintech-oriented fund that came about from a government-led strategy. Read more
Aug. 4, 2023: Technology & Payments Articles
- To Expand Credit Access to Small Businesses, Banks Must Tap Alternative Data
- Treasury Prime Enhances Bank Network at Critical Time for Banking
- Zelle Outage at JPMorgan Chase Is Red Flag for Banks
- PayPal Transactions Per Active User Grow to 54.7
Courtesy of PYMNTS
The Federal Reserve has hiked interest rates again to a high of 5.25%. And per other, just-released Fed data, banks are tightening their underwriting standards.
In the midst of it all stand the small- to medium-sized businesses (SMBs) that power the U.S. economy. PYMNTS data estimates that as many as half of these firms may be seeking credit in the months ahead. From Comercia’s vantage point, said Hendrickson, the tightening underscores the fact that “speed and access to capital will remain very important for small businesses.”
Against that backdrop, said Steinberg, technology can aid and streamline the processes that SMBs must navigate as they apply for credit. A better online onboarding experience can be a significant improvement here, as can using alternative data to help forge new ways of scoring risk.
Considering Other Information Flows
“We’re seeing an increase in interest from banks to leverage data that can help increase the approval rate and find those populations,” especially on the smaller end of the business spectrum that traditional data sources may overlook, Steinberg said.
After all, many smaller firms lack the operating histories — and thus the credit profiles — of their larger brethren. Hendrickson noted that the alternative data sources that can help flesh out a fuller sense of creditworthiness might take payroll data, even industry or geographic-specific trends — data that is already in-house, so to speak — into consideration. “We have to be open to these ideas in the post-pandemic era,” he said.
Providers including Enigma, said Steinberg, can take internal data sets from enterprise clients and through partnerships with entities such as Plaid to get more granular insight into small businesses’ financial activities and standing. The insights gleaned from alternative data (such as merchant services activities) can help a small business card issuer boost its approval rates significantly, improving SMB credit access in the meantime.
As Hendrickson contended, “the scoring models can thus expand the customer bases — and solidify the customer bases — within banks.” And for the would-be lenders, he said, it’s become imperative to understand how business customers have been operating across multiple accounts, how receivables are managed, and how money flows into and out of the company itself.
Click here to read the entire article or watch a discussion: Chris Hendrickson, senior vice president of small business strategy at Comerica, and Scott Steinberg, chief product officer and chief operating officer of Enigma, said a multidimensional underwriting process is needed to give a critical lifeline to companies seeking to navigate an uncertain macro environment — and to grow.
Courtesy of Isabelle Castro Margaroli, FintechNexus
America’s ecosystem of over 4,500 banks is an anomaly in the global landscape. Other countries’ banking numbers barely reach 500. However, banking has been going through a shift, and in 2023, the threat to smaller banks is increasing.
In the 2023 Cornerstone Advisors “What’s Going On in Banking” survey, threats were registered from all sides. While the perception of danger from challenger banks has decreased, big tech, fintechs, and “megabanks” make up an ever-present danger in the minds of bank executives.
Deposit declines have been seen since mid-2022 and heightened drastically by the March banking crisis. Scooped up by the megabanks, small institutions have been left with an urgent need to change their approach. Cornerstone found that banks’ greatest priority in 2023 had shifted significantly to growing their deposits. A digital account opening strategy is becoming a critical component.
Stated to have “better economics and business models,” fintechs have the agility to focus on digital development. Unbounded by many of the restrictions posed by banking license compliance, they can respond quickly to the rapid evolution of consumer demands and tech. The partnership between fintechs and banks could therefore be powerful to boost deposits. Read more
Courtesy of Charles Gorrivan, American Banker
An outage at JPMorgan Chase disrupted Zelle transactions Tuesday, inciting user complaints that spilled over into the following day. The fallout for Zelle and its banks could last much longer.
It was the second Zelle glitch in six months that involved a bank tied to Early Warning Services, the P2P app’s owner. The JPMorgan Chase interruption follows an outage at Bank of America that disrupted Zelle payments in January. Both banks are among the seven co-owners of Early Warning.
Glitches often occur when digital payments flow through older core banking platforms. That problem could grow as more transactions occur on networks integrated with The Clearing House’s RTP network and the Federal Reserve’s real-time-payment processing system FedNow.
“Instant is great when it works. But when it’s broken, we find out about it right away,” said Peter Tapling, a payments consultant and former Early Warning executive. “That intersection of brand new modern systems, and clunky old bank systems is going to become more evident.” Read more
Courtesy of PYMNTS
PayPal’s second quarter results show a boost in transactions per active account, and eCommerce growth increasing at encouraging rates. To that end, the company’s results show that total payment volumes (TPV) surged 11% to $377 billion in the most recent quarter. And investor materials showed that branded checkout TPV was up mid-single digits in the quarter.
The number of transaction grew by 10% to 6.1 billion, with activity marked across 400 million active consumer accounts, up 0.4% year over year, and 35 million active merchant accounts.
Venmo Transactions Grow
- Total TPV for P2P transactions was up 2% to $95 billion, and was 25% of total TPV for the quarter.
- Venmo transactions surged 8% to $67 billion.
- Cross-border TPV was $47 billion in the quarter, up 3%.
- Transactions per active account gained 12%, to 54.7.
Dan Schulman, CEO said “eCommerce growth appears to have stabilized in the mid-single digits substantially above our estimates.” He noted, too, that branded checkout growth — where 43 of the top 100 merchants have moved to that checkout — has accelerated to more than 8% as of July, “our highest monthly growth rate.”
Buy now, pay later (BNPL) has been rolled out to 60 million of the company’s customers, according to management commentary on the call, and it is seeing a 25% to 30% increase in first-time users. As inflation cools, he said, discretionary spend should improve and will underpin further spending on eCommerce.
Artificial intelligence (AI) is being used in the company’s software development process, and Schulman noted that the company continues to ramp up its “test velocity” with more than 300 experiments launched across various product experiences in the first half of the year. Read more
July 28, 2023: Technology & Payments Articles
A bill aimed at reining in the SBA’s 7(a) expansion plan would subject nonbanks to unfair and overly burdensome regulations, fintech trade groups said.
Courtesy of Anna Hrushka, BankingDive
Fintech trade groups say they are “deeply concerned” with provisions in a Senate bill that would impede their ability to participate in a government-backed small-business lending program.
The groups say the Community Advantage Loan Program Act of 2023, which the Senate Small Business and Entrepreneurship Committee passed last week, would limit competition as well as subject participating nonbanks to unfair and overly burdensome regulations.
The bill, sponsored by Small Business Committee Chairman Sen. Ben Cardin, D-MD, and the panel’s ranking member Sen. Joni Ernst, R-IA, would limit the number of new nonbank entrants allowed into the Small Business Administration’s 7(a) lending program, and enhance oversight of the program’s nonbank participants, which are categorized as Small Business Lending Companies.
In a letter sent to Ernst and Cardin on Monday, the Electronic Transactions Association, Financial Technology Association, Innovative Lending Platform Association and Small Business Finance Association urged the lawmakers to amend the legislation, which heads to the full Senate.
“We share your objective to protect the integrity of the program and believe that necessary guardrails should be in place for all SBA programs and lenders,” the groups wrote. “However, this bill limits competition in the market by reinstating the 40+ year moratorium on licensing more SBLCs, imposes ‘stress testing’, a costly and unnecessary regulatory requirement on only SBLCs while exempting the other 2,200 lenders in the program, and imposes a restriction on only three new SBLC licensees that limits the speed and efficiency in which they can process loans while also exempting the other 2,200 lenders in the program.” Read more
Courtesy of PYMNTS.com
As has been widely reported through the years, the Fed has said that a significant percentage of U.S. consumers could not and cannot afford to handle a $400 emergency expense — roughly a third of consumers would struggle to make that payment using cash or an equivalent. The $400 number, she contended, “is digestible.” It’s a number the Fed has been using for roughly a decade — a simple benchmark. But it has not kept up with the times.
“Inflation and macroeconomic volatility,” Carroll said, “have moved the needle.”
That $400 figure, she said, pales in comparison to the $1,700 that joint research from LendingClub and PYMNTS found is a more accurate reflection of the actual reality of our financial times and our financial pressures. In fact, the data shows, as Carroll related, that two-thirds of unexpected expenses cost more than the Fed’s preferred measure.
Millennials are facing emergency expenses at higher rates. Even high-income demographics are not immune. Consumers earning more than $100,000 annually were 34% more likely to have faced emergency expenses than their lower-income counterparts.
That might seem paradoxical, but as Carroll noted, the expenses stem from two avenues: The people that these higher-income earners are responsible for — their family members — and the things they own. For the paycheck-to-paycheck consumers, Carroll said, the pressures wind up creating a chain reaction. Read more
Courtesy of FinTech Global
The UK government is considering backtracking on its plans to impose stricter regulations on the burgeoning buy now pay later (BNPL) industry.
The decision comes after reports that some of the industry’s major players have threatened to exit the UK market, should they face stringent regulations. The Treasury, which had initiated a consultation in February on the FCA’s regulation of the growing BNPL sector, is now thought to be veering away from its initial proposal.
The proposed regulations by the FCA included making credit agreements explicit and ensuring people understood the risks associated with BNPL services. Another key proposal was applying section 75 of the Consumer Credit Act to BNPL providers, making them jointly accountable for the contract with the retailer, similar to credit card providers.
These recommendations, however, have been criticised by Innovate Finance, the FinTech industry body, as being more burdensome than those currently imposed on credit cards.
The Treasury’s potential shift away from enforcing these regulations is also driven by apprehensions that they could limit the availability of low-interest products. Although a final decision has yet to be reached, delays to BNPL regulations have already incited a reaction from consumer campaign groups. Read more
Today, French Hill (AR-02), Chairman of the Subcommittee on Digital Assets, Financial Technology and Inclusion, Glenn “GT” Thompson (PA-15), Chairman of the House Committee on Agriculture, and Dusty Johnson (SD-AL), Chairman of the Subcommittee on Commodity Markets, Digital Assets, and Rural Development, introduced H.R. 4763, the Financial Innovation and Technology for the 21st Century Act. Additional cosponsors include Reps. Tom Emmer (MN-06) and Warren Davidson (OH-08).
“After listening to members on both sides of the aisle, the Biden Administration, and stakeholders, the House Committees on Financial Services and Agriculture are introducing landmark legislation today to establish a functional regulatory framework that will protect consumers and keep innovation in the United States,” said Rep. French Hill. “This legislation would not only have prevented FTX from stealing billions of customer funds, but also establishes robust consumer protections and clear rules of the road for market participants. I look forward to this historic legislation being considered in both the House Committees on Financial Services and Agriculture next week.”
“Today’s introduction of the Financial Innovation and Technology for the 21st Century Act marks a significant milestone in the House Committees on Agriculture and Financial Services efforts to establish a much-needed regulatory framework that protects consumers and investors and fosters American leadership in the digital asset space,” said Chairman Thompson. “Over the past several months, our teams solicited extensive feedback from stakeholder and market participants, and worked diligently to produce a legislative product that aims to close existing authority gaps, ensuring U.S. leadership in financial and technological innovation. I thank Chairman McHenry for his leadership and that of our subcommittee chairs in moving this legislation to this stage.”
“The digital asset space is muddled with regulatory uncertainty, lack of authority, and a lacking framework for core operating principles,” said Rep. Dusty Johnson. “The crypto industry wants clarity and our collaborative bill gives both the CFTC and SEC a seat at the table. Our bill establishes clear principles to ensure financial security and certainty as digital asset developers continue to innovate.” Read more
July 21, 2023: Technology & Payments Articles
Courtesy of Katie Arcieri, Bloomberg Law
Visa Inc. and Mastercard Inc. are facing a new antitrust lawsuit that alleges the credit card companies conspired to vastly overcharge the Square payment platform, causing higher retail prices paid by consumers.
Block Inc., the company formerly known as Square Inc., claims that Visa and Mastercard conspired to fix inflated “interchange” fees and maintain market power, according to a suit filed July 14 in the US District Court for the Eastern District of New York.
Block’s Square payment processing platform directly contracts with Visa and Mastercard to facilitate card transactions for millions of merchants. Square is the direct payer of the interchange fees, also known as swipe fees, which are charged by Visa or Mastercard and their member banks each time a customer uses a credit or debit card to make a transaction.
“The effect of these artificially inflated fees—assessed to and paid by Square—is higher retail prices paid by consumers economy-wide,” Block said in the suit. “As retail prices increase in response to inflated fees, consumers can afford less and thus purchase less, reducing output.”
Square merchants don’t pay the interchange fees, but instead pay separate fees set by the company for its payment services. Read more
Firms are facing a surge in fraud, thanks in large part to reactive strategies and outdated AP payments processes and systems. The need for robust payments fraud prevention and more advanced automation procedures in AP systems is at an all-time high.
Courtesy of PYMNTS.com
Outdated and inefficient accounts payable (AP) procedures are a critical factor in exposing companies to external risk and internal fraud, leading to significant financial and reputational damage. Dated AP processes have become a breeding ground for payments-related vulnerabilities, including the real risk of so-called old-fashioned scams like check fraud as well as newer threats like digital identity-related hoaxes. Companies need to acknowledge the urgency of these issues and invest in robust and reliable digital AP payments services and solutions to safeguard their operations and bottom lines.
Surge in Fraud Spotlights Need for Change:
56% OF U.S. BUSINESSES FELL VICTIM TO FRAUD IN 2022.
Fraud is taking an astonishing toll on businesses in the digital era, with companies now more likely than not to have fallen victim to fraud.
Payment fraud is exacting an outsized toll on businesses.
Firms are losing huge sums annually to payment fraud, with 56% of United States businesses falling victim to bad actors in 2022. The number of different fraud types is nothing short of staggering, and the total losses are likely incalculable.
Invoice fraud alone costs middle-market companies an average of $280,000 per year. This amount includes not just the dollars stolen but also the cost of missed business opportunities with buyer-supplier partners as well as the costs of investing in new fraud-fighting technology. All told, each dollar lost to business-to-business (B2B) fraud costs companies an average of $4 in lost revenue. Read more
Courtesy of Natasha Lomas, TechCrunch
The European Union has adopted a new transatlantic data adequacy agreement with the U.S.
The much anticipated decision means there’s an immediate resolution to legal uncertainty around exports of EU users’ personal data by U.S. companies — a problem that’s affected thousands of businesses in recent years, big and small, including the likes of Meta and Google to name a couple of the most high-profile examples.
Speaking during a press conference announcing adoption of the U.S. adequacy decision, EU justice commissioner Didier Reynders sounded confident that this time — the third such high-level data transfer arrangement the bloc’s executive has granted the U.S. — will indeed be third time lucky.
Political agreement on the EU-U.S. Data Privacy Framework (DPF) was announced back in March 2022 but it’s taken over a year to get all the i’s dotted and t’s crossed, while the prior mechanism for simplifying exports of data over the pond was invalidated by EU judges almost three years ago. So the adoption of a new adequacy deal really does pull the shutter down on years of legal uncertainty affecting major U.S. cloud services and scores of other digital players. Read more
Courtesy of Devin Coldewey, TechCrunch
The FTC has proposed a new rule banning numerous forms of fake reviews online, from outright fabricated ones to those that are sketchily repurposed or secretly manipulated. It may not totally rehabilitate the notoriously unreliable online review ecosystem, but it could help make things a bit more bearable.
This rule has been a long time in the making, which is par for the course at any federal regulator. The FTC’s first case of this type was in 2019, against a merchant that was making misleading claims and paying for fake reviews. Before that, it had taken on “influencer marketing” where a person didn’t disclose that they were being paid to promote a product.
Now the agency is ready to take comprehensive action with rules they first previewed last October and have now put in near-final form. The proposed rule is the result of much research and of consultation with businesses, consumers and even advertising trade organizations that predictably advised the FTC not to bother cracking down on this lucrative business.
The Association of National Advertisers, for instance, says the agency “has not demonstrated evidence of prevalence” and worried that new rules would be “burdensome.” But consumer advocacy organizations, major online companies and common sense argue otherwise — public numbers of fake reviews taken down add up to billions by now, and anyone who has tried to buy a product on Amazon knows it’s completely compromised. The regulators also note “the widespread emergence of generative AI, which is likely to make it easier for bad actors to write fake reviews.”
Even so, the FTC has no doubt carefully tailored the rules it is proposing so that legitimate commerce and acceptable review solicitation (like providing a product for an honest review) are not affected. Read more
July 14, 2023: Technology & Payments Articles
Courtesy of Dave Kovaleski, Financial Regulation News
A group of U.S. senators are urging the Consumer Financial Protection Bureau (CFPB) to take action to protect consumers from scams and fraud caused by artificial intelligence (AI) and machine learning in consumer financial products.
Specifically, the lawmakers cited concerns over AI voice cloning technology which can allow scammers to fraudulently access consumers’ finances and bank accounts.
“Voice cloning adds a new, threatening dimension to these scams, allowing fraudsters to generate voice clips to convincingly impersonate friends, family, or potentially even financial advisors and bank employees. Hearing trusted voices amplifies the risks of consumers falling victim to scams,” the lawmakers wrote in a letter to CFPB Director Rohit Chopra. “The risks posed by voice cloning in the realm of financial scams demand immediate attention and action. To effectively address this emerging threat, we respectfully request that the CFPB review the risks posed by this new technology as soon as practicable and take action under the CFPB’s existing authorities to protect consumers.”
The letter was signed by U.S. Sens. Sherrod Brown (D-OH), Bob Menendez (D-NJ), Jack Reed (D-RI), and Tina Smith (D-MN).
Brown, chair of the Senate, Banking, Housing and Urban Affairs Committee, raised similar concerns about voice authentication technology to the CEOs of six major banks recently. He asked these banks to provide the committee with details as to how they will protect consumers from scams generated by AI.
Courtesy of Trustible, Forbes.com
The complex regulatory landscape for artificial intelligence (AI) has become a pressing challenge for businesses. Governments are approaching AI through the same piecemeal lens as other emerging technologies such as autonomous vehicles, ride-sharing, and even data privacy. In the absence of a single unified set of cohesive federal guidelines, state and local governments have been forced to take the lead, leaving individual businesses with the need to track which regulations they must comply with.
Today’s most compelling new Large Language Models (LLMs) have seemingly unlimited applications, each with its own risks. Managing those harms means focusing on regulating AI use cases, not just the models themselves. The multi-state governance burden falls on businesses who must provide evidence of risk mitigation, fairness, and transparency in their specific AI applications. Compliance tools like standardized pre-built model cards will not be able to meet this increased scrutiny.
Governance at the level required by new AI regulations — not just in Europe through the AI Act but in states like New York or Colorado — will not be easy. This compliance burden can be overwhelming, particularly for smaller businesses with limited resources to navigate complex regulatory frameworks. Compliance with these regulations requires a deep understanding of the intricacies of AI algorithms, meticulous documentation, ongoing testing, and context-specific risk mitigation.
All of this will take time from the same teams trying to capture AI’s innovation possibilities. Companies need to proactively keep a pulse on where upcoming requirements are likely to land. Otherwise, they risk being caught flat-footed towards rectifying regulatory issues down the line. With these issues in mind, here are some key themes we’re seeing from state and local government regulation of AI. Read more
Courtesy of PaymentsJournal
The evolution of consumer payment behaviors has increased the adoption of new payment technologies and solutions, including account-to-account transfers (A2A), digital wallets, and buy now, pay later (BNPL). In its “2023 Global Payments Report,” Worldpay from FIS examines how alternative payment methods are reshaping global payments and how merchants can be better equipped to meet consumers where they are.
Let’s dive into the six trends that are transforming the payments industry in North America, and the impact they will have on merchants on a broader scale.
