Technology & Payments

Mar. 1, 2024: Technology & Payments Articles

Smaller Credit Unions Face Hurdles Despite NCUA’s Fintech Rule

The financial innovation rule may open the door to more partnerships, but larger institutions still have advantages in tech, budget, and risk management, experts say.

Courtesy of Ken McCarthy, Banking Dive

Could a new rule help smaller credit unions better compete with behemoths such as Navy Federal Credit Union on technology? If so, smaller institutions might be able to grab a larger share of loans and stanch the recent flow of membership to larger players. The National Credit Union Administration in September passed a rule permitting credit unions to more freely partner with fintechs on some lending opportunities.

The NCUA said the new rule could help by providing credit unions with additional flexibility to participate in loans acquired through indirect lending arrangements, allowing them to use advanced technologies and opportunities offered by the fintech sector. Total membership at U.S. credit unions grew by 4.4% year over year, to 134.3 million, as of Sept. 30, according to NCUA data.

But while credit unions with at least $1 billion in assets grew their memberships 8.1% year over year in that time span, institutions in each of the NCUA’s asset categories below the $1 billion mark saw a drop in membership. For example, credit unions with assets of at least $10 million but less than $50 million — the category with more credit unions than any other — saw membership decline by 3.4% in that time.

The asset spectrum
Membership and lending often go hand in hand as consumers who take out loans often sign up to join the credit union as part of the process. While total loans outstanding increased 9% over the year to $1.59 trillion in the third quarter, much of that growth was concentrated at the upper end of the asset spectrum. Read more

Credit Unions Explore Digital Pathways to Transform SMB Lending

Courtesy of PYMNTS

While traditional financial institutions (FIs) have historically dominated the industry, credit unions (CUs) have carved out a unique niche, serving the needs of their members with personalized care and a focus on mutual benefit. However, faced with the dual challenges of technological disruption and shifting consumer expectations, the once-traditional image of CUs is undergoing a profound transformation, with smaller banks rethinking their strategies and embracing innovation. 

For Bankwell, a $3.2 billion community bank with a workforce of 135, adapting to this evolving financial landscape necessitated the appointment of a chief innovation officer to lead the bank’s innovation and technology strategy. According to Ryan Hildebrand, who assumed the role in July of last year, the first order of business was to ensure that the basics were covered.

“The journey to digital transformation,” he told PYMNTS, “started with making sure that all the surfaces, from account opening to online banking and lending, [operated seamlessly] and that we have the best systems that are touching our customers across the board.”

This need becomes even more apparent when considering the heightened competition from FinTechs, which have reshaped the financial landscape with their innovative technologies and customer-focused strategies.

Read report: Credit Union Innovation: How Credit Product Rates Impact FI Selection

According to findings detailed in a PYMNTS Intelligence research study, while CUs have reduced setup times for various products, with 45% reporting significant progress, they continue to face intense competition from FinTechs due to the perceived lack of variety in their product offerings. 

Addressing this vulnerability and exploring strategies to stay ahead in the competitive landscape, Hildebrand, a serial entrepreneur and Y Combinator graduate, emphasized the importance of a strategic mindset that prioritizes collaboration over competition.

“For us, the strategy is to find some really solid FinTechs to partner with, not just engage them as vendors, and think about ways that we can help both sides improve,” he said, adding that “having a true partner relationship versus a vendor relationship is how we can differentiate in the market.” Read more

House Financial Services Committee Reintroduces Legislation to Create Regulatory Sandboxes

Courtesy of PYMNTS

The U.S. House of Representatives will again consider the Financial Services Innovation Act.

Rep. Patrick McHenry, R-N.C., chairman of the House Financial Services Committee (HFSC), reintroduced the legislation Tuesday (Feb. 27), according to an HFSC press release.

The legislation aims to foster innovation in financial services by establishing federal regulatory sandboxes that let entrepreneurs test new products and services while ensuring consumer protections, according to the release.

“Budding FinTech firms currently operate in fear of heavy-handed penalties brought down by regulators that have failed to work with Congress to provide clear rules of the road,” McHenry said in the release. “That’s why I’m reintroducing the Financial Services Innovation Act.”

This legislation would give these firms a chance to “test legal and regulatory waters” before taking new offerings to market, McHenry said.

It would require federal regulators to create Financial Service Innovation Offices (FISOs) within their agencies and allow companies to apply for agreements with these FISOs to be able to offer new products and services under an alternative compliance plan, per the release.

The legislation would also create an entity that would ensure that agencies share information and data on petitions, work with state regulators to provide information and advice to the public about financial innovations, and report on existing regulations that pose barriers to innovation, competition and improvements in financial products and services, the release said. Read more

U.S. Google Pay App Is Going Away, Ending a Brief Era

Courtesy of Tom Nawrocki, Payments Journal

Google has announced that the U.S. version of its standalone Google Pay app will be discontinued as of June 4. In a blog post, Google recommends that Android users henceforth access their Google Pay payment methods through their Google Wallet. The post notes that Google Wallet is used five times more often than the Google Pay app in the United States.

Users will have access to the U.S. version of the Google Pay app to view and transfer a balance to their bank accounts until June 4. After that, the Google Pay website can be used to transfer funds to bank accounts. For users who plan to take advantage of this, Google Support offers more details.

The announcement also terminates Google Pay’s P2P payments service without specifying if or when that capability might be made available again. “You will no longer be able to send, request or receive money from others through the U.S. version of the Google Pay app,” the blog post says.

Google expects users to seamlessly switch to using Google Wallet. “Anywhere you normally use Google Pay—from checking out online to tapping and paying in stores—remains the same,” the blog post notes. The change largely affects the United States. In India and Singapore, the app remains unchanged.

An Unsettled History 

The introduction of Google Wallet in 2022 was an indicator that the company would move toward consolidating its personal finance offerings.  Technically, that was a reintroduction: The Google Wallet name had been first used for the company’s mobile payment system, which was introduced in 2011. It merged with Android Pay in 2018 to become a new app called Google Pay. Read more

Feb. 23, 2024: Technology & Payments Articles

Senators Press Zelle to Clarify Customer Protections

Courtesy of Liz Carey, Financial Regulation News

On Thursday, U.S. Sens. Sherrod Brown (D-OH), Jack Reed (D-RI), and Elizabeth Warren (D-MA) asked instant payment platform Zelle to clarify what its policies are when it comes to protecting consumers from fraud and scams.