A2A Growing in Popularity in Real-Time Payment Rails
Real-time payments offer a convenient way to send and receive funds. Because funds can be instantly transferred between accounts, at a low cost, businesses can pay their suppliers and their vendors quickly and more efficiently. According to Worldpay from FIS, global account-to-account (A2A) transaction value exceeded $525 billion in 2022 and is expected to increase at a compound annual growth rate (CAGR) of 13% through 2026.
FedNow, the Federal Reserve’s instant payment service, will launch in mid-2023 as the third real-time payments system. It will join current solutions Zelle and The Clearing House RTP.
Canada is at the forefront of A2A payments. Canada’s e-commerce transaction value, 8% in 2021, rose to 12% in 2022. This has been supported by Canada’s instant transfer system, Interac Online, which allows users to pay merchants from their bank account all year long.
Credit Cards Are Still Going Strong
While digital wallets and BNPL solutions have seen an increase in adoption, the use of credit cards has not declined. Indeed, credit card spending surpassed $13 trillion across all channels, per the 2023 Global Payments Report. Nearly a third of online transactions and roughly 40% point-of-sale transactions are conducted via a physical credit card. Read more
Courtesy of Pymnts.com
Buy now, pay later (BNPL) plans seem to be everywhere, but the greenfield opportunity remains relatively untapped.
In “Banking on Buy Now, Pay Later: Installment Payments and FIs’ Untapped Opportunity,” a PYMNTS and Amount collaboration, we found that 50 million consumers used BNPL through 2022. And the appeal of paying by installments, as relayed to us by more than 2,200 consumers, cuts across demographics and income levels.
The impetus is there, then, for traditional financial institutions (FIs) to make inroads into the space. PYMNTS research showed that a significant percentage of consumers want access to BNPL plans offered by banks rather than FinTechs, at 70% of respondents. Thirty-six percent of respondents who were not currently BNPL users said they would opt for one offered by a bank over a FinTech.
There are varying levels of interest among generations and income levels. More than 60% of millennials fall into the camp of consumers who would use a bank-issued BNPL plan. Sixty percent of consumers who live paycheck to paycheck and have trouble paying their bills are interested in the option to pay over time, as are 46% of consumers who live paycheck to paycheck and have no issues paying bills. More than half of consumers earning over $100,000 annually said they would be keen to embrace a bank-issued BNPL option.
Trust Is a Key Element
Consumers who plan to use BNPL products also want to trust their credit provider, which is where the banks may hold some advantage. Twelve percent of consumers cited trust as the most important factor in selecting a credit product, and 20% cited it as a factor.
For the FinTechs, the competitive landscape may heat up a bit. Seventy-nine percent of Afterpay’s users, 84% of PayPal Pay in 4 users and 82% of Klarna users would be more interested in a bank-issued BNPL product, the report found.
June 30, 2023: Technology & Payments Articles
- Why Apple’s Partnership with Goldman Is the Future of Banking
- Why Smart AI Regulation Is Vital for Innovation and US Leadership
- Federal Reserve Names Organizations Certified as Ready for FedNow Service
- Choosing Between Single or Multiple Credit Bureaus: How Do Lenders Decide
As trust in traditional banks falters, the two most iconic names in tech and finance are joining together to create what might become America’s mightiest FinTech.
Courtesy of Emily Mason, Forbes
Last week Apple effectively dropped the mic on the nation’s banking industry. While the average bank is paying less than a half a percent on savings accounts, the $2.6 trillion technology company announced it would be offering 4.15% annual returns to savers – no minimums, no lockups and FDIC-insured. The new product rollout comes at a time when regional banks are scrambling in the wake of the Silicon Valley Bank crisis to maintain their deposit bases, and cash-starved fintech startups are likewise struggling.
Technically Apple doesn’t have a banking license. It is fronting for Goldman Sachs Bank USA, otherwise known as Marcus, which has a state charter and is FDIC-insured. In fintech parlance, Apple is a neobank like Chime, Revolut and Monzo – except its brand strength is unparalleled given that there are more than two billion iPhones globally, now serving as Goldman’s branch network.
According to polling company Gallup’s annual “Confidence in Institutions” survey, last year, prior to SVB, only 27% of Americans reported to have a “great deal or quite a lot” of confidence in their banks. That number is down from its peak of 60% in 1979. By contrast, Apple landed in the top spot for the tenth consecutive year in 2022 according to Interbrand’s annual Global Best Brands ranking. The only bank to make the top 25 was JPMorgan, ranked at 24, just ahead of YouTube.
“Apple goes at warp speed and a lot of banks are driving 45 mph in the right lane,” says Wedbush Securities analyst Dan Ives.
The new high yield savings account is only available to customers with Apple’s credit card, Apple Card. These users can have an account set-up in minutes and their spend rewards, called daily cash, are automatically funneled into the high yield account. The account will be displayed on a dashboard in Apple’s digital wallet where users can track their balance and interest earned. The product allows Apple to offer yet another sticky iPhone benefit by strengthening its built-in digital wallet. Read more
Courtesy of Gary Shapiro, techCrunch
As a teenager, I immersed myself in science fiction. While the visions of many films and novels haven’t come to pass, I’m still amazed by legendary writer Isaac Asimov’s ability to imagine a future of artificial intelligence and robotics. Now, amid all the hype around generative AI and other AI tools, it’s time for us to follow Asimov’s lead and write a new set of rules.
Of course, AI rules for the 21st century won’t be quite as simple as Asimov’s three rules of robotics (popularized in “I, Robot”). But amid anxiety around the rise of AI tools and a misguided push for a moratorium on advanced AI research, industry can and should be pushing for rules for responsible AI development. Certainly, the past century’s advances in technology have given us plenty of experience in evaluating both the benefits of technological progress and the potential pitfalls.
Technology itself is neutral. It’s how we use it — and the guardrails we set up around it — that dictate its impact. As humans, harnessing the power of fire allowed us to stay warm and extend food storage time. But fire can still be destructive.
Think of how the recent Canadian wildfires threatened lives and property in Canada and damaged U.S. air quality. Nuclear power in the form of atomic bombs killed thousands in Japan during WWII, but nuclear energy lights up much of France and powers U.S. aircraft carriers. Read more
The Federal Reserve announced that 57 early adopter organizations, including financial institutions and service providers, have completed formal testing and certification in advance of the FedNow Service’s launch planned for late July. Many of these organizations will be live when the FedNow Service launches or shortly after, with financial institutions ready to send and receive transactions and service providers ready to support transaction activity.
This group of early adopters is now performing final trial runs on the service to confirm their readiness to support live transactions over the new instant payments infrastructure. The early adopters include 41 financial institutions participating as senders, receivers and/or correspondents supporting settlement, 15 service providers processing on behalf of participants, and the U.S. Department of the Treasury.
“We are on track for the FedNow Service launch, with a strong cohort of financial institutions and service providers of all sizes in the process of completing the final round of readiness testing,” said Ken Montgomery, first vice president of the Federal Reserve Bank of Boston and FedNow program executive. “With go-live nearing, financial institutions and their industry partners should be confident in moving forward with plans to join the network of organizations participating in the FedNow Service.”
Over time, financial institutions are expected to adopt and build on the FedNow Service with the goal of offering new instant payments services to their customers. Read more
Courtesy of FinExtra
The lending universe heavily relies on credit data in assessing an individual’s creditworthiness. This information is collected and analysed by CRAs, like Equifax, TransUnion, and Experian, generating credit scores that guide lenders in their decision-making process. Nevertheless, a critical choice confronts lenders: should they depend on a single credit bureau, or should they adopt a multi-bureau approach?
In this post, we will explore the factors that influence lenders’ choices and shed light on the single bureau vs. multi-bureau debate.
Single or multi-bureau: Key factors that influence lenders
There are several key factors that influence lenders’ decision on whether to use a single or multi-bureau approach.
1. Comprehensive data
The first and most common reason that lenders decide on a multi bureau approach is because not all bureaux have the same information. In fact, The FCA’s recent Credit Information Market Study highlighted that:
“There are significant differences in the credit information held by the 3 large CRAs; information that is particularly important to a lending decision.”
Therefore, by using a multi-bureau approach, lenders can access a more comprehensive and complete picture of a borrower’s credit history. Read more
June 23, 2023: Technology & Payments Articles
Google claims the new tools are far more efficient than traditional rules-based approaches at detecting money laundering at scale.
Courtesy of Tristan Greene, CoinTelegraph
Google Cloud recently announced the launch of its “Anti Money Laundering AI” (AMLAI) service after a successful trial with London-based financial services group HSBC. AMLAI uses machine learning to create risk profiles, monitor transactions and analyze data. Per a blog post from Google Cloud:
“AI transaction monitoring replaces the manually defined, rules-based approach and harnesses the power of financial institutions’ own data to train advanced machine learning (ML) models to provide a comprehensive view of risk scores.”
In practice, Google Cloud claims its trial partner, HSBC, saw an increase of two to four times the number of positive alerts and a 60% reduction in false positives. The service’s cost will vary depending on the number of customers serviced daily with the AML and risk scoring systems and how many customers are included in the training data set used to spin the model up.
AMLAI’s launch signifies the furtherance of Google and Google Cloud’s ambitions in the fintech space. While the current AI zeitgeist centers around generative AI products such as Google’s Bard chatbot, the company has quietly been making its presence felt as both a fintech developer and banking services vendor. Read more
Acting Comptroller of the Currency Michael J. Hsu today discussed the benefits and risks of tokenization and artificial intelligence (AI) in remarks at the American Bankers Association’s Risk and Compliance Conference in San Antonio.
In his remarks, the Acting Comptroller discussed how risk and compliance can facilitate responsible innovation in AI and tokenization, and the distinctions between public, trustless blockchains and centralized, trusted blockchains.
Courtesy of MarketsMedia
- Project Rosalind explored how a universal and extensible application programming interface (API) layer could connect central bank and private sector infrastructures and facilitate retail CBDC payments.
- The joint Bank for International Settlements and Bank of England project experimented with ecosystem innovation to identify a range of retail CBDC use cases.
- The project provided lessons on key aspects of a retail CBDC system, such as API design, privacy models, security and private sector programmability.
Project Rosalind has demonstrated that a well designed API layer could work with different private sector applications and central bank ledger designs and that a set of simple and standardised API functionalities could support a diverse range of use cases.
The completed initiative, a joint experiment run by the BIS Innovation Hub London Centre and the Bank of England around central bank digital currencies (CBDCs), developed 33 API functionalities and explored more than 30 retail CBDC use cases.
These use cases covered a broad range of domains for individuals and businesses, such as peer-to-peer transfers, retail payments for goods and services and small-value business transactions.
A diverse range of payment options were tested, such as making retail CBDC payments online, in stores and offline, with the use of near-field communication and via interactions with point-of-sale, QR codes, mobile phones, smartcards, biometric devices and smart assistants. Some of the use cases also explored private sector programmability and micropayments.
Courtesy of PYMNTS
The popular conception of a household living paycheck to paycheck may be one of poverty. The reality is that a large share of households representing all economic strata live this way. A recent PYMNTS study found that 48% of high-income households live paycheck to paycheck. Factors such as medical bills, student debt, high discretionary spending and other variables contribute to this. Living paycheck to paycheck means any unexpected expense, even a minor one, can push households into debt to make ends meet.
No one-size-fits-all solution exists for paycheck-to-paycheck households, but certain options can punch above their weight. Implementing fast and easy real-time payments for wages can be a significant boon to these families, for example. Having access to pay consumers earn it rather than waiting for the next payday can make a big difference.
The “Real-Time Payments Tracker®” examines how instant payments can help paycheck-to-paycheck households access money faster and lift them out of financial hardship.
Around the Real-Time Payments Space
Record inflation and a high cost of living have made many American households less financially secure than ever, according to a recent survey. Currently, 58% of Americans live paycheck to paycheck. Another 70% report feeling financial stress, including insecurity about a lack of savings and concerns about credit card debt or job security. Read more
New B2B payments collaboration provides PayEm users even more ways to manage payments and expenses.
Courtesy of PR Newswire
PayEm, a global procurement and spend management company, today announced a new integration with American Express. The integration allows American Express® Corporate and Business Card Members the ability to create and distribute on-demand virtual Cards to employees, freelancers, candidates, or other authorized users for business payments and expenses in PayEm’s platform using their existing American Express Card account.
With the American Express Integration, Card Members can:
- Help automate reimbursement filing for employees by giving them on-demand virtual Cards for one-time or recurring expenses such as meals, business travel, or office supplies.
- Establish specific controls for each on-demand virtual Card payment, including spending limits, expiration dates, and allowed merchant categories.
- Pay suppliers using on-demand virtual Cards and take advantage of their American Express billing cycle to manage cash flow for their business until their Card payment is due.
- Earn the rewards of their eligible American Express Card when they use on-demand virtual Cards for business payments.
- Pay with enhanced security by removing the need for merchants to see or store their underlying American Express Card account number.
June 16, 2023: Technology & Payments Articles
Courtesy of Jeff Kauflin, Forbes
During the summer and fall of 2018, Hasan Hakim Brown, a Floridian in his early 40s, was applying online for loans—for the fake companies and bogus identities he’d set up. He had mixed success. He swindled more than $1 million from a Texas bank. But a few of his other targets, using software from San Francisco–based startup SentiLink, flagged his applications as suspicious because too many Social Security numbers were associated with the same address.
Brown, it turned out, had started manufacturing “synthetic identities”—stolen (but real) Social Security numbers merged with made-up names. He later refined his technique, buying a rig from an Atlanta computer consultant that let him simultaneously manage multiple virtual desktops from different IP addresses, thereby evading certain fraud-detection screens.
When Covid-19 hit in early 2020 and Congress appropriated hundreds of billions in forgivable Payroll Protection Program loans for hurting businesses, Brown was ready. Ultimately, according to federal court records, including guilty pleas, Brown and his half-dozen criminal associates controlled 700 synthetic identities and dozens of shell businesses and related bank accounts. Overall, the gang defrauded the Small Business Administration and various banks out of more than $20 million. Brown was sentenced to 60 months.
While Brown was busy thieving, SentiLink cofounders Naftali Harris and Maxwell Blumenfeld, both now 31, were also thinking about synthetic ID fraud, turning their early insights into a nicely growing niche business. Read more
The bipartisan bill purportedly seeks to hold companies accountable for harm, but it’s unclear whether Section 230 even applies to AI.
Courtesy of Tristan Greene, Cointelegraph
U.S. Sens. Josh Hawley, a Republican from Missouri, and Richard Blumenthal, a Democrat from Connecticut, introduced a Senate bill on June 14 that would eliminate special protections for artificial intelligence (AI) companies that are currently afforded to online computer services providers under the Communications Decency Act of 1996 (CDA).
Section 230 refers to text found in Title 47, Section 230 of the CDA. It specifically grants protection to online service providers from liability for content posted by users. It also gives providers immunity from prosecution for illegal content, provided good faith efforts are made to take down such content upon discovery.
Opponents of Section 230 have argued that it absolves social media platforms and other online service providers of responsibility for the content they host. The U.S. Supreme Court recently ruled against changing Section 230 in light of a lawsuit in which plaintiff’s sought to hold social media companies accountable for damages sustained through the platform’s alleged hosting and promotion of terrorist-related content.
Per the high court’s opinion, a social media site can’t be held accountable for the suggestions made by the algorithms it uses to surface content any more than an email or cellular service provider can for the content transmitted via their services. Read more
Courtesy of Ryan Browne, CNBC
- Money transfer unicorn Zepz is looking to expand its business through mergers and acquisitions, the company’s CEO Mark Lenhard told CNBC.
- The firm, which owns the WorldRemit and Sendwave brands, laid off 26% of its global workforce in May, citing a need to consolidate its operations.
- The digital payments group is looking to reach full-year profitability after achieving monthly profitability in the first half of 2022.
Zepz, the owner of money transfer firms WorldRemit and Sendwave, is on the hunt for mergers and acquisitions after cutting 26% of its workforce last month, the company’s CEO told CNBC.
With a $5 billion valuation, Zepz is one of the largest fintech companies in Europe, backed by leading investors including Accel, TCV and Leapfrog.
The company enables users to send money from a smartphone or computer to people abroad, who can receive it in their bank account, mobile wallet, or as a mobile airtime top-up.
The service is a challenger to large banks and established money transfer services like Western Union, touting cheaper fees and the ability to move funds rapidly. A close rival is Wise, which also claims to offer cheaper international money transfers than banks. Read more
Courtesy of Lucinda Shen, Axios
Stripe is not currently working on products related to FedNow, the highly anticipated instant payments system developed by the Federal Reserve.
Why it matters: News of the Fed-backed payments infrastructure has triggered debate and anxiety over how it will affect the fintech ecosystem.
What’s happening: Banks are expected to have direct access to FedNow, slated to launch in July. The ostensibly faster and cheaper network could give banks a leg up in their competition with fintechs.
- The Financial Technology Association, which represents fintechs including Stripe and Block, last year called on the Fed to make the network more accessible to fintechs and not just to licensed banks.
- Still, some fintechs are seeing opportunity in the new rails, with Fika Ventures TX Zhuo recently arguing that it could boost the amount of fintech innovation around independent contractors.
- Yes, but: That entire scenario assumes that FedNow hits scale.
Driving the news: “We’re tracking it closely,” President of Product and Business Will Gaybrick says, noting the company is not actively working on anything related to FedNow. “I really do think real-time payments are going to be a big deal.”
- “As I understand FedNow, there isn’t yet a mandate, so banks don’t have to implement it,” he added. “For things to completely change the landscape of payments, you need universal coverage.”
- If, for instance, only 30% of banks support FedNow, then it’s unlikely to become a priority for merchants to adopt the system.
Bottom line: “We’re keen to see, as it gets implemented, how enthusiastic banks are,” he says, “and if it ends up being something that we believe is actually going to be a lot of value to our users.”
June 9, 2023: Technology & Payments Articles
Several big-name financial institutions have set up shop in virtual worlds, making inroads to a whole new generation of clients.
Courtesy of Reza Akhlaghi, Coindesk
It may not be the buzzword it once was among the tech set, but the metaverse has begun to get attention from financial institutions. With a user base and audience that are young, tech-savvy and in the early stages of their financial lives, metaverse applications offer banks unique opportunities to build relationships with a digitally native and growing consumer base that has long embraced fintech. It’s also important for banks to be able to tap into this pool of talent for future hiring.
The metaverse can be broadly defined as a blockchain-fueled, all-encompassing virtual world that offers new human and socio-cultural experiences. It epitomizes decentralized and immersive social experiences that often involve virtual reality (VR) and augmented reality (AR), opening up an entirely new set of opportunities for social interaction. No single company or application defines the metaverse, and users can use a single, portable identity among metaverse apps.
Banking on the metaverse
Leading institutions in TradFi from different parts of the world have begun to set up shop in the metaverse. JPMorgan arrived in Decentraland under the brand Onyx, which, according to the company, is “a blockchain-based platform for wholesale payment transactions.” In March last year, HSBC announced the purchase of land on The Sandbox to engage with clients and offer them novel experiences through emerging platforms. Read more
Courtesy of FinExtra
At Money20/20 in Amsterdam, Finextra chatted to ING’s head of corporate strategy & innovation Jeroen Plag about how the bank has merged the innovation and strategy departments bringing initiatives closer to the business like CoorpID and Blacksmith and is now focusing on building new assets.
ING’s two strategic priorities are ensuring that sustainability is at the heart of everything they do, and creating a superior customer experience,” as Plag said.
He continued: “Innovation at ING happens every day. Maybe it’s little bits of operational improvement, but that’s why decided to make changes.” Plag added that the bank has picked three areas where the underlying technology is being tested to see if they are viable drivers of innovation.
These three areas are open finance, digital assets, and emerging technologies such as generative AI and quantum computing. Referencing a session at Money20/20 where Nick Corrigan, European president, Global Payments mentioned that “no one really knows what the end game is. We’re right at the start” regarding open banking, Plag explained that there is a challenge around customer uptake. Read more
Courtesy of FinExtra
US merchants that use Amazon Pay can now offer their customers instalment payment options thanks to a deal with BNPL outfit Affirm. Amazon has been offering Affirm pay-over-time options to US customers on its site and app since 2021. Now it is providing Amazon Pay merchants the chance to offer the same.
Affirm’s Adaptive Checkout offers bi-weekly and monthly pay-over-time options side-by-side at checkout. Customers who click the Amazon Pay button on a participating retailer’s site at checkout can select Affirm as their payment method, and go through a real-time approval process with no impact to their credit score.
Amazon Pay merchants, including Casper, USA Berkey Filters, and UltraSabers, have already integrated the Affirm offering.
“We know customers want convenient and flexible payment options—whether they’re checking out on Amazon.com or using Amazon Pay,” says Omar Soudodi, director, Amazon Pay. “With Affirm on Amazon Pay, merchants can offer a pay-over-time option to their existing customers and have another way to reach new customers.” Read more
Courtesy of Jason Cipriani, ZDNet
Apple on Wednesday highlighted more of the software features coming to the iPhone, iPad, and Apple Watch later this year. Apple didn’t spend as much time detailing features and software updates for its major hardware platforms as it has done in the past, because it spent a lot of the keynote talking about Vision Pro, its new mixed-reality headset.
There’s a lot of information in the latest press release, including more details about updates to Workouts on the Apple Watch and its Fitness+ service, along with the option to download geographical areas in Apple Maps for offline use.
Apple also highlighted two changes coming to the Wallet app for iPhone users. The first new feature is the ability to schedule Apple Cash payments to other Apple Cash users. When I read about this, I immediately thought about the ability to automate paying my kids their allowance for chores — something I frequently forget to do. Read more
June 2, 2023: Technology & Payments Articles
RegTech solutions have become increasingly critical for banks looking to accelerate digital transformation initiatives to power operational efficiency and ultimately, growth.
While compliance teams value the speed, accuracy and control that RegTech solutions provide, executives see benefits in the efficiency and scalability that is delivered. I recently shared a short report on the relationship between banks and RegTech providers in North America, the impact of RegTech solutions, and more.
The state of the relationship between RegTech providers and banks is no doubt maturing. Today, Banks are more open to adopting RegTech solutions than ever, as they have been shown to significantly help in response to evolving regulations and improving operational efficiency. Banks hoping to move beyond a manual, spreadsheet-based response are now actively looking to technologies like automation to give them an edge. As industry leader Jo Ann Barefoot of Alliance for Innovative Regulation noted in the aforementioned report “The relationship is reaching an inflection point, where the ability for banks to work with RegTechs is accelerating. Banks need better tools and RegTechs are fast working to build them.”
While RegTech solutions often have the most impact for a bank’s compliance operations in the short-term, the long-term impact is usually even more critical. RegTechs can provide significant, positive short-term improvements, relief or remedy for a bank’s compliance operations, especially in situations where the incumbent solution(s) requires manual processing. Wherever technology, digitization and automation can effectively supplant human effort, you’re going to see a big impact in terms of immediate time saving and completeness. Longer term, however it’s worth keeping in mind that RegTechs are likely to have a deeper, more entrenched impact, and be able to move the outcomes of compliance efforts closer to the intention of the regulator. Read more
Courtesy of Aron Alexander, PaymentsJournal
Traditional payout and disbursement methods have successfully served large swathes of the economy for decades. The four traditional payout methods—checks, ACH payments, wire transfers, and Push-to-Card payments—are all viable options when businesses are looking to send payouts to consumers, primarily when payments are reasonably large and conducted on a fixed basis.
However, these traditional options are frequently insufficient when it comes to an emerging— and expanding—category of high-velocity, low-volume payouts. Especially payouts which need to be sent internationally.
Why aren’t these traditional methods applicable in every situation? Some methods are expensive: paying $50 to perform a wire transfer hardly provides value for money for a low-volume payout amounting to a lower sum. Checks and ACH payments cannot always be used internationally. Push-to-Card payments are sent to an individual’s bank account, whereas the recipient may want to receive their payout elsewhere.
A significant chunk of the economy relies on regular, low-volume transactions, and these require a payouts mechanism that is more flexible than the default.
Digital value is becoming a more mainstream way for businesses to issue high-velocity, low-volume payouts to consumers and employees. It can be transferred without the complex infrastructure, integration protocols, and compliance requirements that characterize traditional payouts. In many cases, transferring digital value requires only an email address—no interaction with banks, and no disproportionate costs. Read more
Courtesy of PYMNTS.com
PYMNTS’ research finds that 83% of consumers made payments for credit products in the last 90 days. Credit, in general, is a significant part of life for most consumers across generations.
Overall, credit use is lower among Generation Z consumers. But PYMNTS’ data shows that millennial and Gen Z consumers are the most likely to have increased their use of credit products in the last year. This increased usage suggests that they may catch up, albeit by using the products that work best for them. In that context, younger consumers’ penchant for buy now, pay later (BNPL) could have massive ramifications for the industry’s future.
BNPL and credit card use also average the most similar dollar values for millennial and Gen Z demographics. This similarity indicates that these consumers use these products more interchangeably. On the other hand, other consumers primarily use BNPL to pay for big-ticket items. In the three months prior to being surveyed, 20% of millennials used BNPL. Just 5.9% of baby boomers and seniors did the same.
These are just some of the findings detailed in “The Credit Economy: How Younger Consumers Make Credit Decisions,” a PYMNTS and i2c collaboration. This report examines behaviors and attitudes related to credit. We surveyed 3,396 consumers between March 16 and March 21 to explore what drives consumer interest in using credit cards and BNPL for everyday and occasional purchases across generations. Read more
Fintechs are gaining momentum in the lending space because they deliver a quick, frictionless approach to lending, the study found.
Courtesy of Rajashree Chakravarty
Fintechs are dominating the personal loan market due to customer satisfaction and the growing presence with their digital-first strategy, a J.D. Power study released earlier this month said. While traditional banks still manage to hold consumer trust and the lion’s share of their accounts, they are lagging behind the fintechs when it comes to customer satisfaction and ease of interaction.
According to the J.D. Power 2023 Consumer Lending Satisfaction Study, American Express tops the survey, closely followed by BestEgg, while Discover and SoFi hold on to the third spot.
The study measured overall customer satisfaction in five factors — customer service for a loan, experience managing a loan, experience obtaining a loan, how customers are kept informed about a loan, and whether a loan met the borrowing needs of a customer. Responses from 4,525 personal loan borrowers were considered for the study during the period of January through March 2023.
Customers are more satisfied with fintechs than their traditional counterparts, the study showed. This year, the overall customer satisfaction score for fintechs rose 16 points on a 1,000-point scale, while that for the non-fintech brands had a 12-point gain on a year-over-year scale. Read more
Courtesy of Isabelle Castro Margaroli, FintechNexus
The failure of Silicon Valley Bank has set in motion a domino line of bank failures whose end is still uncertain. If some are to be believed, it may be over already. Regardless, the crisis has brought issues to light and sparked debates stretching into the foreseeable future.
On Day One of Fintech Nexus USA 2023, Renaud Laplanche, CEO and Co-Founder of Upgrade, spoke about why being a fintech had allowed them to navigate the environment effectively.
“We’ve had some new reminders in the last few months of what it means to be the bank and the inherent risks,” said Laplanche. “We have a lot of people thinking about how to manage asset-liability mismatch, and SVB and First Republic is a useful reminder of the risks.”
A freedom to operate
According to Laplanche, within this context, being a fintech had allowed Upgrade to navigate the macroeconomic conditions.
“The way we reconcile the issues and regulatory drama surrounding the mismatch of assets and liabilities and, on the other side, deposits, in a technical and efficient way, is we created a network of 200 small banks and credit unions.”
“Instead of trying to match assets and liabilities within the balance sheet, we created this network of banks and credit unions. We have bilateral agreements whereby we raise deposits online that we have the suite deposited overnight to go back and alter the day-to-day and use the deposits to buy from us. So we get the same benefits, raising deposits and forming loans.”
“This really works well as it’s well diversified.”
He explained that it had allowed the company to function similarly to a bank, without the added cost and with the freedom to operate the technical requirements necessary. Read more
May 26, 2023: Technology & Payments Articles
Courtesy of PR Newswire
RingPay by McLEAR, the smart ring that enables users to pay for things with a wave of the hand, launches for sale on Amazon UK this month.
RingPay can be used anywhere that allows contactless payment, such as restaurants, supermarkets, and transportation etc, and offers wearers a unique, fast, secure and seamless payment experience.
RingPay is set up and managed using the accompanying RingPay mobile app. Users can add any Visa or Mastercard, debit or credit card to the app as a funding source, and either top up a fixed amount, or set to auto top-up – ensuring there are always funds available to spend using the ring. Users do not need to have their phone with them to make payments, making RingPay the ultimate payment device. In addition, RingPay doesn’t contain a battery, so requires no charging – allowing the user to always have payment on hand.
RingPay securely operates on the VISA network. If the ring is lost or misplaced, it can be frozen instantly at the tap of a button in RingPay app.
RingPay by McLEAR is currently the only smart ring that offers contactless payment on Amazon.
McLEAR kickstarted the whole smart ring space in 2012 with their NFC Ring invention and continue to go from strength to strength with their innovative payment ring, RingPay. Headquartered in London – the team of British and International engineers, designers and payment industry specialists are at the forefront of wearable payment technology.
Courtesy of Isabelle Castro Margaroli, FinTechNexus
During Silicon Valley Bank’s fateful weekend, many major regional banks also experienced a nose dive in stock prices. They are yet to recover. While many leaders now maintain that the financial system is stable, rates have continued to rise, leaving regional banks ever more vulnerable.
Deposits in US banks totaled $17.1 billion on Friday, May 10, a further decrease from the week prior. Small banks continued to flounder, with significant announcements providing slight relief in stock prices.
This week Pac West, a significant source for analysts’ concern in past weeks, announced a sale of its real estate loan portfolio, causing stock prices to rally. Their reasoning for the sale was to focus on their core community banking business.
Western Alliance, too, saw a stock price bump when last week they reported growth in deposits.
But the Regional Banking Indexes still wallow at a low, KBW down 25% from pre-bank run levels. Leaders and regulators still warn of continued pressure, with debt ceiling negotiations further muddying the waters. Read more
Courtesy of PYMNTS.com
Already, automated machine learning (ML) and predictive AI solutions are helping firms streamline formerly manual processes within areas like accounts payable (AP) and accounts receivable (AR), cash flow forecasting, credit scoring, fraud prevention and compliance.
Areas like these will be the “easiest and first” avenues where applications of generative AI can score an immediate impact, Tom Randklev, global head of product at payment orchestration platform Cellpoint Digital, told PYMNTS.
“Generative AI can essentially retrain the old AI and machine learning models,” Randklev explained, adding that he sees a “really interesting trajectory [for AI] when it comes to payments.”
That’s because given the exponential growth of eCommerce and digital, embedded payments, today’s firms need to not just protect themselves against a rising tide of modern fraud, but also find new ways to acquire and retain customers within an increasingly digitized commerce landscape that is constantly evolving.
“Consumer convenience plays to the very front of this one, where embedded payments have already made the experience incredibly smooth — it’s a one- or two-click experience to get from product selection to a payment, and I think generative AI will continue to accelerate that,” Randklev said. Read more
Courtesy of Devin Coldewey, TechCrunch
AI is developing rapidly enough and the dangers it may pose are clear enough that OpenAI’s leadership believes that the world needs an international regulatory body akin to that governing nuclear power — and fast. But not too fast.
In a post to the company’s blog, OpenAI founder Sam Altman, President Greg Brockman and Chief Scientist Ilya Sutskever explain that the pace of innovation in artificial intelligence is so fast that we can’t expect existing authorities to adequately rein in the technology.
While there’s a certain quality of patting themselves on the back here, it’s clear to any impartial observer that the tech, most visibly in OpenAI’s explosively popular ChatGPT conversational agent, represents a unique threat as well as an invaluable asset.
The post, typically rather light on details and commitments, nevertheless admits that AI isn’t going to manage itself:
We need some degree of coordination among the leading development efforts to ensure that the development of superintelligence occurs in a manner that allows us to both maintain safety and help smooth integration of these systems with society.
We are likely to eventually need something like an [International Atomic Energy Agency] for superintelligence efforts; any effort above a certain capability (or resources like compute) threshold will need to be subject to an international authority that can inspect systems, require audits, test for compliance with safety standards, place restrictions on degrees of deployment and levels of security, etc.
The IAEA is the UN’s official body for international collaboration on nuclear power issues, though of course like other such organizations it can want for punch. An AI-governing body built on this model may not be able to come in and flip the switch on a bad actor, but it can establish and track international standards and agreements, which is at least a starting point. Read more
May 12, 2023: Technology & Payments Articles
Courtesy of PYMNTS.com
Experian has launched a FinTech-centric version of its fraud prevention network in the U.S.
The company said in a news release that the network gives users “a line of sight” into borrower activity throughout the FinTech sector to identify potential fraud risks. Participants can share fraudulent activity in real time by contributing data that’s linked across the network.
“As FinTechs establish new customer relationships or verify existing ones, they can inquire against the network and are alerted to suspicious information when matched to other observed fraud events,” the release said. “FinTechs can then take appropriate action based on the type of fraud risk identified.”
Experian contends its customers have seen — on average — their fraud detection improve by 35% when using the Hunter network. FinTechs will be able to spot fraud, reduce false-positive referrals and improve their customer experience, the company said.
The launch comes at a moment when fraud is growing and growing faster, as noted here last week, foreign companies to up their defenses. Read more
Courtesy of PYMNTS.com
Credit unions (CUs) may find attracting and retaining members challenging if they lag behind major banks and FinTechs in providing enhanced payment capabilities, such as real-time payment solutions.
Our research found that real-time payments are an area of weakness for both account holders and executives. But this is not the case for FinTechs and their management. Real-time payments are gaining importance and may become even more vital when the Federal Reserve launches its FedNow service later this year. Financial institutions (FIs) participating in the FedNow service will give customers more choices in managing their finances, emphasizing the importance of innovation in choosing a primary FI.
“Credit Union Innovation: Staying Ahead Through Payments Innovation,” a collaboration with PSCU, explores the growing importance of innovative payment options. We examined CU and FI account holders’ dispositions toward payment innovations, especially real-time payments. Our findings are based on a census-balanced survey of 4,282 U.S. consumers conducted from Oct. 17, 2022, to Nov. 17, 2022, a survey of 100 CU executives conducted from Oct. 7, 2022, to Oct. 31, 2022, and a survey of 50 FinTech executives conducted from Oct. 12, 2022, to Oct. 31, 2022.
Courtesy of Matt O’Brien and Josh Boak, Associated Press
Vice President Kamala Harris met on Thursday with the heads of Google, Microsoft and two other companies developing artificial intelligence as the Biden administration rolls out initiatives meant to ensure the rapidly evolving technology improves lives without putting people’s rights and safety at risk.
President Joe Biden briefly dropped by the meeting in the White House’s Roosevelt Room, saying he hoped the group could “educate us” on what is most needed to protect and advance society.
The popularity of AI chatbot ChatGPT — even Biden has given it a try, White House officials said Thursday — has sparked a surge of commercial investment in AI tools that can write convincingly human-like text and churn out new images, music and computer code.
But the ease with which it can mimic humans has propelled governments around the world to consider how it could take away jobs, trick people and spread disinformation.
In addition, the White House Office of Management and Budget is expected to issue guidance in the next few months on how federal agencies can use AI tools. There is also an independent commitment by top AI developers to participate in a public evaluation of their systems in August at the Las Vegas hacker convention DEF CON. Read more
Courtesy of FinExtra
Mastercard has unveiled a digital account opening tool that uses open banking to integrate customer verification with identity insights into a single API.
Open Banking for Account Opening verifies a consumer’s account ownership and their identity in real-time. It also prefills account and routing data to minimise errors. The result, says Mastercard, is a simpler, faster, and safer way to open a new account for the 93% of consumers likely to use digital payments this year.
The system draws on the safe exchange of consumer-permissioned data from open banking and identity data network using industry standards, machine learning, and fraud prevention programs. This helps fintechs and banks know who their customers are and that they own their linked accounts, promoting secure digital account opening for digital wallets, bank and investment accounts, distributions, and account-based payments.
Jess Turner, EVP, global open banking and API, Mastercard, says: “Digital account opening is central to onboarding new customers and growing a business. “Mastercard is uniquely positioned to help fintechs and banks onboard customers safely and seamlessly to accelerate growth while protecting themselves and consumers from the risks of fraud and false declines.”
Mastercard rival Visa, meanwhile, has formed a partnership with ID verification firm Proov to help clients speed up onboarding. The agreement gives Visa clients access to Prove’s Pre-Fill identity verification package, which lets customers opt into pre-filling registration forms.
May 5, 2023: Technology & Payments Articles
- Apple Nets $1 Billion In Deposits Within a Week of Savings Account Launch
- FDIC Order Against Cross River Bank Is a Warning on Fintech Alliances
- Fintech to Become a $1.5 Trillion Industry by 2030
- RegTech Global Market Report 2023: Increases in Fraudulent Activities in the Financial Sector Boosts Adoption
Courtesy of FinExtra
The risk to bank deposit bases from the arrival of Big Tech players is being brought into stark relief by reports that Apple’s new savings account scopped up $1 billion in consumer cash within four days of launch.
The long-trailed Apple Card savings account from Goldman Sachs was launched in Mid-April with a headline-grabbing 4.15% annual percentage yield – more than 10 times the national average, according to FDIC data.
According to internal sources cited by Forbes, the consumer technology giant racked up $990 million in deposits in less than a week. In that time, 240,000 accounts signed up for the service.
For Apple’s loyal users, the savings acccount not only represents a market-beating return on their cash, but also a safe haven during rising interest rates and bank crashes.
The arrival of Big Tech giants in financial services has banks and regulators rattled. In Frebruary Augustin Carsens, BIS general manager called for a co-ordinated regulatory response to restrict the incursions of firms like Amazon, Apple and Google into financial services, arguing that the current rules are “not fit for purpose”. Read more
Courtesy of Penny Crosman, American Banker
The FDIC has slapped Cross River Bank in Teaneck, New Jersey, with a consent order saying it engaged in unsafe or unsound banking practices related to fair lending regulations. The order was issued in March but made public on Friday.
Cross River is a banking-as-a-service provider that makes loans through fintech lenders such as Affirm, Upstart, Rocket Loans, and the former Kabbage. The bank did not admit or deny any charges of unsafe or unsound banking practices or violations of law or regulation.
“The consent order signed by Cross River is narrow and is limited to correcting Cross River’s fair lending program in the state that existed in early 2021,” a bank spokeswoman said on Friday. “We are dedicated to partnering with the fintech community as part of our mission to reach long underserved communities and give all Americans access to the modern financial services they need and deserve. We have always and will continue to serve as a model for transparent, compliant, fair, and responsible lending.” Read more
Courtesy of FinExtra
Financial technology revenues are projected to grow sixfold from $245 billion to $1.5 trillion by 2030, according to a report from Boston Consulting Group (BCG) and QED Investors.
The fintech sector, which currently holds a two percent share of the $12.5 trillion in global financial services revenue, is estimated to grow up to seven percent.
2022 proved a tough year for fintechs, which on average lost more than half of their market value, but, according to the research, this plunge was merely a short-term correction in an otherwise long-term positive trajectory.
Asia-Pacific is poised to outpace the US and become the world’s top fintech market by 2030, with a projected compound annual growth rate (CAGR) of 27%. This growth will be driven primarily by emerging economies such as China, India, and Indonesia that have the largest fintechs, voluminous underbanked populations, a high number of small and medium-sized enterprises, and a rising tech-savvy youth and middle class.