In a letter, the senators, all members of the Senate Banking, Housing, and Urban Affairs Committee, pressed Zelle CEO Cameron Fowler to publicly clarify the company’s policies on reimbursing consumers for imposter scams, as well as other types of scams, and how the company can streamline processes the consumer can take to report unauthorized transactions, scams and fraud. The letter comes after reports in November that the company had begun reimbursing some customers who were victims of fraud and scams, but that it was not clear whether the reports indicated the reimbursements were now standard practice.

“Since it appears that Zelle has not shared any specific information about its reimbursement policy, customers may not know that they can be reimbursed and, thinking they may not get any help, may not report these scams. Zelle should clarify whether all participating banks and credit unions are required to reimburse customers who are victims of ‘qualifying’ imposter scams and make that policy public,” the Senators wrote. “It is also currently unnecessarily complicated to report fraud and scams to Zelle… One set of complaints is reportable through a webpage, while another is reportable only by phone. Many customers are unlikely to know which category their transaction falls into and therefore which form to use. This process is unnecessarily cumbersome from the victim’s perspective, which may limit their ability to receive reimbursement and render the new policy less effective.”

Previously, Brown held a committee hearing on the growing threat of fraud and scams in the banking system, and has led colleagues in letters to digital payment platforms Venmo and CashApp in regard to reimbursing victims of fraud and scam.

Buy Now, Pay Later Needs to Pay Off in 2024

Courtesy of Steve Cocheo, The Financial Brand

Growth of BNPL volume in 2023 was spectacular. But 2024 will present challenges to industry players as they seek profitability and diversification — and as consumers accumulate worrisome debt. Projections for growth for the buy now, pay later business in 2024 are generally optimistic. But things aren’t all upbeat.

Some of the positive items:

  • A new study by Juniper Research projects that global buy now, pay later transaction value will more than double in the next four years, from $334 billion in 2024 to $687 billion in 2028. Activity will spread to new markets, and in the U.S. and the U.K. BNPL will expand significantly, the report predicts.
  • Insider Intelligence/eMarketer predicts that in the U.S. alone, BNPL transaction value will rise from $80.8 billion in 2024 to $124.8 billion in 2027.
  • In early January, Adobe released online shopping data for the complete 2023 holiday shopping season, a period that had been watched as a confirmation for U.S. BNPL after its first big weekend in November (Black Friday through Cyber Monday). Holiday-time BNPL spending online hit $16.6 billion, up 14% over 2022’s holiday season, a record. For the full year of 2023, BNPL spending online came to $75 billion, up 14.3%, also a record.

Some days after that announcement, Sebastian Siemiatkowski, CEO at Klarna, one of the giants of BNPL, told the host of a program on Canada’s BNN Bloomberg that the company initially celebrated the results of Black Friday for BNPL. Later, however, employees were a bit chastened. The jump wasn’t just BNPL becoming more popular:

“As we got into it a little deeper, we realized that a lot of [the volume] was discount-driven,” said Siemiatkowski. That didn’t change the numbers, but nevertheless took some of the wind out of their sails. Read more

How Two Former Spies Cracked The $11 Billion Cyber Insurance Market

Courtesy of Jeff Kauflin, Forbes

Back in November 2022, Russian computers were surreptitiously scanning American computers when they stumbled into a trap: a network of 400 virtual servers with IP addresses that appeared to belong to real companies and organizations. Except these were decoys set up by Coalition, a San Francisco–based fintech that combines one of the world’s oldest industries—insurance—with cutting-edge techniques for detecting cyberthreats. “There’s no legitimate reason anyone should try to connect to any of those ser­vers,” says Coalition CEO and cofounder Joshua Motta, a 40-year-old former CIA analyst.

Coalition saw that the intruders were probing for the presence of MOVEit, a program used to transfer big files, often containing confidential information. It emailed four of its cyber insurance customers who had MOVEit installed on the outer perimeter of their networks, urging them to put the software behind a virtual private network.

Six months later, Progress Software, the Massachusetts company that sells MOVEit, announced it had a critical vulnerability and issued a patch. But the infamous Russian ransomware gang Clop had already exploited the flaw to burrow deep into some organizations’ networks and was sure to demand payment not to leak stolen data. Coalition scanned its customers again and saw 19, with revenue ranging from $10 million to $1 billion, were now using the program. It sent an urgent email telling them to apply the MOVEit patch. Within a month, 14 had.

Such vigilance appears to have paid off. So far, none of Coalition’s 85,000 customers has filed a MOVEit-related claim. Not bad, considering that thousands of organizations and more than 90 million individuals reportedly had their corporate or personal data exposed by the flaw. Read more

Banks Should Be Managing Risks from Fintech Partnerships, Regulator Says

Courtesy of Hannah Lang, Reuters

Banks that work with financial technology companies to offer banking services should be actively managing risks associated with those relationships, a leading U.S. bank regulator said Wednesday.

Michael Hsu, the acting Comptroller of the Currency, has long expressed concern about certain gaps in the regulation of the payments system, emphasizing the responsibilities regulators have to ensure that banks are monitoring for risks stemming from third-party arrangements.

Nonbank fintech companies often work with banks in order to provide banking services like checking and savings accounts to their customers. But Hsu’s concern with what he has called the “exponential growth” of those partnerships is the possibility that responsibilities for monitoring risk can become muddied when multiple firms, sometimes with different incentives, share responsibilities.

Hsu’s remarks on Wednesday at Vanderbilt University come weeks after the Office of the Comptroller of the Currency issued a consent order to Virginia-based Blue Ridge Bank for failing to correct previous problems flagged by the regulator related to its work with fintech companies.

The bank has said the consent order was not reflective of progress it had made since June to limit its fintech partnerships. The Federal Deposit Insurance Corp. in January also made public two consent orders related to bank-fintech partnerships.

While the OCC welcomes applications from fintech companies for a national bank charter, the regulator doesn’t plan to give those firms any special consideration, said Hsu. “We will not… lower our standards, create a special regime, or take an overly expansive view of banking to entice new entrants or in the hope of bringing a particular activity into the bank regulatory perimeter,” he said.

Feb. 8, 2024: Technology & Payments Articles

How Apple Can Keep Growing in Financial Services Without Ever Becoming a Bank

Courtesy of Steve Cocheo, The Financial Brand

In a recent (and rare) data release, Apple claimed over 12 million Apple Card accounts, five years after launch. Meanwhile, Apple Pay, Apple Savings and Apple Pay Later keep growing, all inside the famous Apple ‘Walled Garden.’