North America, which currently has the world’s largest financial-services industry, will remain a critical fintech market and innovation hub, projected to grow fourfold to $520 billion in 2030, with the US accounting for a projected 32% of global fintech revenue growth. Read more
Courtesy of Globe Newswire
The global regtech market grew from $9.93 billion in 2022 to $12.37 billion in 2023 at a compound annual growth rate (CAGR) of 24.5%. The regtech market is expected to grow to $30.4 billion in 2027 at a CAGR of 25.2%.
The rising number of fraudulent activities such as money laundering in the financial sector is expected to propel the growth of the RegTech market in the forecast period. Fraudulent activities such as money laundering have increased and therefore financial organizations need a more powerful RegTech framework that can help risk and compliance teams manage the deluge of ever-increasing regulatory compliance and progressively sophisticated breaches successfully.
For example, in 2022, according to a report published by LexisNexis Risk Solutions, a US-based global data and analytics company, the costs of fraud for U.S. and Canadian financial services companies are rising. U.S. financial services companies pay $4.23 instead of $3.64 for every $1 lost to fraud, a 16.2% increase. Canadian financial services companies’ costs increased by 19.6%, from $3.16 in 2020 to $3.78 in 2022. Thus, the rising number of fraudulent activities increases the demand for the RegTech market. Read more
Apr. 28, 2023: Technology & Payments Articles
- Card Hopping and FaaS: Sift Report Analyzes Fraud Trends
- Mastercard Reports U.S. Antitrust Probe of Debit Card Program
- CFPB/FTC/DOJ/EEOC Issue Joint Statement on Enforcement Efforts Directed at Discrimination and Bias in Automated Systems; CFPB Announces Plan to Issue Whitepaper on Chatbox Market
- Fintech Leader Fiserv Surges After Earnings as Federal Reserve Enters Real-Time Payments with FedNow
- OpenAI Rolls Out ‘Incognito Mode’ on ChatGPT
Courtesy of Tony Zerucha, FinTechNexus.com
Fraud continues to evolve, with technology making it easier to get started and thrive, Sift’s new Digital Trust and Safety Index shows. It’s becoming easier to buy and sell stolen information, Sift trust and safety architect Jane Lee said.
Fraud gets the ‘as a service’ treatment
Technological changes complicate efforts to identify and stop fraud, Lee, who has spent a decade in the field, added. Ten years ago, scams were one-dimensional, revolving around stolen credentials. Misuse was easier to detect and combat.
With synthetic identities, that process becomes more arduous. Fake profiles proliferate, but they’re developed with real credentials. It looks like you but is run by someone else. That mutes the impact of some traditional safeguards.
Just as it becomes easier to commit fraud, Lee also sees larger, more organized groups forming. Like other digital services, financial crime now has its own “as-a-service” label, with groups offering FaaS (fraud as a service). Developers sell on-demand services to the less experienced on the deep dark web. Folks can even hire scammers to deliver free goods and food right to their door.
Digital economies are ripe for fraud
The digital economy is getting hammered by fraud. Digital goods and services fraud is up by 27%. Fintech fraud has risen by 13%. Cryptocurrency exchange fraud has surged by 45%.
BNPL practitioners would kill for such numbers. BNPL fraud has exploded by 211%, with its structure to blame. Often when a BNPL account is created, the account holder receives a list of other merchants who accept BNPL. That’s a Christmas list for criminals. Read more
Courtesy of Niket Nishant, Reuters
Mastercard Inc on Thursday said the U.S. Justice Department was conducting an antitrust investigation of its U.S. debit program and competition with other payment networks.
The company, in a filing, said it had received a civil investigative demand, the civil equivalent of a subpoena, from the Justice Department’s Antitrust Division. The filing did not specify the government’s concern beyond saying it had to do with its U.S. debit program and competition with rivals.
“Mastercard is cooperating with the DOJ in connection with the CID,” the company said in the filing.
The Justice Department declined to comment.
Visa Inc. in January said the Justice Department had sought documents from it about U.S. debit card practices and competition with other payment networks. The probe, which began in early 2021, followed reports the United States was investigating whether the credit card company uses anticompetitive practices in the debit card market.
The CFPB, FTC, Justice Department, and Equal Employment Opportunity Commission have issued a joint statement about enforcement efforts “to protect the public from bias in automated systems and artificial intelligence.” The CFPB also issued a separate press release and prepared remarks by Director Chopra about the statement. In the press release, the CFPB indicated that it “will release a white paper this spring discussing the current chatbot market and the technology’s limitations, its integration by financial institutions, and the ways the CFPB is already seeing chatbots interfere with consumers’ ability to interact with financial institutions.”
In the joint statement, the term “automated systems” is used to mean “software and algorithmic processes, including [artificial intelligence], that are used to automate workflows and help people complete tasks or make decisions.” The agencies observe in the statement that “private and public entities use these systems to make critical decisions that impact individuals rights and opportunities, including fair access to a job, housing, credit opportunities, and other goods and services.”
Giving minimal acknowledgment to the benefits of automated systems, the statement focuses on their “potential to perpetuate unlawful bias, automate unlawful discrimination, and produce other harmful outcomes.” The agencies “reiterate their resolve to monitor the development and use of automated systems and promote responsible innovation,” and also “pledge to vigorously use [their] collective efforts to protect individual rights regardless of whether legal violations occur through traditional means or advanced technologies.” Read more
Fintech Leader Fiserv Surges After Earnings as Federal Reserve Enters Real-Time Payments with FedNow
Courtesy of Vidya Ramakrishnan, Investors.com
Nasdaq 100 component Fiserv (FISV) broke out of a flat base with a buy point of 119.58 after strong earnings on Tuesday. Volume spiked on the breakout, indicating bullish sentiment for the stock. The growth stock has a relative strength line at a 52-week high, indicating strong outperformance vs. the S&P 500.
Fiserv is today’s pick for IBD 50 Growth Stocks To Watch. The Wisconsin fintech boasts a Composite Rating of 93 while its EPS Rating is even higher, at 95. The 92 Relative Strength Rating adds to superior performance compared with other stocks in the IBD database.
Strong Earnings Record
The growth stock has booked superior earnings and sales metrics over the past eight quarters. In Q1, sales rose 10% from the previous year to $4.5 billion while earnings of $1.58 per share showed 13% growth. In addition, free cash flow increased to $861 million from $603 million a year ago. The fintech also raised full-year guidance, now expecting 8%-9% growth in organic revenue and $7.40-$7.50 in annual earnings per share, which would mark 12%-14% growth. Read more
Courtesy of Jeffrey Dastin and Anna Tong, Reuters
OpenAI is introducing what one employee called an “incognito mode” for its hit chatbot ChatGPT that does not save users’ conversation history or use it to improve its artificial intelligence, the company said Tuesday. The San Francisco-based startup also said it planned a “ChatGPT Business” subscription with additional data controls.
The move comes as scrutiny has grown over how ChatGPT and other chatbots it inspired manage hundreds of millions of users’ data, commonly used to improve, or “train”, AI.
Italy last month banned ChatGPT for possible privacy violations, saying OpenAI could resume the service if it met demands such as giving consumers tools to object to the processing of their data. France and Spain also began probing the service. Mira Murati, OpenAI’s chief technology officer, told Reuters the company was compliant with European privacy law and is working to assure regulators. Read more
Apr. 21, 2023: Technology & Payments Articles
Google has moved to placate UK regulators by offering app developers the freedom to break away from Google Play’s billing system and use alternatives to process in-app payments.
Courtesy of Finextra
The Competition and Markets Authority (CMA) is now consulting on the commitments but says it is intending to accept them.
Last year, the watchdog concluded a market study into ‘mobile ecosystems’ and concerns raised that Google’s control over payment processing in Google Play is potentially leading to higher prices and reduced choice for Android users. A new investigation was launched into these in-app payment rules which has prompted Google’s offer.
Ann Pope, senior director, antitrust, CMA, says: “While we’re pleased our investigation has resulted in Google offering to give in-app payment freedom to thousands of app developers, we need to make sure these commitments will work in practice – so we welcome all feedback, which we will carefully consider before making a final decision.”
In a blog, Google’s director of legal, Oliver Bethell, says: “We appreciate the CMA’s thoughtful approach and the constructive dialogue we’ve had throughout this process. As always, we’ll continue to listen to feedback and continue to invest to help developers thrive on Google Play.” Read more
Courtesy of Dan DeFrancesco, BusinessInsider
Today, we’ve got stories on how to land an internship at D.E. Shaw, what’s going on with Credit Suisse bankers looking for new gigs, and the airports you probably should avoid if you don’t like crowds. But first, just give me a number.
1. Let’s make a deal.
It seems the time has finally come for some M&A, and one group is ready to go. I wrote last week about how a couple of blockbuster deals could kick off a spree of dealmaking after a long drought. Insider’s Paige Hagy and Bianca Chan identified a bunch of acquisition targets in a segment of the market that is in need of some deals: fintech.
Paige and Bianca spoke to nearly a dozen insiders to identify 27 fintechs that could be up scooped up, along with the firms that might be interested in buying them. The list spans across seven different segments, further illustrating how this is an industry ripe for transactions. One could make the point that every industry has a backlog of potential deals, but fintech seems particularly ripe.
The pandemic, and the years of volatile market activity that followed, are partially to blame. Plenty of companies that should have gotten acquired or gone public in 2021 didn’t because of the amount of money in the private markets. The following year, the market slumped, delaying things once again. Now, it seems, we’ll finally have some activity. Sure, rates are still high. But beggars can’t be choosers, and many fintechs can’t afford (literally) to wait much longer. Read more
Courtesy of Christine Hall, TechCrunch
Aging payment rails is not a new problem for the U.S. banking infrastructure, but Silicon Valley Bank’s collapse put it in the spotlight, especially for payment companies that had their payment rails with the bank.
A payment rail is a network for how payments move from the payer to the payee. We’ve seen newer rails emerge in recent years, for example, the blockchain, and within the consumer realm with peer-to-peer payments via apps like PayPal, Venmo and Zelle. Most of the payments occur in real time.
Airbase was one of those fintech companies that had its payment rails with SVB. CEO Thejo Kote told TechCrunch+ that the company had to scramble to help customers make sure their payroll and vendor payments were able to resume and also remain secure.
Current payment rails, particularly in the U.S., are decades old, created long before digital payments became a way of life. In recent years, financial technology companies have built rails on top of existing infrastructure, for example Stripe, Plaid and the like, but it takes years and millions of dollars to do it. Visa, too, recently partnered with PayPal, which also owns Venmo, and others to help people make digital payments regardless of which app you use.
But even with this technology, some fintech founders say decentralized finance rails built on the blockchain could be a better answer. Especially as building on the current aging payment rails is expected to increasingly be a problem. Read more
The European Data Protection Board (EDPB), a body of Europe’s national privacy watchdog, has formed a ChatGPT taskforce to establish privacy guidelines on the AI platform.
Courtesy of Finextra
The announcement trails Italy’s temporary ban of ChatGPT over concerns of data breaches and privacy. Germany’s data protection commissioner followed the announcement with a statement indicating that they could follow suit. On Thursday, the Spanish Data Protection Authority (AEPD) announced that they would conduct an investigation into the privacy breaches by the AI tool. Commission Nationale de l’Informatique et des Libertés (CNIL), the French regulator recorded five complaints on ChatGPT reporting invasions into personal data, one of which came from an MP.
ChatGPT has amassed over 100 million monthly users worldwide since its launch in late 2022. The AI chatbot went viral for speedily answering questions on a wide range of topics, and like all AI technology, it gets smarter with every user interaction. Governments are concerned that the tool is a threat to privacy, safety, and job security. Read more
Apr. 14, 2023: Technology & Payments Articles
Courtesy of Jamiel Sheikh, Forbes
Bloomberg is bringing to finance what ChatGPT brought to everyday general purpose chatbots.
The paper that Bloomberg released reveals the great technical depth of its BloombergGPT machine learning model, applying the type of AI techniques that GPT uses to financial datasets. Bloomberg’s Terminal has been the go-to resource for the trading and financial world for financial market data for over four decades. As a result, Bloomberg has acquired or developed a large number of proprietary and curated datasets. In many ways, this data is Bloomberg’s crown jewels and in this version of BloombergGPT, this proprietary data is used for building an unprecedented financial research and analysis tool.
The large language models fueling such AI experiments are syntactic and semantic in nature, and are used to predict a new outcome based on existing relationships in and across source texts.
Machine learning algorithms learn from source data and produce a model, a process known as ‘training.’ Training for the BloombergGPT model required approximately 53 days of computations run on 64 servers, each containing 8 NVIDIANVDA 40GB A100 GPUs. For comparison, when we use ChatGPT, we provide to a model (or formula) an input, known as the prompt, and the model then produces an output, much like providing an input to a formula and observing the output. Generation of these models require massive amounts of compute power and thus Bloomberg partnered with NVIDIA and Amazon Web Services in the production of the BloombergGPT model.
Since each GPU costs tens of thousand dollars, if purchased new, and are used for only a short relative duration for model generation, the BloombergGPT team opted to use AWS cloud services to run the computation. Since the cost per server instance is $33 per hour (as currently publicly advertised), we can make a back-of-napkin cost estimation of more than $2.7 million to produce the model alone. Read more
Courtesy of PYMTS.com
Elizabeth Graham, product manager at Entersekt, said false declines carry significant risks for banks and merchants, where consumer loyalty is critical. Merchants and issuers are losing money through the false declines, as a result — more money than would have been lost to potential fraud, said Graham. “False declines are such a problem in the industry that 80% of merchants use this measure as a key metric within the organization,” Graham told PYMNTS.
As she described, false declines — a form of false positive — occur when a legitimate customer tries to transact, but the transaction is ultimately denied. She said the issues might lie on the issuer or the merchant sides of the commerce equation. False positives when legitimate customers are flagged as fraudulent, wrongly label transactions as risky.
No matter the nomenclature, it is pretty much the same thing in terms of the customer experience, said Graham, which results in an unpleasant digital journey — one that will cause quite a bit of reputational damage. “It’s incredibly frustrating and causes consumers to feel not only that it’s a nuisance — because they cannot buy the product they want to — but also almost like there’s been a personal insult,” she said.
She pointed to her own recent online experiences as an illustrative example. Graham said that she’d recently completed a significant home renovation and had been going online to buy big-ticket items, including a couch. Upon checkout, the transaction failed — for no discernable reason. Graham recounted that she had no idea if the reason had been tied to the merchant, the bank, or perhaps due to an issue with her credit card.
There are negative ripple effects on the other side of the equation, too, tied to increased operational costs for the merchant and the issuer. A rising tide of customer complaints funneled through customer service calls, emails and chats, all add to investments of staffers’ time addressing those complaints. Read more
Courtesy of Sheppard Mullin Richter & Hampton LLP., National Law Review, Volume XIII, Number 102
The National Telecommunications and Information Administration (NTIA) has issued a Request for Comments (RFC) on Artificial Intelligence (“AI”) system accountability measures and policies to advance its efforts to ensure AI systems work as claimed and without causing harm. The RFC is targeting self-regulatory, regulatory, and other measures and policies to provide reliable evidence that AI systems are legal, effective, ethical, safe, and otherwise trustworthy. It is also seeking policies that can support the development of AI audits, assessments, certifications and other mechanisms to create earned trust in AI systems that they work as claimed (similar to how financial audits create trust in financial statements).
The NTIA has indicted that it will use these comments and other input to draft and issue a report on AI accountability policy development, focusing especially on the AI assurance ecosystem. Among other things, the RFC seeks input on topics such as:
- What kinds of trust and safety testing should AI development companies and their enterprise clients conduct.
- What kinds of data access is necessary to conduct audits and assessments.
- How can regulators and other actors incentivize and support credible assurance of AI systems along with other forms of accountability.
- What different approaches might be needed in different industry sectors—like employment or health care
Courtesy of PYMTS.com
Consumers are eager to banish the uncertainty of legacy bill payment processes, Conduent’s Kathy Mertes explains, adding that real-time payments offer consumers a more accurate view of their financial circumstances.
PYMNTS interviews Kathy Mertes, vice president and executive leader for digital payments at Conduent, about how real-time payments can solve common bill pay challenges.
Consumers face a wide array of challenges when attempting to pay everyday bills. Of all the concerns, one of the most annoying is the time gap between submitting the payment and the recipient accepting it, which can leave the customer in limbo during the processing time.
“‘When am I getting paid? When are the credits there, and when are these debits going to hit my account?’” Mertes said. “And sometimes there is a reversal, which would, of course, create even more financial hardship for that particular consumer if it results in an overdraft fee.”
Real-time bill pay removes this critical knowledge gap and offers customers a more holistic view of their financial circumstances. Most customers have several bills to pay each month and need precise information on what funds they have to pay each one.
“There’s three different options that a consumer has when presented with a bill payment: Pay it right away, schedule it or ignore it,” she said. “Key next steps are to see banks adopt Request for Pay, therefore providing consumers with an ability to decision the bill pay request.”
Apr. 7, 2023: Technology & Payments Articles
Courtesy of Isabelle Castro Margaroli, FinTechNexus.com
“Every business will become a bank” has become a common refrain among tech circles. If Apple is anything to go by, it is becoming less of a prediction and more of a fact.
A mix of embedded finance and open banking are the cocktail for reaching this prophecy. As more developments toward open data sharing diminish banks’ proprietary advantage and digital solutions are explored, it has become easier and cheaper for any brand to offer its own financial products.
“This pretty unique blend of things is changing in the market right now,” said Brian Hanrahan, CEO of Nuapay. “You had embedded finance making steady steps for the last several years. What’s happening now in conjunction with it is instant payments rails, and then you have open banking on top of that.”
“It’s a mix of things that didn’t exist before and certainly didn’t coexist. So I think the providers of these solutions have the potential to scale. Still, I think for many other businesses with that consumer touch point, it will allow them to maximize their revenue and their gains from the shift as well.”
Trust in financial institutions dropping
Banks themselves have undergone a crisis of confidence over the past month. The fragile fabric of trust that was still being built up since 2008 has been disrupted, once again, by a round of bank closures. Read more
Courtesy of Robert A. Manning, the Hill
“Any sufficiently advanced technology is indistinguishable from magic,” science fiction icon Arthur C. Clarke sagely opined. Judging from the excitement, awe and fear generated by ChatGPT4, that mystery captures the growing concern about artificial intelligence (AI).
The bot, which can write research papers, fiction and much else, is the latest example of the technological imperative: If something can be created and commercialized, it will be — regardless of a dearth of rules, regulations and, too often, potential risk. It is a product of the Silicon Valley utopian ethos: “Move fast and break things.” Fix it later. The numerous mistakes and bizarre answers from ChatGPT4 suggest it is no exception.
Open AI, Google and a host of other Big Tech and start-up actors are racing to commercially deploy the best AI chatbot. Technology is rocketing forward years faster than most expected — before big questions and its impact on humanity or any governance have been duly considered.
When Sam Altman, CEO of OpenAI, which created the ChatGPT4, says, “I’m a little bit scared of this,” and when more than 1,000 leading technologists call for a moratorium on further research and development of it, it’s worth paying attention Read more
Courtesy of PaymentsJournal.com
Despite the fanfare around the launch of FedNow this year, many businesses are skeptical that real-time payments (RTP) can be monetized and are adopting a wait-and-see approach. Although it is true that RTP technology has not come into full force and use cases have not been completely fleshed out, banks and fintechs need to have a strategy so they are not left behind as RTP becomes the standard over the next few years.
During a recent PaymentsJournal webinar, Chris Nichols, Director of Capital Markets at SouthState Bank; Reed Luhtanen, Executive Director at U.S. Faster Payments Council; Carrie Blankenship, Payments Innovation Principal at Volante, and Steve Murphy, Director of Commercial Payments at Javelin Strategy and Research, shed light on the various RTP business cases and gave an overview of how the space is set to change.