Banks and credit unions have been watching Apple move further and further into the financial services business for over a decade now. Even after all that time, the question remains: Does Apple want to be a bank? Not likely. For one thing, It has already attracted sufficient regulatory attention from the Consumer Financial Protection Bureau.

And even as few nonbanks have delved so far into banking and payments as Apple, its name never came up when insiders spoke of companies that might try for a “fintech charter,” back when that pipedream was still vivid. Nor has Apple ever been seriously spoken of as a potential bank acquirer. And when it launched the Apple Card in 2019, it did so in partnership with Goldman Sachs, when the Wall Street bank was trying to make a foray into consumer banking in a big way.

The losses Goldman has since taken on the card are well-known now. The deal is being renegotiated and many expect Goldman’s role to be supplanted by another lender. At the megabank’s recent yearend 2023 earnings briefing, management all but slammed the window on answering any questions about credit card partnerships.

You Need an Apple Card to Get In:
Like a poker dealer, Apple keeps peeling new cards off the deck, including most recently its Apple Savings and Apple Pay Later variation on buy now, pay later financing, all of them available only to holders of the Apple Card.

Apple rarely reveals data about its financial products, and it wasn’t yet the fifth anniversary of the Apple Card (introduced in August 2019). Richard Crone, veteran payments consultant and a longtime Apple watcher, suggests that Apple published the data, which we’ll discuss shortly, in the context of the ongoing rumors that Apple would be seeking a new partner. Read more

Lawmakers Voice Concerns with FDIC Over Public Engagement with Fintechs

Courtesy of Dave Kovaleski, Financial Regulation News

A group of Republican House leaders expressed concerns with the Federal Deposit Insurance Corporation (FDIC) over what they perceive as a lack of engagement with the public on financial technology and innovation.

The lawmakers cited several examples, including the dismantling of the external facing portion of the agency’s FDITech Office. They also mentioned the shift in FDITech’s mission to focus solely on adoption of technologies within the FDIC. Further, they want to know how the FDIC will provide regulatory guidance for burgeoning FinTech firms and financial innovators moving forward.

“We write to express our concern about the Federal Deposit Insurance Corporation’s (FDIC’s) ongoing regulatory agenda pertaining to innovation in the financial services sector. As you are well aware, financial technology (fintech) firms provide access to innovative products and services by partnering with highly regulated financial institutions to meet the evolving needs of consumers and businesses of all sizes.,” they wrote in a letter to FDIC Chair Martin Gruenberg. “Yet, during your tenure, the FDIC has moved innovation backwards.”

The letter was sent by U.S. Reps. Patrick McHenry (R-NC), chair of the Financial Services Committee, Andy Barr (R-KY), chair of the Financial Institutions and Monetary Policy Subcommittee, and French Hill (R-AR), chair of the Digital Assets, Financial Technology and Inclusion Subcommittee.

“Moreover, under your direction, FDITech was also reorganized within the agency’s Division of Information Technology. Thus, it no longer focuses on competition or innovation within the financial sector. While the FDIC indicated that FDITech still ‘engages with industry participants…separate from examinations,’ we are concerned this transformation has actively discouraged innovation within the banking sector,” they wrote.

The lawmakers also expressed concerns that there is no publicly available information detailing how the FDIC’s posture on innovation will manifest in examinations.

“The FDIC has a troubling history of using extralegal pressures to attain anti-business results. We are concerned that the FDIC’s approach could, within the examination processes or otherwise, be used to prevent the development of innovative products and services that benefit consumers and businesses,” they added.

They asked the FDIC chair to respond to a series of questions and requested information by Feb. 29.

APP Fraud in Focus as Digital Tools Redefine Prevention Tactics

Courtesy of PYMNTS

The widespread adoption of person-to-person (P2P) payment apps and services has fueled a surge in credit-push payment volume, a trend that has been further accelerated by the recent introduction of real-time payments in the United States.

As this payments landscape continues to evolve rapidly, fraudsters are seeking fresh avenues to exploit unsuspecting individuals, and credit-push scams, often referred to as authorized push payment (APP) fraud, have become a staple in their arsenal of tactics.

According to a Jan. 29 blog post by the Federal Reserve Bank of Atlanta, instances of APP fraud, whereby a criminal tricks an individual or business into transferring funds to the fraudster’s account, necessitate “a shift in our curriculum, mitigation techniques, and approach to consumer protection.”

This is especially critical because the Consumer Financial Protection Bureau’s (CFPB) Regulation E (Reg E), which broadly speaking covers P2P or mobile payment transactions and settles disputes between consumers and banks, is limited to unauthorized payments. In the U.K., APP fraud has also emerged as a significant challenge, surpassing other types of crimes in frequency.

According to the latest data from the country’s Payment Systems Regulator, APP fraud constituted a staggering 40% of all fraud losses in 2022, with the Trustee Savings Bank (TSB) alone refunding over 90% of the total value of APP fraud losses for that year. Nationwide, HSBC, and Barclays also refunded portions, with rates of 78%, 73% and 70% respectively.

AI/ML, APIs, Biometrics Fight Fraud
Last year, Mastercard joined forces with nine British banks — including Lloyds Bank, NatWest, Monzo and TSB — to fight fraud, leveraging the company’s AI-powered consumer fraud risk solution to spot real-time payment scams and block a payment before money leaves the victims’ accounts. Read more

How U.S. Banks Must Navigate the Surge of Credit Card Fraud

Courtesy of Dwayne Jacobs,

Banks are on the front lines when credit card incidents occur — facing direct and indirect losses that cause both reputational and financial damage. However, armed with innate understanding of how fraudsters strike, banks can develop tactics and techniques that mitigate the damage to both their organizations and their customers. Here’s how.

The rising tide of credit card fraud is a growing concern for banks. As highlighted in a recent report from, major U.S. cities are seeing alarming increases in fraud incidents year after year. Banks that don’t take proactive measures against credit card fraud risk drowning in the swelling waves of financial and reputational damage. But with the right defenses in place, they can stay afloat — and protect their customers from harm.

In this article, we’ll dive below the surface to understand credit card fraud, equip banks with advanced security measures and empower consumers to swim safely in the turbulent waters ahead.

Understanding the Impact of Credit Card Fraud on Banks
Banks are on the front lines when credit card fraud strikes. Every incident causes direct financial losses and strains bank resources as they launch investigations and issue refunds. But indirect impacts can be equally devastating over time.

High fraud rates tarnish a bank’s reputation for security and erode customers’ trust. Some consumers may leave for competitors perceived as more resilient to fraud. Amid waves of attacks, banks can struggle to keep up, leading to customer service bottlenecks that further frustrate account holders.

For the industry at large, swelling fraud statistics could deter people from adopting digital banking solutions that promise convenience and efficiency. Innovation may stagnate if banks become too risk-averse, falling behind the digital transformation curve.

Banks clearly need to implement robust defenses. Otherwise, they risk losing far more than money. Customer loyalty, competitive edge and strategic progress into the digital future all hang in the balance. Read more

Feb. 2, 2024: Technology & Payments Articles

FCC Moves to Outlaw AI-Generated Robocalls

Courtesy of Devin Coldewey, TechCrunch

No one likes robocalls to begin with, but using AI-generated voices of people like President Biden makes them even worse. As such the FCC is proposing that using voice cloning tech in robocalls be ruled fundamentally illegal, making it easier to charge the operators of these frauds.

You may ask why it’s necessary if robocalls are illegal to begin with. In fact some automated calls are necessary and even desirable, and it’s only when a call operation is found to be breaking the law in some way that it becomes the business of the authorities.

For example, regarding the recent fake Biden calls in New Hampshire telling people not to vote, the attorney general there can (and did) say with confidence that the messages “appear to be an unlawful attempt to disrupt the New Hampshire Presidential Primary Election and to suppress New Hampshire voters.”

Under the law there, voter suppression is illegal and so, when they track down the perpetrators (and I’m emailing them constantly to find out if they have, by the way) that will be what they are charged with, likely among other things. But it remains that a crime must be committed, or reasonably suspected to have been committed, for the authorities to step in. If employing voice cloning tech in automated calls, like what was obviously used on Biden, is itself illegal, that makes charging robocallers that much easier.

“That’s why the FCC is taking steps to recognize this emerging technology as illegal under existing law, giving our partners at State Attorneys General offices across the country new tools they can use to crack down on these scams and protect consumers,” said FCC Chairwoman Jessica Rosenworcel in a news release. They previously announced that they were looking into this back when the problem was relatively fresh. Read more

Big Tech Move into Finance to Come Under Closer EU Scrutiny

Courtesy of Huw Jones, Reuters

Tracking how Big Tech is moving into the European Union’s financial services sector is challenging, but it currently does not pose a threat to financial stability, the bloc’s financial watchdogs said on Thursday. The EU’s banking, insurance and securities regulators jointly “mapped out”,  the presence of Big Tech moves into financial services, which have raised concerns given their reach, troves of data, and deep pockets.

The stocktake looked at Google owner Alphabet, Amazon, Meta, Alibaba, Tencent, Rakuten, Orange, Vodafone, Tesla, and Apple. “The results of the stocktake show an increasing presence, albeit still at a low base, of Big Tech subsidiaries as direct providers of financial services in Europe, notably in the areas of payments and e-money,” the watchdogs said.

“Big Techs directly providing insurance services have been reported as well.” The watchdogs said there was poor visibility over activities within Big Tech, unreliable notification of cross-border activities to regulators, and challenges in monitoring how they offer financial services.

There is no urgent need for regulatory changes in relation to Big Tech’s direct financial services provision, they said.

“However, they reiterated the potential risks from any potential further increase in these activities,” the watchdogs said in a statement. They said they will continue to strengthen the monitoring of the relevance of Big Tech in the EU financial services sector by using a new monitoring “matrix”.

Real-Time Money Movement: Dispelling the Myths and Embracing the Opportunities

Courtesy of Payments Journal

Real-time money movement (RTMM) is gaining traction worldwide. Although real-time payments only account for only a 1.2% share of the total payments volume in the US in 2022, transactions are expected to grow 364% by 20261. As more businesses and consumers expect faster, more efficient payments, this trend will only grow, with McKinsey predicting that by 2027, more than half of all payment transactions will occur in real-time (a threefold increase from today). For financial institutions (FIs), RTMM’s explosive growth is an opportunity to grow their revenue and capture new customers (86% of whom see value in RTMM2). The biggest roadblock to this growth has been outdated mindsets, roadblocks keeping FIs in the United States from getting on board and adopting this potentially lucrative payment system.

FIs have been reluctant to adopt RTMM solutions based on a few commonly held misconceptions. They include the beliefs that:

  • RTMM leads to increased fraud risk
  • There’s a lack of consumer interest in real-time payments
  • There’s no risk in waiting to adopt, and high-risk in early adoption

These common beliefs cannot be further from the truth. Subscribing to these misunderstandings can lead to disastrous results. In today’s rapidly evolving payments landscape, standing on the sideline endangers FIs, which could lose their competitive edge as well as a significant portion of potential market share.

Does RTMM Adoption Lead to Increased Fraud Risk?
Fraud experts still hold on to the belief that faster payments can lead to faster fraud. And it’s an understandable fear: with no way of recovering money lost in real-time, RTMM systems seem especially scary. Fraud involving authorized push payments (APP) is on the rise as the immediacy and finality of these payments give consumers a much shorter timeframe in which to dispute or revoke them3.

But it’s not the speed that makes RTMM vulnerable, but the outdated fraud prevention systems that simply can’t adjust to new styles and speeds of bad actors. Reactionary responses and manual work can’t fight real-time, instantaneous threats. Read more

OPINION: Capping Overdraft Fees Could Actually Hurt Poor Families

Courtesy of Megan McArdle, Washington Post

Say what you want about the Consumer Financial Protection Bureau’s proposal to limit overdraft fees, it’s political gold.

“When companies sneak hidden junk fees into families’ bills, it can take hundreds of dollars a month out of their pockets,” President Biden said in a statement last week. “That might not matter to the wealthy, but it’s real money to hardworking families — and it’s just plain wrong.”

Most Americans agree; data from Pew Charitable Trusts released in June shows that 84 percent of people surveyed told pollsters that the government should do something to bring down overdraft fees, and 54 percent wanted the government to take action on other bank fees as well.

Unfortunately, good politics don’t necessarily make good policy. And I’m worried this move might end up hurting some of the very people it’s supposed to help: low-income Americans on the fringes of the banking system.

These people are far and away the heaviest users of bank overdrafts. The Financial Health Network, a personal finance nonprofit, says the group most likely to overdraft includes “financially vulnerable” households that struggle to pay their bills every month and typically make less than $30,000 a year.

Almost half of financially vulnerable households with checking accounts overdrafted in 2022, and of that group, two-thirds overdrafted at least three times, one-third did so six or more times, and one-fifth overdrafted 10 times or more. With an average overdraft fee of $26.61, hundreds of dollars in fees can land on the most cash-strapped customers. Capping those fees — possibly as low as $3 — would be a huge boon to families who really need the help. Who could oppose that?