With real-time payments—or faster payments as they’re referred to in some countries—adoption has varied. According to Luhtanen, it’s important to take a step back and look at the contrasts of adoption to get a full picture. “In many countries where you hear about advancements and being ahead of the U.S. when it comes to faster payments, there were government mandates put in place that caused those advancements to happen,” he said. “There’s essentially a monopoly service that’s pushing that forward in those countries.” Read more
Courtesy of Kim Van Esbroeck, FinTechNexus.com
Over the past few years, Banking-as-a-Service (BaaS) has allowed businesses to offer seamlessly integrated banking products to their customers. BaaS-enabled embedded lending is one solution that is gaining in popularity across many B2C and B2B use cases.
Research by FMI has indicated that the embedded lending market is expected to exceed $32.5 billion by 2032, demonstrating the scale of demand for its potential. What is driving the explosion of BaaS lending? And what kinds of solutions are underpinning this growth?
Lending on the rise
Today, embedded lending is creating the possibility for brands to offer credit products, helping to improve their customer journeys.
According to GlobalData, the Buy Now, Pay Later (BNPL) market is expected to reach US$ 596.7 billion in 2026. While BNPL’s popularity has pushed embedded lending into the spotlight, this is just the beginning.
Outside the B2C space, a host of products like merchant financing (essentially BNPL for SMEs) are growing in popularity, enabling marketplaces to provide upfront capital to their merchants to produce or buy goods, with repayments drawn from their revenues once they are sold. Read more
Mar. 31, 2023: Technology & Payments Articles
- In Sudden Alarm, Tech Doyens Call for a Pause on ChatGPT
- Why Some BNPL Providers Aren’t Sweating New Regulations
- PODCAST: As Check Volumes Decrease, Financial Institutions Need to Consider Alternative Clearing Options
- ICYMI: Paymentus Expands Bill-Pay as Consumers Embrace ‘Cash Stuffing’
Tech luminaries, renowned scientists, and Elon Musk warn of an “out-of-control race” to develop and deploy ever-more-powerful AI systems.
Courtesy of Will Knight and Paresh Dave, Wired
An open letter signed by hundreds of prominent artificial intelligence experts, tech entrepreneurs, and scientists calls for a pause on the development and testing of AI technologies more powerful than OpenAI’s language model GPT-4 so that the risks it may pose can be properly studied.
It warns that language models like GPT-4 can already compete with humans at a growing range of tasks and could be used to automate jobs and spread misinformation. The letter also raises the distant prospect of AI systems that could replace humans and remake civilization.
“We call on all AI labs to immediately pause for at least 6 months the training of AI systems more powerful than GPT-4 (including the currently-being-trained GPT-5),” states the letter, whose signatories include Yoshua Bengio, a professor at the University of Montreal considered a pioneer of modern AI, historian Yuval Noah Harari, Skype cofounder Jaan Tallinn, and Twitter CEO Elon Musk.
The letter, which was written by the Future of Life Institute, an organization focused on technological risks to humanity, adds that the pause should be “public and verifiable,” and should involve all those working on advanced AI models like GPT-4. It does not suggest how a halt on development could be verified, but adds that “if such a pause cannot be enacted quickly, governments should step in and institute a moratorium,” something that seems unlikely to happen within six months. Read more
Courtesy of PYMNTS.com
Buy now, pay later (BNPL) payments have exploded in popularity in the past several years, now with more than 360 million users worldwide. While BNPL offers no interest on payments made by the due date, users who fail to make payments on time can face massive fees. Further, concerns about consumer data privacy have arisen, as at least one high-profile BNPL provider has been subject to hefty fines for data privacy violations.
Despite BNPL’s already-deep market penetration, the payment method’s novelty and rapid rise have kept it largely outside the consumer credit regulatory framework thus far. Just in the past year or so, BNPL regulation has been considered on a widespread basis. Most of these regulations involve bringing the BNPL industry in line with traditional credit options. Opinions on these regulations are mixed, however: While some BNPL providers work with governments to enact these rules, others feel that regulatory measures will unnecessarily impede the industry’s rapid growth.
The “Buy Now, Pay Later Tracker®” examines why governments across the globe are considering BNPL regulations to bring the industry in line with traditional credit options.
Around the Buy Now, Pay Later Space
One of the most wide-ranging BNPL regulations in progress comes from Australia, where the government is considering several proposals to bring the industry in line with its credit counterparts. Some BNPL providers, such as PayPal, back the proposed regulations, while others worry it will damage the quickly growing industry. Read more
Courtesy of PaymentsJournal
Checks have seen a steady decline in use — with a 2021 Federal Reserve survey finding a decrease of 7%-8% in check volume annually — but the same clearing processes must still be performed by financial institutions. This reduced volume is prompting financial institutions to consider ways to minimize costs and increase efficiencies in the item clearing and settlement process.
“I think the death of the check was greatly exaggerated,” said Tony Rosetti, Director of Fiserv Clearing Network at Fiserv. “Checks are still going to exist. And as the volume continues to decrease, financial institutions are at a tipping point where prices will increase.”
“Checks aren’t going to die,” said Brian Riley, Director of Credit and Co-Head Of Payments at Javelin Strategy & Research. “They’re going to decrease — I agree with that. But there are still times when consumers and businesses need checks, and that brings out the importance of engineering your clearance network properly.”
“You shouldn’t just set that and forget it. As volumes go down and pricing models change and the whole dynamics change, it’s really a good time to understand what’s going on in your clearance process and to make sure that it’s really managed and engineered to the best possible way.”
Banks currently have a few options for their check-clearing needs. These include the Federal Reserve, private sectors, and private exchanges. Read more
Courtesy of PYMNTS.com
Paymentus says it is making it easier for billers to accept cash payments.
The electronic bill-pay company has expanded the cash payment capabilities on its instant payment network, Paymentus said in a Thursday (Jan. 19) news release provided to PYMNTS. Powered by the Green Dot Network, billers connected to the Paymentus network can accept cash payments from customers at more than 90,000 locations.
“Every biller knows that cash payments account for a meaningful portion of revenue,” said Dushyant Sharma, Paymentus’ founder and CEO. “Untethering cash payments from the customer service counter and into tens of thousands of community-based access points will make cash bill-pay as easy, convenient and secure as every other payment method for both consumers and billers alike.”
The company points to findings from the Federal Deposit Insurance Corporation (FDIC) that show that the U.S. has more than 18.7 million underbanked and 5.8 million unbanked households. These people often turn to money orders or prepaid cards to pay bills.
The release also notes that — per the Federal Reserve — cash payments account for a fifth of all transactions, while “cash stuffing” has become a popular budgeting trend for Gen Z consumers. Read more
Mar. 24, 2023: Technology & Payments Articles
Courtesy of PaymentsJournal
Artificial intelligence (AI) and biometrics are revolutionizing regulatory compliance in fintechs and banks by providing more accurate and efficient methods of identifying and preventing fraudulent activity, as well as streamlining compliance processes.
Traditionally, compliance has been a tedious and time-consuming process, requiring manual checks and reviews of transactions and documents. But with the help of AI and biometrics, compliance is becoming a lot more efficient and effective. In a recent PaymentsJournal podcast, Micheal Sheehy, Chief Compliance Officer at Payoneer, and Marco Salazar, Director of Technology and Infrastructure at Javelin Strategy & Research, discussed the future of meeting compliance challenges.
The Future of Compliance Challenges
The biggest challenge for fintechs in compliance is the cost of implementing Know Your Customer (KYC), a process fintechs use to verify the identity of their clients and assess their potential risks for money laundering or financing terrorism. Fintechs may need to go through a KYC process when onboarding new customers, setting up new accounts, or conducting certain financial transactions. This typically involves collecting and verifying personal and financial information, such as name, address, government identification, and employment status. Fintechs may also need to monitor their customers’ activity over time to ensure ongoing compliance with KYC requirements.
JP Morgan is set to pilot biometric payments with retailers in the US, enabling shoppers to make purchases by scanning their palms or faces.
Courtesy of Finextra
Global biometric payments are expected to reach $5.8 trillion and three billion users by 2026, according to Goode Intelligence. This week, fast food giant Panera Bread revealed that it is piloting palm reading technology from Amazon that lets customers pay and access the chain’s loyalty programme.
Now, JP Morgan is looking to bring the technology to its huge merchant client base. The first pilots will be run with brick-and-mortar stores in the US, and could include the Formula 1 Crypto.com Miami Grand Prix in May. A wider rollout could follow next year.
After a short enrolment process in store, customers can pay for their items by scanning their palm or face. JP Morgan says that merchants benefit from customer sales and loyalty growth and the removal of friction from their day-to-day processes. For the customer, the payments are phone-free, private, secure, fast and simple. Read more
Courtesy of Pymnts.com
The exploding use of buy now, pay later (BNPL) needs to have some oversight governing that growth, Omri Flicker, chief legal and risk officer at Splitit, told PYMNTS. The conversation came against a backdrop in which the Consumer Financial Protection Bureau (CFPB) found many BNPL users use the option without signs of stress.
But some signs bear watching — particularly the fact that BNPL-using respondents had higher levels of credit card debt and rates of credit card utilization compared to non-BNPL users. And amid the data, said Flicker, of particular note is the finding that roughly 90% of BNPL users have open credit cards. “That was something, perhaps, that was not expected in the industry,” he said.
Broad Use of Credit
At a high level, the report illuminates the fact that consumers are always going to use a broad range of financial products. He said the conventional wisdom may be that BNPL options serve as an alternative to credit cards and represent an opportunity for underserved populations to have their “first taste of credit in order to build credit histories. But the numbers tell us that this is not necessarily true.”
In tandem with credit cards, he said, the data shows that BNPL users are likely to use diverse offerings to meet the obligations of living daily financial life — including, but not limited to, overdraft facilities, payday loans and pawn loans. Read more
Courtesy of Lauren Sforza, the Hill
Democrat Sens. Cory Booker (N.J.) and Raphael Warnock (Ga.) sent letters to 10 large banks and federal regulators on Tuesday, urging them to pause overdraft fees in the aftermath of recent U.S. bank failures.
The pair of senators sent the letters to the CEOs of Wells Fargo, U.S. Bank, Citizens Bank, Truist Bank, TD Bank, Regions Bank, PNC Bank, Huntington National Bank, Bank of America and JPMorgan Chase. They asked the bank CEOs to “provide relief” for consumers who are facing challenges, especially with their payments and payrolls.
The senators cited how disruptions across the banking industry, particularly the collapses of Silicon Valley Bank and Signature Bank, negatively impacted Americans, and argued that consumers should not be responsible for a bank’s troubles. The letter stated that overdraft fees “overwhelmingly” target Americans living paycheck-to-paycheck, noting that they could pay “up to $111 a day for low account balances or up to $175 a day on overdraft fees.”
“Every single overdraft fee is paid by someone who ran out of money in their bank account. People living on the financial edge deserve protection from the consequences of bank misconduct,” the letter read.
The senators cited how disruptions across the banking industry, particularly the collapses of Silicon Valley Bank and Signature Bank, negatively impacted Americans, and argued that consumers should not be responsible for a bank’s troubles. The letter stated that overdraft fees “overwhelmingly” target Americans living paycheck-to-paycheck, noting that they could pay “up to $111 a day for low account balances or up to $175 a day on overdraft fees.”
“Every single overdraft fee is paid by someone who ran out of money in their bank account. People living on the financial edge deserve protection from the consequences of bank misconduct,” the letter read. Read more
Mar. 17, 2023: Technology & Payments Articles
- ‘Meme Stock in Reverse’: SVB Collapse Portends New Era of Viral Bank Runs
- FCA Takes Aim at Payment Firms Over ‘Unacceptable’ Risks
- Long-Awaited Fed Digital Payment System to Launch in July
- Biometric Payment Cards Make a Comeback in Europe
- Treasury Prime Launches Multibank Network to Diversify FinTech Banking Risk
SVB’s demise gave the banking sector a glimpse into how social media and digital banking can turn a financial institution from operational to insolvent in a matter of hours.
Courtesy of Anna Hrushka, BankingDive
One could argue Silicon Valley Bank was the most tech-savvy bank on the planet. Its ties to startups and the emerging tech sector ran deep, positioning the firm as an outlier in the banking industry and a darling of the venture capital world. But, perhaps, tools born out of the innovation economy, a sector the regional lender worked hard to serve, accelerated and enabled a massive bank run last week — one that saw depositors try to withdraw more than $42 billion from the firm in one day.
“This was the first Twitter-fueled bank run,” House Financial Services Committee Chair Patrick McHenry, R-NC, said in a statement Sunday, following regulators’ extraordinary measures to backstop all SVB deposits in an effort to stem contagion. While the collapsed bank’s startup and tech sector clients breathed a sigh of relief Sunday, the events that hastened SVB’s demise gave the banking sector a glimpse into how social media and digital banking can turn a financial institution from operational to insolvent in a matter of hours. Read more
Courtesy of FinExtra
The Financial Conduct Authority has written to nearly 300 payment companies warning that it will shut them down if they do not take prompt action to address “unacceptable” risks to consumers and financial system integrity. In a letter to the CEOs of 291 payment firms, the FCA’s director for payments and digital assets, Matthew Long, says the watchdog welcomes the competition and innovation that has flourished in the UK’s payments sector.
“However,” he writes, “we remain concerned that many payments firms do not have sufficiently robust controls and that as a result some firms present an unacceptable risk of harm to their customers and to financial system integrity.”
The letter highlights a number of common failings at payment firms regarding the safeguarding of customers’ money in the event of insolvency, including inadequate reconciliation processes and a lack of processes for identifying which funds are ‘relevant funds’ and must be safeguarded. Long also highlights a lack of appropriate liquidity risk management and the failure to consider whether firms should hold capital above their regulatory requirement. Read more
Courtesy of Jeff Cox, CNBC
- FedNow, the Federal Reserve’s digital payments system, will debut in July.
- The system will allow bill payments, money transfers and other consumer activities to move more rapidly and at lower cost.
The Federal Reserve’s digital payments system, which it promises will help speed up the way money moves around the world, will debut in July. FedNow, as it will be known, will create “a leading-edge payments system that is resilient, adaptive, and accessible,” said Richmond Fed President Tom Barkin, who is the program’s executive sponsor.
The system will allow bill payments, money transfers such as paychecks and disbursements from the government, as well as a host of other consumer activities to move more rapidly and at lower cost, according to the program’s goals. Participants will complete a training and certification process in early April, according to a Fed announcement. Read more
Courtesy of Pymnts.com
From tap-to-pay debit and credit cards to mobile smartphone wallets, contactless methods have been driving new waves of innovation in payments post-pandemic, buoyed by growing consumer demand for flexible, convenient and touchless transactions. Biometric payment cards, what Michel Roig refers to as contactless 2.0, promise to take things up a notch and improve the card user experience, enabling consumers to validate a payment transaction, regardless of the amount, with a single press of their finger.
That ability to remove the limit on payment transactions and standardize payment requirements regardless of where a user is based is core to biometrics’ appeal, said Roig, president of payment and access at Swedish biometrics company Fingerprint Cards.
“Depending on where you are today, if you’re over the [payment] cap, the user experience is not homogeneous,” he told PYMNTS in an interview. “It’s different across regions, countries and depending on the bank.” But add biometrics to the mix and that problem is solved: “You’re just adding your finger to the sensor, you tap and pay and off you go … It’s an improvement [from standard contactless cards] and that’s why we call it contactless 2.0,” he explained. Read more
Courtesy of Pymnts.com
If the past week has taught us anything, it’s not to put all your eggs in one banking basket. That’s especially true for FinTechs and tech startups, the backbone of innovation within financial services. Many of them are scrambling to find new financial services providers. And are unsure just where to turn.
Simply put, FinTechs need a way to work with and within the banking system while moving money in a safe and secure manner.
Treasury Prime CEO Chris Dean told PYMNTS’ Karen Webster in a recent conversation that banks (like any other business) have vulnerabilities — the trouble lies when clients put their proverbial eggs in that single basket. “There’s the concentration risk, which we’re all seeing now. There’s the operational burden. And you have to get those things right. It’s clear to me that there’s not a single bank in the U.S. that can do that — but the U.S. banking system can.”
Of banking in general, he said, “there are a lot of different regulators, and different banks — and they’re held together in a cohesive whole.” Treasury Prime’s goal, he said, is to make that cohesiveness available in a streamlined manner for the FinTech community. To that end — to connect FinTechs to the banking system rather than just a provider or two — Treasury Prime said on Wednesday that it has officially launched OneKey Banking. Read more
Mar. 10, 2023: Technology & Payments Articles
Courtesy of Pymnts.com
Digital banking has become the default means of financial interaction for countless consumers worldwide, with the ongoing pandemic supercharging a shift that was years in the making. PYMNTS research found that nearly three-quarters of consumers have used digital channels to open a new account, for example, unlocking the gateway to a digital customer lifetime. Mobile apps are the most common banking method of choice, at 45% of consumers, with this number shooting up among younger generations, such as millennials and Generation Z.
Banking as a service (BaaS) is a key tool for providing the digital experiences that customers demand. It involves banks leveraging their charters to offer nonbank companies the ability to provide banking services to their customers. BaaS has two primary benefits: allowing customers to access financial services from a wider variety of sources and enabling banks to expand their footprints to include even customers not seeking traditional financial institution (FI) relationships. Choosing the right BaaS partners will be crucial to ensuring the industry’s long-term success.
Courtesy of FinExtra
Cloud migration is a major part of the financial industry today; traditional banks and emerging fintechs are in process of transitioning online to cloud services to become scalable, agile, and operate at a higher level.
As new cloud strategies emerge, the migration process becomes more complex in dealing with regulatory fragmentation, multiple options in cloud providers, and a unique array of approaches to the transition. The second stage of the cloud summit discusses how financial institutions are navigating their migration to the cloud.
OakNorth was the first bank in the UK to fully operate on the cloud as of May 2016. The bank’s partnership with AWS facilitated how they designed their cloud platform. Commenting on the most exciting benefit in operating on AWS, Robinson states: “The flexibility and ability to change is definitely high on the agenda. We have been able to launch products to market very quickly, by having bank in the cloud effectively. AWS also test the learning curve a lot earlier, allowing you to fail fast and move forward.” Read more
Black banks, which help expand credit to underserved areas, risk losing customers if they continue to fall behind their nonminority peers in terms of digital banking offerings, a researcher said.
Courtesy of Anna Hrushka, BankingDive
Black financial institutions are less likely than their minority or nonminority institution peers to offer online and mobile banking services, according to a recent study by the Urban Institute.
As more consumers turn to digital options to address their banking needs, this technology disparity threatens to further shrink a category of financial institutions that have been on the decline for the last 20 years, said Micheal Neal, a principal research associate at the Urban Institute.
There were 47 Black-owned banks insured by the Federal Deposit Insurance Corp. in 2002, according to FDIC data. Last year, that figure fell to 16, accounting for less than 0.03% of assets at all FDIC-insured financial institutions. Read more
If You Still Aren’t Sure What ChatGPT Is, This Is Your Guide To The Viral Chatbot That Everyone Is Talking About
Courtesy of Sindhu Sundar, BusinessInsider
Since OpenAI released its blockbuster bot ChatGPT in November, users have casually experimented with the tool, with even Insider reporters trying to simulate news stories or message potential dates.
To older millennials who grew up with IRC chat rooms — a text instant message system — the personal tone of conversations with the bot can evoke the experience of chatting online. But ChatGPT, the latest in technology known as “large language model tools,” doesn’t speak with sentience and doesn’t “think” the way people do.
That means that even though ChatGPT can explain quantum physics or write a poem on command, a full AI takeover isn’t exactly imminent, according to experts.