Well, as with any nice-sounding policy, it’s important to consider the alternatives, both for the customer and for the banker. Read more

Jan. 26, 2024: Technology & Payments Articles

How Data Can Defend Against Deposit Attrition

Courtesy of Matt Doffing, The Financial Brand

With soaring deposit costs, banks and credit unions now face deposit flight. But that’s not the challenge some are focusing on. Instead, institutions like Lake Ridge Bank are pinpointing who, when and why depositors will go elsewhere, and it’s changing the way they compete in the marketplace.

Banking leaders know that the worst time to woo a depositor is after funds have left their account. The challenge for banks and credit unions has been learning who to engage before a competitor whisks them away.

Data has long offered great promise to improve institutions’ understanding of depositor satisfaction or the lack thereof. Banking has even made great headway at engaging depositors who show activity – such as a new mortgage or a termed-out deposit certificate — casually tied to attrition. But what about those who don’t have clear indicators of departure?

With the data and technology now available, institutions like Monona, Wis.-based Lake Ridge Bank are using data to model attrition, even in the absence of clear causal precursors. As a result, the $2.9 billion bank’s average depositor lifespan has reached eight years. And that’s relative to a horizon of less than two years to recoup the cost of acquiring that depositor.

“If our timeframe was much shorter, I think we’d be more stressed out about our client acquisition,” Ben Udell, senior vice president of client experience at Lake Ridge, tells The Financial Brand. Instead, “we have six years of runway after those first two years to earn our investment back because we have a full eight years with them to provide them even more value.

“The average person buys a new home or refinances their mortgage during the course of eight years,” he continued. “And they may also change jobs, so we get a chance at their 401(k) rollover. They’ll probably pick up another credit card during that time as well. The opportunities provided by relationship tenure makes us more comfortable being more aggressive up front in acquisition.” Read more

Predictive Intelligence: A Game-Changer in Mitigating Fraud Attacks on Payments

Courtesy of PaymentsJournal

The surge of faster payments systems has inadvertently paved the way for a surge in fraudulent attacks. With new technology and faster payments coming to the forefront, fraudsters are tapping into vulnerabilities found within these schemes.

A key contributor to the surge in attacks lies in the very nature of faster payments, which involve speed and irrevocability. When payments are processed and settled in real time, users have little chance to detect the attack and reverse the transaction once it is initiated. Furthermore, the rise of faster payment adoption among businesses and consumers gives fraudsters a wider pool to fish from, which will mean more losses in the near future.

The Many Faces of Fraud
Financial institutions must familiarize themselves with the various types of fraud to formulate the most effective strategies to mitigate attacks. Some of the most common forms of fraud are ACH payment fraud, check fraud, account takeover, and fake-merchant fraud. As technology revolutionizes the payment landscape, FIs must play defense against potentially significant losses as well as subsequent losses of customer trust and loyalty.

An Early Warning(R) whitepaper, Spot & Stop Payments Fraudreveals that losses due to ACH fraud soared by 63% in 2021. And in 2022, 30% of businesses reported fraudulent activity through ACH debits and credits. More troubling was the fact that less than half of the businesses that fell victim to these attacks were able to retrieve their funds1.

ACH payments fraud occurs when a fraudster gains illegal access to a victim’s account or a fraudulent account to generate a payment for a monthly bill pay, pay off a loan, or simply send money to their personal account in another bank. In these fraudulent transactions, FIs are ultimately on the hook for any losses incurred by the customer. If the fraud isn’t addressed, FIs can be responsible for a considerable amount in losses. Read more

Baas To Require Strong Commitment, Investment In 2024, Experts Say

Courtesy of Anna Hrushka, BankingDive

While demand for embedded banking services will continue to propel the BaaS space, experts say regulatory scrutiny will likely separate committed banks from those with a casual interest in the model. Banking-as-a-service, which allows nonbank firms like fintechs to offer banking products through partnerships with chartered banks, has grown into a lucrative and promising new revenue stream for some financial institutions over the years.

But as the model continues to garner intense regulatory scrutiny, BaaS banks in 2024 will need to double down on their investments in the space, or decide to sit on the sidelines, some industry experts say.

“Given the intense regulatory environment, BaaS banks will have to decide, ‘Go big or go home,’” said John Soffronoff, partner and U.S. head of community banking for consulting firm Capco. “The infrastructure necessary to effectively manage third-party risk needs to be leveraged over a sizable portfolio. This is not an area a bank can dabble in.”

Several enforcement actions against BaaS-heavy players over the past several years have shed light on how regulators are looking to step up scrutiny of the space. Blue Ridge Bank, Cross River Bank and more recently, First Fed Bank, have faced penalties related to their fintech partnerships as regulators are increasingly requiring firms to implement stricter oversight of the tie-ups.

The recent enforcement actions, however, are not expected to stifle BaaS growth in 2024, but rather send a signal that banks need to boost their compliance programs, said James Stevens, a partner in Troutman Pepper’s financial services practice.

While demand for embedded banking services will continue to propel the BaaS space forward, experts say increased regulatory scrutiny will likely result in separating committed banks from those with a casual interest in the model. Read more

Plaid is Everywhere in Fintech Today

Courtesy of Peter Renton, FinTech Nexus

The breakthrough technology that Plaid created over a decade ago was the ability to connect in real-time to almost every bank and credit union in the United States. This had never been done before and was a groundbreaking advancement for financial services.

Now that technology is mature, we are seeing all the possibilities that can flow from it. I caught up recently with Eric Sager, the COO of Plaid, a position he has held for five years now. We had a wide-ranging conversation covering a number of initiatives that Plaid is working on right now and how they are building on that foundation.

The Transformational Role of APIs in Financial Services
The discussion kicked off with a look at Plaid’s evolution from a bank connectivity platform to a broader fintech solution provider. The emphasis on avoiding screen scraping in favor of API connections has been transformational. This shift underscores the increasing significance of APIs in enhancing the security, efficiency, and scalability of financial services.

One of the use cases that is getting more adoption recently is account-to-account (A2A) payments. When Visa looked to acquire Plaid in early 2020 this was the use case that I thought was driving that transaction (it ultimately was blocked by the US government). It has taken a while for A2A payments to get traction and we are still in the early days here, but Plaid is in a great position to make it happen.