“There’s a saying that an infinite number of monkeys will eventually give you Shakespeare,” said Matthew Sag, a law professor at Emory University who studies copyright implications for training and using large language models like ChatGPT. Read more
Mar. 3, 2023: Technology & Payments Articles
- FinTechs Team With Credit Unions to Deliver Banking’s ‘Marketplace Model’
- White House Aims to Shift Cybersecurity Burden From Individuals And Small Businesses To Tech Providers
- Embedded Finance Brings Banking to Underserved Consumers No Matter Where They Are
- Why Licensing Matters: How Banking Licenses Impact Embedded Finance (BAAS)
Courtesy of Pymnts.com
Credit union members are famed for their loyalty. That historic bond is being tested as more CUs take a cautious approach to digital innovation due to prevailing macroeconomic headwinds.
PSCU President and CEO Chuck Fagan, NAFCU CEO Dan Berger and Suncoast Credit Union SVP of Digital Strategy Jana Manley told Karen Webster that the optimal approach to improving technologies — to improving member experiences can be boiled down to a simple concept:
Don’t chase the shiny squirrel.
We’re in a world where, as PYMNTS/PSCU data has found, 38% of CUs see themselves as tech laggards — up from 29% last year. The jump has a bit to do with a reining in of tech budgets, but also a recalibration of what innovation actually is.
Buy now, pay later (BNPL) has some potential, said the trio, though there’s danger of stacking debt. Crypto may be a bit unnerving. Digital wallets might be a game changer. But as Berger noted, “It’s up to every individual institution to decide whether members want these innovations or if it fits into the CU’s business plan.”
There’s been a long-lived mantra, she said, that can be summed up simply: “You just bolt on a product — and if you build it they will come.” There’d been little time examining what the bolt-on actually did in terms of impacting the overall customer experience. But now CUs are looking to redefine innovation, having gone through the pandemic, which has demanded some mulling of processes and the overall impact on the digital interactions. Read more
Courtesy of Lauren Feiner, CNBC
The White House released its long-awaited National Cyber Strategy on Thursday, providing a road map for how the Biden administration aims to defend the U.S. from a rapidly growing number of online threats.
A key element of the new framework involves shifting the burden of cybersecurity from individuals, small businesses and local governments and putting responsibility in the hands of software developers and other institutions with the requisite resources and expertise. Read more
- The White House released its National Cyber Strategy on Thursday, providing a road map for how the Biden administration seeks to defend the U.S. from online threats.
- The plan would shift the burden of cybersecurity from individuals and small businesses to organizations that are best equipped to mitigate cyber risks.
- The administration wants to see legislation that establishes liability for software makers that fail to take reasonable precautions to secure their products and services.
Courtesy of Pymnts.com
For student-athletes, managing money is no layup. No easy line drive. Pick your sports metaphor. Younger consumers who spend much of their lives on the field or traveling to sporting meets and away games could use a bit of help with day-to-day financial ebbs and flows, Roy Ng, CEO of Bond Financial Technologies, told Karen Webster.
Software has disrupted the way everyday life is conducted — and has paved the way for embedded finance to bring financial services to a growing number of new use cases.
As proof positive of how technology can foment better financial outcomes, Bond has enabled TeamUp, a money management platform to launch a card that helps college athletes manage their expenses and spending — and scholarship money — in ways that help them build credit.
Embedded finance involves offering everything from bank accounts to lending products across various digital channels — and getting non-banking companies into the mix.
And as to the mechanics of it all: according to Ng, “when you think about the concept of embedding finance,” he told Webster, “you embed it via software.” Many of our daily tasks are software-enabled, where developers can incorporate elements of financial products into workflows with which end users are infinitely familiar. Read more
Courtesy of Nikhil Sengupta, FinTechNexus.com
As Banking-as-a-Service (BaaS) advances towards mainstream adoption, BaaS-enabled embedded finance has shown it can give businesses a competitive edge. Vodeno recently surveyed more than 1,000 business leaders in the UK, Belgium, and the Netherlands to ascertain their impressions and experiences of BaaS-enabled embedded finance.
It found that 64% of the respondents believe BaaS offers lucrative opportunities to businesses and that more than half (51%) find that consumers will engage with financial products offered by the brands they use every day as opposed to traditional branch-based banking.
In bringing these products to market, the banking license a BaaS provider has access to plays a key role.
The importance of banking licenses was reflected in Vodeno’s survey, with 28% of business leaders citing that they would like to see their BaaS provider offering access to a banking license as a priority. In comparison, 58% believe that providers with a banking license alongside their tech solution will shape the BaaS market in the future.
As embedded finance grows in prevalence and popularity, businesses must consider BaaS and understand the impact different licenses offered by providers will have on their offerings. So how does it work?
Feb. 17, 2023: Technology & Payments Articles
Loan decisions will consider past spending with apps, devices. New service is now being tested with Apple retail employees.
Courtesy of Mark Gurman, BQPrime/Bloomberg
With Apple Inc. pushing into the lending business with a “buy now, pay later” service, the company is laying out rules for how it will approve transactions. One key factor: whether you’ve been a good customer in the past.
The Apple Pay Later service — announced last year but still in the testing phase — will evaluate borrowers based on their spending history and even which of the company’s devices they own. The program, which lets shoppers make purchases and then pay over installments, also will look at whether customers have applied for an Apple Card credit card and the other cards they have linked to their Apple Pay accounts.
The offering is part of a broader push into financial services, which is seen as a big growth opportunity for the tech giant but also one with potential pitfalls. Already, the Pay Later service is running behind schedule: It was originally expected last year. The company also is working on a homegrown infrastructure for financial products that will help decrease its reliance on banking partners. Read more
The European Central Bank is working on a digital currency as the region seeks to protect itself from tensions with China and the United States.
Courtesy of Silvia Amaro, CNBC
- The European Central Bank is working on a digital currency as the region seeks to protect itself from tensions with China and the United States.
- Mastercard, Visa, PayPal, Alipay and UnionPay make up the top global companies for payments, but none of them are European.
- European officials have been discussing the need to be more autonomous and less reliant on other parts of the world for several years.
The central bank started investigating the feasibility of a digital euro back in October 2021. This fall, the heads of state across the EU will have to decide if the ECB should push ahead with the next steps, which include testing the necessary technical arrangements so Europeans can spend digital euros.
“The ECB is worried that the euro zone will end up in a geopolitical and economic sandwich position between the big tech companies of the USA and the payment systems of China without a digital euro. Right now, Europe lacks digital platforms,” Guido Zimmermann, senior economist at German bank LBBW, told CNBC Wednesday. Read more
Courtesy of Hannah Lang, Reuters
The competitive threat of financial technology companies to big banks diminished over the past year as rising interest rates constricted funding, a new report from Moody’s Investor Service found. A decline in venture capital funding in 2022 particularly hurt fintech firms that rely on outside capital to fund their operations and acquire clients, Moody’s analysts wrote in the report on Wednesday.
The report cited figures from CB Insights that showed global fintech funding fell 46% from 2021 to 2022. Traditional banks that have long benefited from established brands and customer relationships have accessed stable deposit funding over the past year, which has given them an edge over many fintech companies, Moody’s said.
Banks have long recognized that technology could disrupt business models and allow technology conglomerates to enter banking, Moodys said. “They have been aggressively defending against such risks, either through increasing their spending in technology or through partnerships.” Read more
Courtesy of Miriam Cross, American Banker
A challenger bank for Latino immigrants has closed its seed round.
Comun in New York announced Tuesday that it has raised $4.5 million in seed funding led by Costanoa Ventures with participation from South Park Commons and FJ Labs. Its digital banking app became available to consumers in September.
The company was co-founded by two immigrants to the United States from Mexico. Spanish is the default language for the app — which is linked to a no-fee checking account and a debit card — but users can switch to English. Applicants do not need a Social Security number to sign up for an account; instead, they can use an individual taxpayer identification number (ITIN), a foreign passport or another form of official foreign identification and must supply proof of address.
“We built Comun to make it easier to thrive as an immigrant family in the U.S.,” said Andres Santos, co-founder and CEO of Comun. “My co-founder [Abiel Gutierrez] and I both experienced how challenging it can be to navigate the banking system as immigrants.”
Comun’s website defines the adjective “comun” as belonging to, or affecting, the whole of a community. Piermont Bank in New York, which has $448.9 million of assets, provides the underlying banking services for Comun. Read more (log-in may be required)
Feb. 10, 2023: Technology & Payments Articles
- The Rise of Social Commerce and Social Payments
- Google Pay and Chrome Can Now Combat Cybercrime with Virtual Cards for American Express
- Related Reading: Paypal’s Lack of Multi-Factor Authentication Mandate ‘Surprising’
- What is EBPP? What Credit Unions Need to Know
- Facilitating Adoption of PINless Debit Payments
Courtesy of Miles Oliver, PaymentsJournal
There’s no question that the rise of social media has had a profound impact on our daily lives. These platforms have changed the way we communicate, socialize, seek our entertainment, and even get our news.
But the impact of social media extends far beyond even this. It’s rapidly transforming the relationship between businesses and the customers they serve. This has catalyzed the growth of an entirely new commercial sector: social commerce. And with the advent of social commerce comes increasing demand for next-generation payment processes, including social payments.
What Are Social Commerce and Social Payments?
Social commerce refers to an increasingly popular subsector of e-commerce in which goods and services are promoted, researched, and sold entirely on social media platforms. This capitalizes on the enormous popularity of social media by allowing consumers to complete the entire customer journey without ever having to navigate away from the social media site. Read more
Visa and Mastercard support could come later this year
Courtesy of Dallas Thomas, AndroidPolice.com
Even if you only shop at reputable online retailers, giving your credit card number to any website is inherently risky. No company with an online presence is immune to hackers, and that includes some of the most tech-forward businesses around — T-Mobile just had its second massive data breach in as many years, and Google Fi customers were also hit. So your best bet is to minimize your online footprint, especially when it comes to identity theft targets like your credit card. On Safer Internet Day, Google has taken a major step to help on this front with new virtual card support.
Starting now, eligible American Express cardholders can use a virtual card number in place of their actual credit card information when shopping with Google Pay and Chrome. Virtual card numbers, including a CVV security code, are generated by machine learning algorithms at the time of sale, and thanks to Google’s partnerships with banks like Amex, this still bills you and earns rewards as if you entered your regular credit card number. The virtual card is only temporary, so even if the numbers get stolen, cybercriminals are significantly less likely to be able to charge your account.
Google launched this feature for Capital One customers last year and is now expanding the service to America Express cardholders. The company has stated it is also working with Visa, Mastercard, and other major banks to potentially bring this feature to the two largest credit card networks later this year. Read more
Related Reading: Paypal’s Lack of Multi-Factor Authentication Mandate ‘Surprising’
Courtesy of Aliya Sumar, Alacriti, CUInsight.com
Here’s a high-level overview of the major components, features, and functionality of an EBPP solution to help get credit unions started.
EBPP is a holistic approach to presenting electronic bills and accepting digital payments from members. An EBPP solution is integrated into a biller’s systems to facilitate seamless e-bill delivery and payments acceptance. It allows billers to deliver the following capabilities to members:
- Deliver e-bills in conjunction with or as a replacement for printed paper bills
- Send account alerts and notifications to members through digital channels such as email and text messaging
- Allow members to fund digital bill payments using payment methods such as ACH and cards. Manual payments (point of sale card payments, personal checks, cash, etc.) can also be recorded in an EBPP solution
- Accept payments from a variety of payment channels, including web-based channels, telephone-based channels, and other channels
- Schedule payments using payment options including auto-pay, payment plans, one-time payments, etc.
In addition to client-facing features and functionality, an EBPP solution also allows billers’ internal staff to perform the following member support activities:
- Add new members, edit existing member records, and reset user passwords
- View individual payment details as well as a top-down payments summary
- Schedule bill payments
- Communicate with members via secure messaging
Courtesy of Connie Diaz De Teran, PaymentsJournal
The U.S. Payments Forum, in collaboration with The Forum’s Debit Routing and Petroleum Working Committees, is aiming to simplify the implementation process of PINless debit transactions. In a recently published whitepaper, The Forum hopes to facilitate its adoption among acquiring processors, payment networks, as well as other technology providers.
How PINless Debit Transactions Work
PINless debit transactions can be processed faster than PIN-based debit transactions, which can help merchants reduce friction and lower transaction time for consumers during the checkout experience. In PINless transactions, the customer is not required to input their PIN, thus speeding up the transaction time and increasing security by keeping the PIN unexposed. By and large, the push for PINless transactions is to enhance the overall payment experience for the customer.
Based on findings from the U.S. Payment Forum, retailers that handle smaller transaction amounts and quick service restaurants have been early adopters of this technology. However, sectors such as hospitality and petroleum have seen limited adoption due to their use of dual-message technology. This involves pre-authorization which is then followed by the completion of the transaction. This makes sense; restaurants do not know how much their customers will tip when running a card for initial authorization and gas stations do not know how much fuel customers will purchase until after the authorization. Read more
Feb. 3, 2023: Technology & Payments Articles
Courtesy of Sam Becker, Fast Company
American Express, most widely known for its credit card offerings, is launching American Express Business Blueprint, a new digital cashflow and management hub that’s designed specifically for small businesses. The new platform gives small businesses and entrepreneurs access to a slew of features, and the company hopes that it will effectively become a “one-stop shop for small business’ financial needs,” Anna Marrs, a group president at Amex, said in a statement.
That’s likely welcome news to a host of new entrepreneurs. Interestingly enough, American Express is utilizing one of its pandemic-era acquisitions to create the new hub—one that has some significant baggage. Amex’s Business Blueprint is built on the Kabbage platform—an online lending company whose technology American Express acquired back during the summer of 2020.
Kabbage was recently put on blast by Congressional investigators for facilitating Paycheck Protection Program (PPP) loan fraud during the height of the pandemic. It’s is one of several fintech companies (along with Blueacorn, Womply, and Bluevine) named in a U.S. House Select Subcommittee on the Coronavirus Crisis report released last month that reportedly dolled out fraudulent loans. Read more
Courtesy of Isabelle Castro Margaroli, FintechNexusNews
The new year started with a bang for B2B BNPL. Already in the dregs of 2022, reports and announcements surfaced of the sector’s pivots into the B2B market. VCs (and their mountainous dry powder) have shown an interest in business-facing firms, and traditional players such as Santander have announced their steps into the B2B BNPL arena.
The consumer-to-business shift
The business payments market eclipses consumer payments, with Statista estimating a global market size of $125 trillion. On the consumer-facing side (valued, comparatively, at $52 trillion), BNPL is now one of the most popular payment methods. Year over year, in 2022, the BNPL market increased by 25.5%, and the holiday season brought reports of 70% surges in revenue.
B2B BNPL could be less risky in uncertain times
While B2B and B2C BNPL products share the same name, they hold some fundamental differences that could be behind their recent rise in popularity. B2C BNPL has been the subject of controversy and regulatory concern. Many have criticized the product for lowering the barriers to credit too much, creating an unsustainable bubble. In the B2B market, BNPL agreements are generally created for much higher-value purchases than B2C, split between up to 10 or 12 payments. Read more
Courtesy of QCASH Financial CUSO
As we stated on last week’s blog on “rent-a-banks,” the battle against the slippery predatory payday lenders is a long one; like a costly game of Whack-A-Mole, their wealthy backers and Washington lobbyists continue to find loop-holes to take advantage of vulnerable, underserved Americans. Only this time they’re utilizing digital payday loan ads on social media to form a narrative by making dishonest claims promising immediate cash without credit checks, late fees, or interest rates. In many instances, they’re getting around the rules of the social platforms themselves.
Digital payday loan ads always know who to target
A late-2022 PYMTS report surveying 4,000 individuals between December 8-23 found that the number of Americans living paycheck-to-paycheck increased over the course of 2022, with almost two-thirds of Americans – or roughly 64 percent – claiming they do so. The report discovered the number is about 9.3 million more than 2021 and includes around 8 million people earning more than $100,000 per year. Does that last number surprise you? It probably shouldn’t; Nearly one in three American workers earning more than $100,000 per year run out of money before payday, according to an October 2022 CNBC report.
Looking ahead, about a third of respondents in the report believe their financial situation will stay the same while 27 percent believe their situation will get worse, citing inflation and present economic uncertainties floating around. About 75 percent believed inflation was or will be the main culprit. It’s a frustrating state to witness: So many consumers don’t trust the mainstream financial system, yet that system – particularly the member-owner credit union infrastructure – is specifically structured to benefit its members’ financial health and inclusion goals. Read more
Courtesy of Anna Hrushka, Banking Dive
A CFPB proposal aims to eliminate screen scraping by requiring banks to establish APIs, standardized software widely regarded as a more secure way to connect consumers’ accounts to financial apps.
Small banks, credit unions and fintechs are asking the Consumer Financial Protection Bureau to ease into a proposal that would eliminate a method many data aggregators use to connect consumers’ bank accounts to financial apps, saying a sudden ban on the practice would put community banks at a disadvantage and limit consumer choice.
The request comes as the CFPB has started a rulemaking process aimed at giving consumers greater control over their financial data, an authority Congress granted the bureau under Section 1033 of the Dodd-Frank Act. A final rule on Section 1033 will likely have a significant impact on the future of screen scraping, a practice fintechs and banks have battled over for years.
Screen scraping is a form of data collection where a third-party requests credentials from a customer’s bank account to “scrape” information that is then provided to a fintech, such as a payments platform or budgeting app. Read more
Jan. 27, 2023: Technology & Payments Articles
Courtesy of Isabelle Castro Margaroli, FintechNexusNews
Fintechs have had the upper hand when it comes to digital customer service. Digitally native, “customer-centric” financial apps have met consumers in their digital revolution, utilizing innovative technology such as AI and active social media presence to improve their service.
Although slightly slow on the uptake, traditional institutions have since caught up, now leaning towards partnerships and M&A to bridge the divide. Within this cohort lie the credit unions evolving to meet the need for innovation, although slightly behind their banking peers.
“Financial services have always been ‘adapt or die,’ and I don’t want credit unions to go the way of Blockbuster Video because we, the regulators, prevented innovation,” said Kyle Hauptman, the NCUA’s vice chair, to CoinDesk early last year.
While he referred to the partnership of credit unions and fintechs to provide crypto services, the logic can be applied to the broader industry. For Glia, the target of choice was customer service for union members. Read more
Courtesy of Pymnts.com
Payment facilitation is among the most vital components of monetizing customer relationships — and the role of PayFacs is often misunderstood. In an interview with Karen Webster, Casey Porter, vice president of Merchant Sales and Acquiring at Visa’s Global Acceptance Fast Track, took note of the confusion that’s out there. If you ask five different people what a PayFac is and what it does, you’ll get five different answers.
“PayFacs are not just ISVs and FinTechs and payments tech companies,” he said, adding that “they may have been among the first to enter this marketplace, but that’s not going to be the end of it.” The companies that explore “how” to PayFac can open up new revenue opportunities as specialized, complicated software platforms bring payments into dedicated and emerging digital ecosystems.
But first thing’s first: It’s important to understand the what and the how of it all. Read more
Courtesy of Finextra
Klarna has taken a leaf out of Spotify’s playbook with the launch of Money Story, a a personal summary of 2022 that provides consumers with useful insights into their spending habits
Money Story uses the animated ‘story’ format popularised by social media, to provide users with spending insights that they can convert into financial goals for 2023. The package visualises spending patterns and presents animated quiz questions that prompt users to reflect on where they think they spent their money in 2022.
Next to their total spending for 2022, consumers also receive insights segmented by month, retailer and category. Each user’s Money Story also includes nudges to discover and test Klarna’s money management tools, such as the budget tracker and the monthly spending breakdown.
Felix Würtenberger, head of card and banking at Klarna, says: “For Klarna’s consumers, this will be the first time they ever receive a comprehensive overview of their yearly Klarna spending. Read more
Courtesy of Squire Patton Boggs (US) LLP, National Law Review, Volume XIII, Number 17
When a court-appointed trustee or liquidator is tasked with liquidating an entity, they need to gain possession of all of the entity’s assets. In crypto cases, this task can prove difficult when trying to identify and control all of the entity’s different digital assets and obtain cooperation from the entity’s former operators. Unfortunately, in the case of Three Arrows Capital (“3AC”), the two founders have refused to cooperate with recovery efforts and have absconded to unknown foreign countries. Without the founders’ voluntary cooperation, 3AC’s joint liquidators (the “JLs”) resorted to seeking relief from the Bankruptcy Court for the Southern District of New York in order to serve the founders and related entities with subpoenas outside of the United States. In an interesting and fairly unprecedented ruling, the bankruptcy court authorized service of a subpoena via social media and email.