While Plaid began life in the fintech space, with primarily fintechs as customers, banks soon became interested in what Plaid was offering. But these days it is just as likely to be a non-financial services firm that is talking with Plaid.

Etsy is a customer now, as are Tesla, Rivian and John Deere,” Eric said. “John Deere is a great American company that I grew up hearing about in Germany and seeing them become a Plaid customer is amazing.” Plaid enables these non-finance firms to accept A2A payments in a smooth, seamless experience.

Fraud and Risk Management in Real-Time Payments
With the advent of real-time payments, managing fraud and risk has become more critical. Our conversation highlighted the importance of fraud solutions in an ecosystem where transactions are instant. Plaid’s position at the center of financial transactions enables it to offer powerful fraud prevention tools, benefiting institutions, consumers, and developers alike.

FedNow mentioned Plaid in its last update on the service that came out just last month. And Plaid has an entire section of the website dedicated to FedNow. They have something similar for RTP from The Clearing House. Clearly, Plaid is all in on real-time payments. Read more

Jan. 19, 2024: Technology & Payments Articles

Fiserv Seeks Special Purpose Bank Charter

Courtesy of Caitlin Mullen, BankingDive

The designation would allow the payment processor to own transactions from end-to-end, removing the need for a bank partner.

  • Payment processor Fiserv has applied to obtain a merchant acquirer limited purpose bank charter in Georgia, enabling the company to authorize, settle and clear payment transactions for merchants, according to a company spokesperson.
  • “We are taking this step in response to recent market changes, as third-party financial institutions that have traditionally provided access to the card networks as sponsor banks increasingly focus on other areas of their business,” the Fiserv spokesperson said in a Thursday email.
  • There’s no official approval timeline, but the Brookfield, Wisconsin-based company expects the process to be complete sometime during the first half of the year, the spokesperson said.

Historically, Fiserv has used a bank partner to handle the end-of-day transaction settling for merchants. The special purpose charter would allow Fiserv to own the transaction end-to-end, eliminating third-party risk, said Tony DeSanctis, a senior director at Cornerstone Advisors. It’s also a more profitable endeavor for Fiserv, because the company doesn’t have to pay a bank to handle those transactions, he said.

Fiserv, led by CEO Frank Bisignano, is likely “looking to vertically integrate a little bit more,” DeSanctis said in an interview. “I think Frank and the folks at Fiserv are all about making things efficient, and controlling as much as possible where it makes sense.”

Additionally, it’s probably been challenging to find bank partners, because it doesn’t offer much benefit for financial institutions, he said. “It’s not a core business for anybody, and in a world where expenses are continuing to be challenged, [banks] don’t necessarily want to do that.” First Data, which Fiserv acquired in 2019, previously was part of a joint venture with Bank of America, but that partnership was terminated months after the acquisition was announced.

In the merchant arena, “the margins are so thin and getting thinner,” DeSanctis said. “If you don’t have scale, you can’t compete.” The more scale a company has and the more cost they can “suck out of the process, the better chance you have to compete,” he said.  Fiserv was the largest non-bank merchant acquirer in 2022, beating rival Fidelity National Information Services’ Worldpay unit, according to a ranking last year by the Nilson Report. JPMorgan Chase, the largest U.S. bank, occupies the No. 1 spot in merchant acquiring.

Fiserv is most likely “trying to figure out how to get up the chain a little bit,” DeSanctis said. The Fiserv spokesperson emphasized the move does not mean Fiserv plans to become a full-fledged bank.  Read more

Can Banks Benefit from The DOJ’s Pressure on Apple Pay?

Courtesy of John Adams, American Banker

Apple’s control over its payments technology may soon face its largest legal challenge yet from the U.S. government. The outcome could give banks a long-desired edge in building their own mobile wallets for smartphones.

The Department of Justice is close to finishing an investigation into Apple that could soon result in an antitrust lawsuit, according to The New York Times. The DOJ is potentially targeting Apple policies that give it control over how people use Apple’s devices to access and pay for other products via the technology company’s ecosystem. Apple faces similar pressure in Europe to open its payment apps to outside developers. It is also in the midst of a legal battle with Epic Games that could force it to change policies that restrict the use of third-party payment processors on its app store.

A possible DOJ lawsuit would be wide-ranging, according to The New York Times and other media. It would include scrutiny of Apple’s use of text bubbles to differentiate Android messages from iMessages, the direct integration between Apple Watch and iPhones and Apple’s policies governing Apple Pay. Regarding payments, U.S. government investigators are reportedly looking at how the iPhone blocks outside parties such as banks from offering mobile payment apps for the iPhone.

The potential DOJ suit, European regulation and U.S. litigation threaten Apple’s power to charge fees to access the company’s technology to process payments. They would also erode Apple’s ability to act as the enrollment party for offering financial services from partners. Apple Pay has built a substantial user base over the past decade — about 45 million in the U.S. and more than 500 million globally, according to The Tech Report. And there are about 124 million iPhone users in the U.S., according to Statista.

An accumulation of international political and legal pressure could provide a chance for rival payment providers, such as PayPal’s Venmo, Block’s Cash App or the new bank-led Paze mobile wallet to directly challenge Apple Pay on Apple devices, cutting into the technology giant’s advantage and its business model. Read more

The API Economy’s Impact on Banking Operations

Courtesy of Mehdi Heidari, FinTechNexus

In an era where technology is the cornerstone of innovation, Application Programming Interfaces (APIs) have emerged as the centerpiece of data exchange, enabling seamless interactions between diverse systems and platforms. These intricate digital gateways have not only transformed the landscape of industries but have particularly revolutionized the banking sector. APIs are important today because they represent the digitalization of accessibility between machine-to-machine communications for enterprises across every industry.

Understanding APIs: Creating Bridges in Today’s Digital Landscape
At its core, an API acts as a bridge, allowing different software systems to communicate, share data, and execute functionalities across various applications securely. Think of it as a language that facilitates interaction between distinct programs, enabling them to access each other’s features or data without the need for direct integration. This functionality fosters agility, innovation, and the rapid development of services in the digital realm.

For banks and financial institutions, this accessibility is extremely critical in today’s digital world. The rapid digitalization of banking services combined with end consumers’ increasing expectation for speed and personalization has significantly raised the bar for payment providers in terms of agility, relevance, and quality. These institutions today need comprehensive API-based interfaces that provide seamless integration out-of-the-box wrapped with high-level security protocols, such as card issuance services and solutions to not only ensure they keep up with the changing expectations of their partner institutions and customers but stay ahead of them.