As the 3AC proceedings demonstrate, identifying and taking possession of estate assets can be disrupted when the debtor’s previous owners are obstructionist and live outside of the United States. This is more so the case when it is unclear exactly where the prior owners reside, such as in 3AC. Under such convoluted circumstances, the 3AC decision demonstrates the importance of identifying any U.S. national or resident who is, or previously was, affiliated with the debtor and who may have access to documents or assets. Under Rule 45(b)(3) and Section 1783, a trustee or liquidator may have the ability to creatively serve such U.S. national/resident with a subpoena via email or even social media. Given the decentralized nature of businesses, in particular those companies in the cryptocurrency space, it may become more common for courts to be asked to authorize service of a subpoena via social media (e.g,, Twitter, Facebook, LinkedIn, or perhaps even via TikTok, Vine, or Snapchat). Service via social media is a new concept and has been used sparingly in the past (Wikileaks was served via Twitter in 2018; Gokhan Orun (an individual residing in Turkey) was served via Facebook and LinkedIn in 2016). It remains to be seen how the courts will balance litigants’ need for documents and information with the due process concerns of ensuring notice of a subpoena. Read more takeaways and details here.
Jan. 20, 2023: Technology & Payments Articles
- How to Make Fintech Apps Eco-Sustainable
- Credit Union Data Helps Millennials Improve Financial Health, Attain Wealth
- Fintech Wreckage Spells Opportunity For Bargain-Hunting Banks
- Digital Small-Dollar Lending Key for Handling Life Events in the New Year
- A Lot of Fintechs “Have to Fix Their Business Models,” Say VCs Who Invest in Fintech
Opinion by Artem Mytsyk, Fintech Nexus.com
The trend for ecological sustainability is spreading from industry to industry. Fintech has not become an exception, with the environmental, social, and corporate governance (ESG) criteria becoming an increasingly important factor for fintech businesses in raising investments.
However, there is a “but” here. While many “green” fintech startups like Aspiration or Sugi appear on the market, their infrastructure can stay environmentally harmful. From the technical perspective, there are ways to make the fintech infrastructure more ecologically friendly. And I want to share some of them from my experience.
So let’s start: Why should I care?
We all care about the environment. We sort the garbage, use long-term bags, and try to consume less. Isn’t it enough?It is not. And I will name three reasons for that. Read more
Courtesy of PYMTS.com
The new year is only a few weeks old. Many of us have set new financial goals as inflation injects uncertainty into daily life. The trick, of course, is how to get there, and many of us can use a helping hand.
Doug Brown, president of NCR, told PYMNTS’ Karen Webster that now’s the time for credit unions and banks to help younger consumers improve their financial health over the short term and build wealth over the long term.
After all, the oldest millennials are in their 40s and need to think about the future, family, kids and retirement. And a significant number of Gen Z and millennial (and bridge millennial) individuals are still living at home with their parents and need to cross the Rubicon toward living on their own — and retire at their targeted age of 59.
The financial institutions (FIs) are sitting on the data that they need to create meaningful relationships with younger users — particularly Gen Z, millennial and bridge millennial consumers, as PYMNTS and NCR have found. Most immediately, these same consumers, many of whom are living paycheck to paycheck, need to consider new ways to save money and fine-tune what they spend and when. Increasingly, we all must decide whether we have the money to spend — or we don’t. Read more or listen/watch here.
Courtesy of Anna Hrushka, BankingDive
The mergers and acquisitions landscape in 2023 could be promising for banks on the hunt for fintech deals, experts say.
Following a challenging year for the fintech sector, which has experienced a global drop in funding and mass layoffs, enterprising banks may be able to acquire startups whose previous valuations put them out of reach in prior years, said Jonah Crane, a partner at regulatory advisory firm Klaros Group.
According to PitchBook, valuations of publicly traded fintechs plummeted 60% to 80% in 2022, a stark contrast to prior years when the fintech sector’s soaring price points were a source of frustration for some banks that were eager to make deals in the space, said Dan Goerlich, PwC’s banking and capital markets deals leader. Read more
Courtesy of Seth Brickman, QCASH Financial CUSO
These first days of the new year offer an opportunity for many of us to get back in the groove and jump on those personal and financial targets that will get our 2023 off to a crisp and healthy start.
For many others, however, the first month of the year can be financially stressful in that residual holiday debt solidifies into a hardened reality with little to no financial awareness of how to pay it down and improve financial stability. Ironic in a certain way, considering January is Financial Wellness Month!
According to CNBC, more than a third, or 35 percent, of American shoppers took on new short-term debt this last holiday season to cover their extra costs. In fact, 37 percent of shoppers will take five months or more to pay off the debt. Getting through the holidays also took a toll on emotional health for many, provoking depression and compulsive overspending. No one deserves a Christmas with that amount of emotional weight on their shoulders. Read more or listen here.
Courtesy of Connie Loizos, TechCrunch
n recent years, working for, or banking with, a traditional financial institution was decidedly uncool. Far cooler was working for or banking with one of the many fintech startups that seemed to thumb their nose at stodgy bank brands.
Then the Federal Reserve hiked interest rates, stocks tanked, and a lot of fintech outfits that appeared to be doing well began looking far less hardy and hale. The question begged now is whether fintech as a theme has lost its mojo.
On the challenges front, startups and their backers clearly got ahead of themselves during the pandemic, Albergotti suggested, observing that fintech was “going gangbusters” when “everyone was working from home” and “using lending apps and payment apps” but that times have turned “tough” as Covid has faded into the background.
“SoFi is down,” he said. “PayPal is down.” He brought up Frank, the college financial aid platform that was acquired by JPMorgan in the fall of 2021 by blatantly lying to the financial services giant about its user base. Said Albergotti, “They don’t really have 4 million customers.” Read more
Jan. 13, 2023: Technology & Payments Articles
Courtesy of Mac Schwerin, The Atlantic
Many Gen Zers have rejected traditional credit in favor of new-age layaway programs, which are riskier than they may seem. As familiar as Americans are with the concept of credit, many of us, upon encountering a sandwich that can be financed in four easy payments of $3.49, might think: Yikes, we’re in trouble.
Putting a banh mi on layaway—this is the world that “buy now, pay later” programs have wrought. In a few short years, financial-technology firms such as Affirm, Afterpay, and Klarna, which allow consumers to pay for purchases over several interest-free installments, have infiltrated nearly every corner of e-commerce. People are buying cardigans with this kind of financing. They’re buying groceries and OLED TVs. During the summer of 2020, at the height of the coronavirus pandemic, they bought enough Peloton products to account for 30 percent of Affirm’s revenue. And though Americans have used layaway programs since the Great Depression, today’s pay-later plans flip the order of operations: Rather than claiming an item and taking it home only after you’ve paid in full, consumers using these modern payment plans can acquire an item for just a small deposit and a cursory credit check. Read more
Courtesy of Anna Hrushka, BankingDive
Vice President Kamala Harris has said opening up the SBA’s 7(a) program to fintechs would increase lending in underserved markets. The trade groups say the move threatens the integrity of the program.
A new proposal to allow fintechs to participate in the Small Business Administration’s flagship loan program is drawing strong pushback from bank trade groups who argue the move would threaten the integrity of the program and harm borrowers.
The new SBA proposal would end a 40-year moratorium on admitting new nonbank entrants to the agency’s 7(a) loan program by allowing fintechs and other nondepository lenders to apply for a Small Business Lending Company license. Vice President Kamala Harris said the move is aimed at growing the program’s lender base and increasing small-business lending in underserved markets. Read more
Courtesy of PaymentsJournal
During the past decade, real-time payment (RTP) networks have been developed worldwide, including within the U.S., India, China, South Africa, Denmark, and Sweden. Real-time payments occur almost instantaneously and work on a separate rail system from traditional digital payments. While the primary use cases so far have been person-to-person (P2P) payments, as RTP develops, new use cases will involve merchants and third-party companies that provide value-added services.
A recent white paper from Equinix, “Real Talk About Real-Time,” discussed how the adoption of a real-time payment infrastructure is changing the payments landscape. When FedNow is deployed, it will likely lead to a flurry of innovation and reorganization of payment systems. “While real-time payment systems are not intended to replace legacy systems such as ACH [automated clearing house] or card networks initially, real-time systems offer a unique opportunity to consolidate payments functionality that is currently dispersed between various interbank and closed-loop systems,” the white paper stated. Read more
Courtesy of Aaron Klein, Brookings Institute
America’s payment system is transforming as methods of transacting digitally grow. Digital transactions offer the opportunity to move money faster, cheaper, and more conveniently for customers and businesses. Digital transactions can also unlock new methods for businesses to operate; the online economy is only possible because of online payments.
Our current payment system has solved one set of challenges to unlock the new economy, but the system causes significant problems for others. The current system has a cost structure that is expensive for digital micro-payments, which are small dollar payments. Furthermore, digital payments require accessing digital currency which is easy for the wealthy but can be expensive for those with less income. Finally, digital payment acceptance is fragmented, cumbersome, and slow, creating delays. Read more
Jan. 6, 2023: Technology & Payments Articles
The Federal Trade Commission is ordering an end to illegal business tactics that Mastercard has been using to force merchants to route debit card payments through its payment network, and is requiring Mastercard to stop blocking the use of competing debit payment networks.
Under a proposed FTC order, Mastercard will have to start providing competing networks with customer account information they need to process debit payments, reversing a practice the company allegedly had been using to keep them out of the ecommerce debit payment business and, according to the FTC, that violated provisions of the 2010 Dodd-Frank Act known as the Durbin Amendment and its implementing rule, Regulation II. Read more
Courtesy of PYMNTS.com
Banks risk losing customers to neobanks — and a key battleground may lie with savings accounts. And in that case, the advantage may go to the traditional financial institutions (FIs), who have the installed base of clients, the financial firepower and a host of complementary and adjacent revenue streams that the digital-only upstarts just don’t have.
To that end, as found in the latest Digital-First Banking Tracker® Series, “Personalization Beyond Traditional Banking To Build Financial Wealth,” PYMNTS’ research shows that 25% of consumers would switch from their banks for savings accounts.
Drill down a bit, and it’s especially apparent among younger individuals — critical to financial service firms’ future business prospects — that there’s a need to improve their finances.
Courtesy of Luke Secrist, PaymentsJournal.com
In 2019, First American Financial Corporation was breached and more than 885 million financial and personal records were exposed. It was the most significant cyber attack known to date for a financial institution and the repercussions still linger to this day. Major companies such as Robinhood, IRA Financial Trust, and others have experienced breaches in the last 12 to 18 months. The list continues to grow and shows few signs of slowing down. In fact, a report from BCG indicates that financial services organizations are 300 times more likely to be the victim of a cyber attack than other organizations. How can an offensive security strategy help?
Businesses dedicate only 11% of their IT budgets to cybersecurity and the majority prioritize defensive security. Of course, a strong defense is essential to protecting the perimeter and is important for monitoring response capability and reaction time. However, most organizations mistakenly overlook offensive security. Scanning networks for vulnerabilities should be considered a priority—auditing and conducting threat simulations to check what is and isn’t fortified provides valuable insight into numerous security perspectives within an organization. Read more
Courtesy of PYMNTS.com
Banking-as-a-Service (BaaS) will have a banner year in 2023, Treasury Prime CEO Chris Dean told Karen Webster in an interview. Traditional financial institutions (FIs) will be the critical ingredient for embedded banking software platforms to create new operating systems for enterprises, he said — particularly small- to medium-sized businesses (SMBs).
“It’s exactly the right time, right now, for embedded banking because it’s a real revenue generator for the banks and for corporates,” Dean said.
Enterprises are taking a more significant role in how banking is done in the United States, he said. There’s a long runway of growth ahead for nonbank companies (enterprises, software firms and the FinTechs serving them) to offer financial services to end users, spanning bank accounts, digital wallets and access to credit.
Those enterprises understand their individual consumer or business customers better than anybody else — and they can boost top-line momentum by enhancing the value proposition for the markets they already have in place rather than targeting new markets for growth, he said. Read more or click here to watch the corresponding video.
Dec. 23, 2022: Technology & Payments Articles
A group of fintechs including Monzo, Wise and Moneyhub have signed an open letter calling for urgent clarity on the future of open banking in the UK.
Courtesy of FinExtra
The letter was written by the Coalition for a Digital Economy and signed by trade association FDATA alongside 17 Fintechs. It comes after UK authorities last week published an update on plans for a successor to the Open Banking Implementation Entity (OBIE), but provided little concrete deal on the governance of the future body or its funding mechanism. A strategic working group, chaired by Bryan Zhang, is set to report back on some of the issues in January.
The fintech coalition is concerned that “we have not received clear direction from the Joint Regulatory Oversight Committee (JROC) about how the 2017 CMA Order will continue to be enforced after the Open Banking Implementation Entity is dissolved.” Read more
Courtesy of Marco Quiroz-Gutierrez, Fortune
Users of the popular MetaMask Web3 wallet will soon be able to buy the second-most-popular cryptocurrency, Ether, via PayPal. Similar to PayPal’s checkout feature at online stores like Etsy and eBay, the integration with ConsenSys’s MetaMask will let users buy and transfer Ether by logging in into MetaMask, tapping the “buy” button, and logging into PayPal before making a purchase.
The company said in a statement that select U.S.-based MetaMask customers will be able to use PayPal to buy Ether as of Wednesday, and that the feature will be rolled out to all U.S. users in the coming weeks.
A crypto wallet like MetaMask is often the starting point for interacting with Web3 applications like play-to-earn games and some metaverse platforms. Adding PayPal to MetaMask could broaden the customer base for some of these applications by removing the complexity from buying crypto. Read more
Courtesy of PYMNTS.com
Consumers are feeling the impact of high inflation. Prices in October were 7.7% higher than the year before, and though prices have dropped somewhat in recent months, inflation remains well above the Federal Reserve’s desired level of 2%. Worryingly, 77% of fund managers believe a recession is likely next year, according to a Bank of America survey.
Facing such a troubled economy, consumers are changing their behavior — and growing alarmed. According to a recent PYMNTS survey, 65% of consumers are very or extremely concerned about current and near-future economic conditions. Another survey found that a similar share of consumers are taking action to manage their expenses, with 44% reducing their savings. With economic conditions remaining difficult, consumers could use some help.
As the world has marched on to a globally connected, digital world, how workers get paid has been stubbornly stuck in the past
Courtesy of Fastco Works, Fast Company
According to the Bureau of Labor Statistics, nearly half of Americans are paid on a biweekly schedule, an outdated routine that was born nearly 80 years agowhen the U.S. government needed a way to efficiently collect payroll taxes. That process was automated long ago, but the lagged schedule for getting people paid has remained. It’s not just the U.S. that deals with delayed payment routines either: Countries from Japan to France to Kenya deal with monthly pay cycles, so that workers are often left to budget 30 days’ worth of expenses with one paycheck.
A new generation of companies has forced the world to reckon with those outdated cycles, though. The rise of on-demand work has accelerated the momentum for on-demand worker payments, with global tech powerhouses paying people on a schedule that works best for them. In fact, Upwork partnered with Visa Direct to shorten their payout wait time from 3–5 days down to 30 minutes or less using a direct-to-card payout solution.
The shockwaves from that evolution are being felt throughout the wider economy, and workers are increasingly able to access funds the minute they’ve earned it—whether they’re driving for a gig company or running their own creative business on a freelance platform. Ushering in that new paradigm won’t be easy, but global players from fast food franchises to big box retailers are joining the on-demand payment revolution for their hourly workers and giving the movement a jolt of momentum.
Dec. 16, 2022: Technology & Payments Articles
- Small FIs Warn They Might Have to Drop Zelle Over Scam Payment Costs: Credit Unions, Community Banks Say They Might Not Be Able to Afford to Repay Targeted Customers
- Opinion: 2023 FinTech Industry Trends
- How One Credit Union Brings Payments to Life on College ‘Game Day’
- How Does the FCA Consumer Duty Impact BNPL Products?
Courtesy of Imani Moise, Wall Street Journal
Community banks and credit unions might drop out of partnerships with instant-payment apps like Zelle if required to reimburse customers who fall victim to scams, two industry trade groups said. Credit unions and banks with less than $10 billion in assets make up more than 90% of signed financial institutions on the Zelle network.
Facing pressure from lawmakers and regulators to do more to protect customers from fraud, the seven large banks that own Zelle are working on a plan to standardize refunds for customers duped into sending money. Scams using instant-payment apps like Zelle, Venmo and CashApp are expected to cost Americans $3 billion by 2026, up from $1.6 billion in 2021, according to a recent report by ACI Worldwide, a payments-software company. Read or listen to the article here.
Courtesy of Philipp Buschmann, AAZZUR, FinExtra
As we embark on a new year, there is much work to be done in the fintech sector, but as it is rapidly growing, I think 2023 is going to be a pivotal year. In addition to improving the effectiveness of how customer service is delivered, we are also seeing an increase in financial inclusion, which in my opinion, can only be a good thing.
Consumers are using savings tools to achieve both short- and long-term goals, as well as applications for payments and liquidity management to provide stability. Fintech is proving its worth, particularly with the largest group of digital adopters, Gen Zs and Millennials. Read more here.
In this video podcast, CUbroadcast’s Mike Lawson sits down with MSUFCU’s Chief Digital Strategy and Innovation Officer Ben Maxim and Flow Networks CEO Chris Boncimino to share how MSUFCU has brought payments to life on ‘Game Day’ using Flow Networks’ technology. Game Day is the credit union’s real-time consumer engagement program provided through the credit union’s app during the university’s sporting events — which allows them to own the payments moment, if you will.
Ben talked about some stellar results they have experienced since using the program back in September (2022) and what do they hope to achieve with Game Day for this football season and moving into hockey and basketball seasons, as well.
Lastly, Chris and Ben provide a peek into what’s next for your two organizations working together using the same member-engagement tech that created Game Day. Watch the interview here.
Courtesy of John O’Donovan, FinExtra
The market for interest-free Buy Now Pay Later (BNPL) and other associated products, such as short-term interest-free credit (STIFC) has been growing at a searing pace.
Unsurprisingly, it has come to the attention of the regulators with respect to potential consumer detriment. This has only been magnified by the backdrop of the Financial Conduct Authority’s (FCA) implementation of the Consumer Duty, and of course the wider economic difficulties that we are all currently facing. This will surely mean this market and the products provided will come under increasing scrutiny as consumers are faced with making difficult decisions in relation to their finances and how to pay for everyday items.
Dec. 9, 2022: Technology & Payments Articles
- Mobile Wallets Poised to Become a Favorite Alternate Payment Method
- Related Reading: Banks and FinTechs Enter New Phase of B2B Payments Partnerships
- How Bill Payment Creates New Opportunities for Financial Institutions
- ‘Risky Behaviors’ Are Causing Credit Scores to Level Off
- AmEx Faces Australian Lawsuit Over Card Distribution Laws
- Optimizing Debt Collection at Financial Institutions
- Related Reading: Does Bank Monitoring Affect Loan Repayment?
- Mobile Wallets Poised to Become a Favorite Alternate Payment Method
Courtesy of PYMNTS.com
Mobile wallet usage for brick-and-mortar purchases rose 9% globally in Q2 2022. This signals increased consumer adoption of the alternate payment method that harkens the wholesale embrace of credit cards in the 1950s.
PYMNTS surveyed 11 countries in “How the World Does Digital: The Impact of Payments on Digital Transformation.” Brazil, Japan and the U.K. saw the largest rise of in-store digital wallet purchases over last quarter. The rise in U.K. mobile wallet usage was driven by Big Tech apps like PayPal, while Brazil and Japan consumers preferred native mobile wallets. The U.S. saw a 0.07% increase in market share of digital wallet purchases from Q1 to Q2.
A November PYMNTS/Nuvei collaboration found digital wallets to be the most popular alternate purchasing method for U.S. shoppers. Fifty-nine percent of consumers who tried a new payment option in the past year used a digital wallet, and nearly two-thirds of shoppers incorporated digital wallets as a regular form of payment in the past year. Ease of use was cited as the main reason for their choice. Read More
- Related Reading: Banks and FinTechs Enter New Phase of B2B Payments Partnerships
Courtesy of the PaymentsJournal Podcast
Fintech applications are taking the lead in digitization of the bill pay space. They now offer improvements in digital bill viewing and bill payment over what banks have traditionally offered. For these reasons, many customers are paying billers directly through fintech applications. Using Electronic Bill Payment and Presentment (EBPP) systems helps increase efficiency and convenience in customer service. The systems allow for sending digital notifications to customers and enables customers to pay through a variety of means, including credit cards, debit cards, or wires. Some systems also enable payment plans, and micro-loans via buy now, pay later options. Many industries have integrated EBPP systems, including healthcare and governmental agencies.
Traditionally, payment presentation and processing involved separate platforms. “Paymentus is the first and only integrated real-time digital bill pay presentment and money movement platform on the market,” said King. “When we bring those two technologies together, it’s a complete solution that allows institutions to take advantage of not only bill pay and presentment, but also peer-to-peer capabilities, external transfers, loan payments, and new account funding.” Read more or listen to the podcast here.
Courtesy of Jessica Dickler, CNBC
The national average credit score sits at an all-time high of 716, unchanged from a year ago, according to a report from FICO, developer of one of the scores most widely used by lenders. However, this marks the first time since the Great Recession that scores did not improve year over year, the report found. That’s in part due to a small uptick in missed payments, elevated consumer debt levels and an increase in the number of consumers opening new credit cards or new lines of credit. Read More
- The average credit score sits at an all-time high, but has leveled off after improving year over year.
- Higher credit scores pave the way to lower rates, potentially saving thousands of dollars in interest charges.
- This map shows where Americans have the highest, and lowest, credit scores.
Courtesy of FinExtra
Australia’s securities regulator is taking American Express to court, accusing the firm of issuing credit cards without making sure that customers understood them. The Australian Securities & Investments Commission (ASIC) lawsuit against AmEx Australia relates to two credit cards co-branded with retailer David Jones.
ASIC says that AmEx knew that some consumers were confused about whether they had applied for a credit card or just a loyalty card. AmEx should have stopped issuing the cards, says the suit, but did not until July. In addition, the firm knew that the cancellation rates for people who applied for the credit cards in David Jones stores were high – significantly higher than for cards applied for online. Read More
Courtesy of the PaymentsJournal
Debt collection requires a lot of technical support. Given that a typical debt collection case load comprises 100 accounts per person per day, staffing debt collectors for a million accounts requires a small army. As a result, triaging the accounts and assigning them to staff who are best equipped to address them is crucial.
To meet this challenge, companies such as Zoot have developed account management and debt recovery systems that analyze customer behavior to rank delinquent payers by risk level, and assign them to the staff best equipped to manage them. Optimized debt-recovery systems will be crucial for financial institutions as the pandemic glut of savings diminishes and consumers take on more debt. Read More
- Related Reading: Does Bank Monitoring Affect Loan Repayment?
Dec. 2, 2022: Technology & Payments Articles
- Shoppers Go Deep on BNPL and eCommerce as Holiday Shopping Ramps Up
- Mastercard, Square, Equifax, Wise…Big Names Back New Canadian Fintech Association
- Mind The Gap: How Lenders Can Open the Doors for The Credit Invisible
- Mobile Checkout Brings Ease of eCommerce Payments into Stores
Driven by an inflation-fueled demand for deals, the official kick-off weekend of the 2022 shopping season outperformed events of the past two years albeit with a new bias for more point-of-sale credit and financing and increased reliance on digital channels than ever before.
A survey of nearly 3,100 consumers found that almost one-third of shoppers used credit cards, point-of-sale loans or installment plans to pay for their Black Friday buys this year. Those who turned to these options “used them to finance at least half of their Black Friday purchases. This shows how drastically soaring prices have impacted consumers’ shopping experiences,” per the report.
That includes 45% of paycheck-to-paycheck consumers who leaned heavily on credit and financing to get Black Friday deals, paying for nearly 60% of their purchases in these ways.
Courtesy of FinExtra
Mastercard, Square and Wise are among the members of a new not-for-profit group pushing for a “whole-of-government” approach to supporting Canada’s fintech ecosystem. Fintechs Canada says it will work with policymakers to push for competition and innovation in a country dominated by a handful of giant banks.
The association launches with more than 40 members, including fintechs such as WealthSimple and Coinsmart, and “fintech friendly” FS players like Interac and Equifax. Among the areas that the new group will focus on are payments modernisation, open banking, the digitalisation of money, and AML and terrorist financing law. Canada is in the midst of a major multi-year payments infrastructure overhaul and has also begun slowly consulting on bringing in an open banking framework. Read More
Courtesy of Nidhi Verma, Fintech Nexus News
Being “credit visible” presents life-changing benefits for consumers across all life stages. For millions, credit inclusion allows for economic advancement and upward mobility. So why are there still people who are credit invisible? One of the most common reasons unserved and underserved consumers cited is the high cost of credit. High interest rates limit credit options among credit disadvantaged consumers, making it imperative for banks, credit unions, and new market entrants to design more affordable and feasible ways to access credit.
Credit awareness, education, and better access will also allow consumers to understand what it means to build and improve their credit profiles and why it is essential to be engaged in the credit system. Lenders striving for growth targets can focus on these niche target segments by identifying and serving an existing portfolio of credit-underserved consumers. Read More
Courtesy of PYMNTS.com
Payments innovators are pushing past omnichannel retailing to meld POS-capable channels tied to databases. It’s a unified commerce approach that brings capabilities like checkout anywhere on the sales floor.
By creating digital environments in physical retail spaces, new customer interactions are enabled that not only allow consumers to skip the line, but also improve customer experience and ultimately increase sales for merchants.
“Customers now expect a seamless experience across all the merchant’s touch points,” Petur Sigurdsson, product director at LS Retail, an Aptos Company, told PYMNTS. “The concept of unified commerce is really of essence here.” Read More
Nov. 18, 2022: Technology & Payments Articles
Last month, biometric payment cards that incorporate fingerprint scanners received a significant boost thanks to the publication of new specifications by EMVCo, the global card standards-setting body owned by Mastercard, Visa, American Express, Discover, JCB and UnionPay.
Among other things, the new EMV Contactless Kernel Specification is intended to accelerate the evolution of biometric authentication for contactless card payments, setting the stage for widespread adoption of the technology. The concept of fingerprint payment authentication first hit the mainstream to verify identity for mobile-based eCommerce transactions.
Once the technology became a standard feature of most smartphones, it was only a matter of time before biometric mobile payments kicked off. For example, PayPal first rolled out limited fingerprint authentication in 2014, followed by a more extensive launch in 2017. Since then, fingerprint-based payment authentication has evolved into biometric payment cards incorporating a fingerprint scanner into the card, enabling cardholders to make secure contactless payments without reaching for their phones. READ MORE
Wells Fargo & Co introduced small-dollar loans to customers online, the bank said Wednesday, as overdraft fees draw greater scrutiny in the United States.
The loans are for $250 or $500 with a flat fee of $12 or $20, respectively, to eligible customers, the bank said. The loans are already available in a limited number of markets and will be offered nationwide by year-end.
The Biden administration has pledged to crack down on so-called surprise “junk fees” such as overdrafts that can catch customers off guard. Some major banks have responded by scrapping overdrafts altogether, reducing charges or changing policies to allow customers to opt in or out of the services.
Google has agreed to a $391.5 million settlement with 40 state attorneys general over its location tracking practices. The settlement outlines that Google misled its users into thinking they had turned off location tracking even as the company continued to collect their location information. The investigation, which marks the largest attorney general-led consumer privacy settlement ever, was co-led by Oregon and Washington.
“For years, Google has prioritized profit over their users’ privacy,” said Oregon Attorney General Ellen Rosenblum in a news release. “They have been crafty and deceptive. Consumers thought they had turned off their location tracking features on Google, but the company continued to secretly record their movements and use that information for advertisers.”
Google said in a statement that it has already addressed and corrected some of the location tracking practices detailed in the settlement. READ MORE
Rather than viewing the development of APIs as a regulatory cost burden, banks should strive to realize the considerable monetization opportunities afforded by the trend, according to a new report from the Mobey Forum’s Open Banking Expert Group. Based on a year-long research study, the report leverages the expertise of open banking experts across leading Tier One banks and global institutions.
The group determined that significant monetization opportunities exist beyond those initially expected and, most notably, many of these opportunities are for ‘internally facing’ use cases, which present lower risk and higher return. According to the report, the simplest business case for banks is through direct monetization of so-called Premium APIs, which involves charging third parties for access and use of a bank’s APIs beyond the standard free offerings required by, for example, compliance to the EU’s PSD2 regulation.
The research found that this type of direct, external-facing monetization can enable banks to recover the cost of creating and publishing core compliance APIs, and that increasing the number of products available via APIs, together with offering enhanced performance levels, generates significant monetization opportunities. READ MORE
Financial technology companies, long seen as a threat by the likes of JPMorgan Chase & Co (JPM.N), are increasingly becoming acquisition targets for traditional U.S. banks as rising interest rates and falling valuations crimp their expansion.
The valuations of listed financial technology firms have plunged 70% in 2022, analysts at Jefferies Group said in a note last week. In the same period, the valuations of banks in the S&P 500 are down 33%, while valuations for the S&P 500 (.SPX) are down 23%, according to data from Refinitiv IBES.
The decline presents an opportunity for Main Street banks to buy companies and beef up their technology for digital banking, online payments and other financial services and diversify beyond lending. READ MORE
The US Department of the Treasury has called for greater regulation of fintech-bank partnerships in order to prevent abuses and protect consumers.
As concentration among federally insured banking is growing, fintech players are making a play in core consumer finance markets – deposits, payments and credit – contributing to competitive pressure, says a new Treasury report.
While these non-bank entrants are contributing to more choice, better services and lower prices for Americans, they are not subject to the same oversight as traditional banks.
However, because the established players are often vital to the underlying infrastructure that supports the new business models of fintechs, there is a lot of interaction between the two camps – both as competitors but also collaborators. The report recommends a series of steps to deal with the tangled relationships between banks and fintechs. READ MORE
Nov. 11, 2022: Technology & Payments
During the last fintech bull run, no phrase was thrown around with more weight or treated with as much caution as “super app.” Known in Chinese tech markets as an entire lifestyle all under one icon, super apps like Alipay and WeChat offer everything from rideshare and grocery shopping to complex consumer financial products.
The question has since been: can a super app develop in America? Four fintech experts sat down at the standing-room-only Build Bold stage at Money 20/20 to find out. They examined super apps like biologists examining a type of mycelial fungus, describing its conditions for growth as a species and what environmental niche it evolved to fill.
A pay-by-bank strategy will take off at U.S. retailers in 2023. To counter the revenue hit, banks and credit unions must plan ahead. Experts suggest a preemptive strike that hinges on aggressive promotion of debit cards — to court inflation-shocked consumers who increasingly resist credit cards.
A growing number of small U.S. retailers have been encouraging shoppers to try an alternative to credit cards called “pay by bank,” and payments experts predict this option will take off in a much bigger way in 2023. The trouble for banks and credit unions is that pay by bank translates into a revenue hit, as it allows merchants to avoid the so-called “swipe” fees that come from card use.
JP Morgan is teaming up with Mastercard on a service that uses open banking to let customers make payments using their bank account information instead of a card. The Pay-by-Bank service offers ACH payments that use open banking so that customers can permission their financial data to be shared between trusted parties to let them pay bills directly from their bank account.
This means that customers do not need to type in routing and account numbers each time they need to pay a bill. For billers and merchants, it automates consumer onboarding and reduces the risk and cost of storing bank account information. JP Morgan says the offering will be particularly beneficial for recurring payments.
The Federal Reserve Bank of New York has developed a wholesale CBDC prototype for an experiment on cross-border digital currency transactions supported by blockchain technology. The inaugural project of the New York Fed’s new innovation centre, Project Cedar is a research effort to develop a technical framework for a theoretical wholesale CBDC.
The first phase of the project simulated a foreign exchange spot trade and introduced a wholesale CBDC prototype to test whether using blockchain technology could improve speed, cost, and access to cross-border wholesale payments. The experiment found that payments could be settled in under 15 seconds and that the simulated ledger network enabled atomic settlement, meaning both sides of the transactions were settled either simultaneously or not at all – slashing risks.
Say the term “embedded payments,” and thoughts typically wander to the consumer side of commerce to such things as the invisible transactions in the background of an Uber ride or the one-click retail checkout on a phone.
But as Galileo CPO David Feuer, Entrata CFO Mark Hansen, and Global Rewards CEO Isaac Itzkowitz noted during a recent On the Agenda roundtable, we’re seeing a major surge of embedded payments in the commercial realm too.
“It’s early innings in this digital transformation,” Hansen said. Right now, the modernization of B2B payments takes a cue from the Apple Pays and the Google Pays and through any number of apps. That’s a goal, perhaps, where we’re used to seeing our banking and transaction information at the ready, and on demand.
RELATED READING: ‘Inevitable’ Advance of Embedded Payments Will Spark Bank-FinTech Partnerships
Embedded payments are an inevitability for merchants, for small businesses, for plumbers and gardeners, and pretty much everyone else. Through the past several decades, going back to the dawn of the internet, commerce was centered on small retail purchases. With the early successes of the platforms, ranging from Amazon to Expedia to Netflix, the challenge was how to accept a credit card transaction online. Moving Beyond the Check and Away From the Bank Branch: But the emergence of APIs and software has leveled the playing field a bit and can help smaller businesses that traditionally relied on paper checks and invoices move more fully online.
The UK’s Financial Conduct Authority (FCA) is warning BNPL bosses that they could face jail time if they do not stick to stringent financial promotion rules. Over the summer, the UK government set out the first plans for new rules governing the fast-growing but controversial BNPL sector.
However, while the legislation inches towards completion, the FCA has taken proactive steps to use existing powers to bring firms into line. In August, the regulator publicly warned against promoting unapproved BNPL products. Now, in a letter first reported by City AM, it has written to several providers and to retailer to follow up.
The letter says that any communication or so-called explainers on BNPL products constitute “financial promotions” – meaning that they fall within the regulator’s jurisdiction. Promotions that are not “clear, fair and not misleading” could result in up to two years in prison.
Based on an analysis of the Top 100 credit unions, the average user experience score comes in at 2.31 out of 5.
An independent group of UX, Design, Content and Analytics professionals conducted a “digital experiences” review of the Top 100 credit union by asset size – and they found “many credit unions are not investing in the digital capabilities that meet current and prospective members’ wants and/or needs.”
The panel of experts were asked to focus on the following categories to rate the Top 100 credit unions: User Experience; Analytics and SEO; Key Features and Functionality; Visual Design and Branding; Content; Digital Marketing; and Security and Privacy.
The experts rated each credit union on a scoring level from 0 (poor) to 5 (most innovative). According to the report, “the average user experience score was 2.31 out of 5, indicating that many credit unions are failing to bring their high-touch approach to digital channels and successfully convert what has traditionally been a transactional environment into a relational one.”
Nov. 4, 2022: Technology & Payments
Consumers prefer a user experience that is both convenient and secure, even though 68% said they would choose security over convenience. A consistent authentication experience across multiple platforms also creates trust. As businesses look to create more secure and convenient authentication experiences, advanced identity authentication through technology such as biometrics could help meet security and convenience expectations.
Consumers already understand the shortcomings of password authentication, and that is feeding demand for better authentication solutions. Being able to log in without a password was rated just as highly by almost half of respondents as having more detailed information about transaction security, and 61% expressed interest in password alternatives, a share that jumps to 68% among mobile app users.
This edition of the “Digital Identity Tracker®” explores consumer attitudes toward identity authentication and the possibilities offered by forgoing passwords in favor of technologies such as biometrics and passkey. READ MORE
For consumers struggling with credit card debt at a time when inflation is driving up prices, one Michigan company is working to help their bank or credit union empower them to break the cycle.
Nickels, a financial technology company in Ann Arbor, Michigan, works with financial institutions through its Credit Card Coach platform — an application that analyzes anonymized data from checking accounts other sources to help improve the financial health of members through tailored services and marketing efforts while offering account holders personalized advice for managing payments and tackling credit card debt. READ MORE
In October 2021, the CFPB ordered six large technology and peer-to-peer platforms that operate payment services (Amazon, Apple, Facebook, Google, PayPal and Square) to provide information about their business practices, including their data collection and use, their policies for removing individuals or businesses from their platforms, and their policies and practices for adhering to key consumer protections like addressing disputes and errors. Now, the CFPB is announcing that it will re-open the public comment period for 30 days and add additional questions.
Faster payment systems are increasingly popular and offer many benefits to consumers, like sending money directly to other consumers or engaging in quicker transactions. But the scale and market power of large technology companies raise concerns about potential new risks to consumers and to broader competition in the marketplace. The CFPB continues to analyze the responses to the October 2021 orders and public comments and to share our insights with the public. For example, in August, the CFPB released a , The Convergence of Payments and Commerce, that outlined consumer risks stemming from financial services companies’ ability to aggregate and monetize consumer financial data. READ MORE
In about six to eight months, FedNow will launch a country-wide interstate highway for payments that will change the financial landscape, Fed Reserve Governor Christopher Waller said on Oct. 25.
He said anyone in payments or fintech needs to get ready for 24/7, 365 settlement; the government will provide the infrastructure, and the private industry needs to build on top and fast.
“The FedNow structure will be online up running sometime between May and June of 2023; once we get that up and running, we should have full reach across the country in real-time payments through either RTP or the Fed House service,” Waller said.
“The critical thing is if you’re a bank, or you’re a fintech working with a bank, and you to want access, you need to talk to your payments processor, or directly to the Fed, and get hooked up and get going.” READ MORE
Synctera announced the first Baas industry line of credit product. Synctera is a San Francisco-based startup that helps companies build embedded financial products.
The new product enables fintech developers and established companies to quickly create lending products or embed lending services into existing offerings. CEO Peter Hazlehurst said forward-thinking companies must evolve by offering standalone embedded products.
“Consumers’ credit-related needs and preferences continue to evolve, and millions of Americans lack real access to credit,” he said. “As we work towards our vision of unlocking human potential through financial innovation, we are excited to see the impact Synctera Line of Credit can make for under-resourced consumers.” READ MORE
Federal Reserve Board announces pricing, effective January 3, 2023, for payment services the Federal Reserve Banks provide to depository institutions, such as the clearing of checks, ACH transactions, and wholesale payment and settlement services
The Federal Reserve Board announced pricing, effective January 3, 2023, for payment services the Federal Reserve Banks provide to depository institutions, such as the clearing of checks, ACH transactions, and wholesale payment and settlement services.
By law, the Federal Reserve must establish fees to recover the costs of providing payment services over the long run. The Reserve Banks expect to fully recover 100.2 percent of actual and imputed expenses in 2023, including the return on equity that would have been earned if a private-sector firm provided the services. Overall, the Reserve Banks estimate that the price changes for 2023 will result in a 2.9 percent average price increase.
The Board also announced the 2023 pricing for the FedNowSMService, a real-time payments platform, which is targeted to launch between May and July next year. The pricing is substantially similar to the anticipated pricing announced on January 27, 2022. READ MORE