Creating a Strong Financial Ecosystem
Today’s banks are also increasingly forming partnerships with fintech companies and other financial institutions to create a more extensive ecosystem through API integration. These collaborations foster the introduction of more comprehensive financial solutions, catering to a broader range of customer needs.

That’s also the importance of having advanced cloud-enabled platforms – the ability to minimize the complexity of processes like customer onboarding, while also increasing scalability. The interconnected and integrated model provides transparency for all parties along the service landscape, heightens customer satisfaction, and greatly increases efficiency. Read more

Network Tokenization and Digital Identities Are Quietly Transforming Payment Security

Courtesy of

One innovation above all others dominated the headlines in 2023: artificial intelligence (AI). But while AI, particularly its impact on the payments landscape, captured public eyeballs and enterprise attention, other technical innovations like network tokenization and digital identities are reshaping the way transactions occur and payments are processed in today’s modern economy.

That’s because today’s digital consumers — and therefore today’s businesses that serve them — have the highest expectations around transaction contexts: they want it to be seamless, they want it to be personalized, they want there to be options, and they want this all to happen without a second thought or hiccup.

Network tokenization and digital identities are poised to give this to them by quietly revolutionizing the core of financial transactions and protecting against the insidious, zero-day nature of 2st century fraud. They are not just technological enhancements; they are fundamental building blocks for a secure, interconnected, and personalized financial ecosystem. All that’s missing is a little bit of ecosystem education to break down the incumbent inertia keeping payments system stakeholders from making the shift.

Network Tokenization Offers Improvements in Authorization and Risk Management
The adoption of network tokenization simplifies the payment process, offering a seamless experience for consumers and businesses alike. With tokenized transactions, the need for repeatedly entering sensitive data is eliminated, streamlining the user experience and reducing friction in digital payments — helping merchants strike the right balance between payment seamlessness and security.

How it works is by replacing sensitive payment details with payment “tokens” that can’t be easily reverse engineered to expose the underlying data, making them less valuable to hackers and other fraudsters. Unlike PCI tokens, where the underlying data is revealed to card networks and issuers, network tokens conceal card details at every stage of the transaction, from the merchant to the PSP (payment service provider)/acquirer to the card network all the way to the issuer.

Network tokens, generated automatically by card networks such as Mastercard, Discover and Visa, offer exceptional added fraud protection and a security advantage: PYMNTS Intelligence finds the use of network tokens produce an average fraud reduction of 26%. Read more

Jan. 12, 2024: Technology & Payments Articles

Two-Thirds of Merchants Ignore Potential Fraud as a Cause of Failed Payments

Courtesy of

Many eCommerce merchants fail to connect the dots between fraud detection and failed payments. In fact, just one-third of merchants employ mechanisms that detect potential fraud as the cause of failed payments. This heightens the risk of lost sales and signifies a missed opportunity for improving payment success rates.67%: Share of merchants without a screening mechanism to detect if potential fraud causes failed payments

Securely processing transactions is growing increasingly complex, and few firms can adequately address security concerns independently. In fact, we see a substantial gap in the adoption of screening tools based on merchant size. Collaboration between eCommerce merchants and payment service providers (PSPs) is crucial in deploying effective fraud prevention strategies and providing smooth customer experiences.

These are just some of the insights detailed in “The Role of Fraud Screening in Minimizing Failed Payments,” a PYMNTS Intelligence and Nuvei collaboration. This report examines the efficacy of the fraud screening mechanisms eCommerce merchants use. It draws on insights from a survey of 300 heads of payments or fraud departments from international eCommerce companies conducted from Aug. 10, 2023, to Aug. 31, 2023.

Other key findings from the report include:80%: Portion of merchants that encourage customers to retry a failed transaction with the same payment method

Collaboration with PSPs helps merchants optimize fraud prevention efforts to reduce failed payments.

Forty-one percent of merchants collaborating extensively with PSPs have implemented screening mechanisms to detect potential fraud as a cause of failed payments. In contrast, 37% of those with no PSP collaboration and just 22% of those that minimally collaborate have done so.

Merchants balance transaction security with the customer payment experience when handling transactions flagged as fraudulent.

Adopting the right screening strategy helps minimize friction and maximize recovered transactions. Eighty-five percent of merchants with deep levels of collaboration with PSPs encourage customers to retry purchases initially flagged as potential fraud, while just 70% of those with minimal or no PSP collaboration do so. Read more

UK’s Digital Markets Regulator Gives Flavor of Rebooted Rules Coming for Big Tech

Courtesy of Natasha Lomas, TechCrunch

The UK’s competition authority has fleshed out new details of how it plans to wield long anticipated powers, incoming under a reform bill that’s still in front of parliament, to proactively regulate digital giants with so-called strategic market status (SMS) — saying today that, in the first year of the regime coming into force, it expects to undertake 3-4 investigations of tech giants to determine if they meet the bar.

Of course the regulator isn’t naming any names as yet but it’s a fair guess that Apple and Google (aka Alphabet) will be towards the top of this investigation list. The CMA previously found the pair’s gatekeeping of their respective mobile app stores creates substantial competition concerns. And, publishing a mobile market study on the duopoly back in December 2021, it wrote that its work “so far” suggests both would meet the incoming criteria for SMS designation for several of their ecosystem activities.

Tech giants that end up being subject to the UK’s special abuse regime can expect to face interventions that prevent them from preferencing their own products, the CMA also confirmed today.

Additionally, it said they may be required to provide competitors with greater access to “data and functionality” than their commercial interest might prefer.  Interoperability could also be imposed on designated tech giants, the CMA suggested, as well as mandates that they trade on fairer terms. Algorithmic transparency could be another demand made of them by the new digital markets regulator. Read more

X Plans Payments Launch for This Year

Courtesy of James Pothen, PaymentsDive

“I would be surprised if it takes longer than the middle of [2024] to roll out payments,” X owner Elon Musk said during a conversation last month with Ark Invest CEO Cathie Wood. X, formerly known as Twitter, plans to launch a peer-to-peer payment feature this year, the company announced in a Tuesday blog post.

”We will launch peer-to-peer payments, unlocking more user utility and new opportunities for commerce, and showcasing the power of living more of your life in one place,” the post stated, among other plans.

The post comes just weeks after X owner Elon Musk discussed his payments plans in a Dec. 21 conversation with Ark Invest CEO Cathie Wood. Ark Invest is an investment management firm that has invested in Musk’s companies such as Tesla and X. Musk said that San Francisco-based X was waiting on state officials to approve the licenses it needs to launch a payments feature.

However, X’s own website lists just 15 state licenses, 14 of which are also listed on the Nationwide Multistate Licensing System. The 15th license is from the state of Florida, which does not list money transmitter licenses on the NMLS database, but lists the license on the website for the Florida Office of Financial Regulation.

The most important state money licenses, for the purposes of his payments plans, have yet to grant X licenses, Musk said. “It’s irrelevant until California and New York approve us,” Musk said during the interview. He did not go into detail as to why those states in particular were important. Read more

ICYMI: A Tale of Two Fintech Fights

Courtesy of Zachary Warmbrodt, Politico

An MM scooplet to kick off your morning: Senate Banking Chair Sherrod Brown is reviving legislation to crack down on tech companies that want to get into banking. The Ohio Democrat’s bill would ratchet up federal regulation of firms outside the banking industry that obtain industrial loan company charters — a type of state-level license — to expand into financial services.

Brown’s rallying cry is that consumers are at risk as tech giants become even bigger players in finance but aren’t subject to the same safeguards as traditional lenders. The CFPB has highlighted similar concerns in new rules aimed at Apple Pay and Google Pay.

Brown’s plan is getting a bipartisan boost. Republican Sens. John Kennedy of Louisiana, Mike Braun of Indiana and Roger Wicker of Mississippi are co-sponsors, in addition to Sens. Bob Casey (D-Pa.) and Chris Van Hollen (D-Md.). The bill is also backed by the Ohio Bankers League, the Bank Policy Institute, the Independent Community Bankers of America and Americans for Financial Reform.

In the House, Rep. Sean Casten (D-Ill.) is trying to trigger similar bipartisan resonance behind another fintech target: strengthening anti-money laundering safeguards in crypto. His partner across the Capitol, Sen. Elizabeth Warren (D-Mass.), has succeeded in recruiting Republicans to sign on to legislation and make demands of the Biden administration, but Casten has yet to lock down GOP allies. The Republican-led House at this moment is notably more crypto-friendly than the Senate. Read more

Jan. 5, 2024: Technology & Payments Articles

Nearly 40% of Credit Unions Offer Instant Access to Payday Loans

Courtesy of

Credit unions (CUs) have long been a reliable source for credit products such as credit cards, mortgages, auto loans and personal loans. However, with the rise of non-bank and non-CU financial entities offering competitive deals, consumers are increasingly looking for better options.

In “Credit Union Innovation: How Credit Product Rates Impact FI Selection,” PYMNTS Intelligence draws on insights gathered from a survey of over 4,097 consumers, 100 credit union executives and 50-plus FinTech executives to examine consumer criteria for choosing credit products, which in turn determines their choice of financial institutions (FIs).

According to findings detailed in the joint PYMNTS-PSCU study, rates and terms are crucial factors for consumers when choosing a FI. In fact, more than 75% of account holders reported that their primary FIs frequently offer one or more of the four major credit products. However, when it comes to mortgages and auto loans, consumers are willing to shop around for the best interest rates and payment terms.

CU members, in particular, are more likely to switch accounts based on rates and terms compared to non-CU members. Additionally, consumers value the speed with which funds become available after applying for a credit product.

Against this backdrop, reducing the time between application submission, approval and availability of funds is becoming a key factor in attracting and retaining account holders, with nearly 60% of CUs acknowledging that product setup times are highly influential in consumers’ decisions to apply for credit products.

Consequently, CUs are actively reducing the duration for members to access funds from credit products, and 45% say they have already made significant strides, rating their efforts as very or extremely impactful in trimming down credit product setup times. Read more

Consumer Lending Fintech Leaders Look Ahead to 2024

Courtesy of Peter Renton, FinTechNexus

For our last post of the year, I thought we would do something a little different. I reached out to the CEOs of every major consumer lending fintech to ask for commentary on 2024. Most responded to me and there were some really interesting points to consider for everyone as we enter the new year.

I asked three key questions. The first one was about 2024 initiatives at each company, the second was about responding to a prolonged period of high interest rates (I am not convinced the Fed will move interest rates down aggressively in 2024) and lastly, I asked an open-ended question about the challenges facing the industry in 2024.

These answers will make some excellent holiday reading for you as we head into the last weekend of 2023.

Editor’s note: This article has been updated with commentary from Scott Sanborn of LendingClub.

Question 1: What new initiatives are you going to be focused on in 2024?

Renaud Laplanche, CEO of Upgrade:
First taking a step back, 2023 at Upgrade was all about product innovation, process improvement, security, and scalability. As a result of that focus, we launched an auto lending platform, a suite of home improvement financing products, we acquired a BNPL company (Uplift), and just launched a very innovative secured credit card: Secured OneCard. As 2023 was a “new product launch” year, 2024 is going to be about getting these new products to scale and making them work well together for the greater benefit of our 5 million customers.

Mike Cagney, CEO of Figure:
We are standing up a blockchain native private TBA / passthrough marketplace for private credit. Today, the only real loan-level liquidity is in the agency (GSE) market. Non-GSE private credit is sold in one-off, bespoke loan purchase agreements into illiquid pools. This limits the amount of production a non-bank originator can do, given volatility in the capital markets. We’re using a standardized loan origination system to construct homogenous assets across originators. We’re working with major banks to stand up a TBA market, where originators can sell production forward with guaranteed takeout. And we’re capturing the benefits we’ve accrued in public blockchain from origination to aggregation to securitization. While we started this effort with HELOCs, we’re expanding this effort out to other asset classes in 2024.

Dave Girouard, CEO of Upstart:
We’ll focus first and foremost on improving the AI models that power Upstart’s lending partners. AI has gone mainstream and there’s finally appreciation that it will change financial services forever. We’re focused on unlocking the potential of AI so that forward-thinking banks and other lenders can turn it quickly into a massive competitive advantage.
As part of this, we expect to release an AI certification program aimed at helping financial services executives develop the skills and knowledge they’ll need to lead their institutions through this transformation.

Read more

Survey Highlights Growing Consumer Appetite for Paying with Points

Courtesy of Rimma Kats, PaymentsJournal

Nearly 85% of consumers said they’d be interested in paying with points if the option was offered. That’s according to a new survey, which found that there’s been a significant increase in consumer interest compared to previous years.

According to the research, which polled 1,000 U.S. consumers, many respondents said they’re willing to switch to credit cards for their enhanced pay with points benefits. In fact, 76% indicated a readiness to make the switch.

Interestingly, the inclination is more pronounced among retail card holders, which demonstrates a stronger desire to change cards for the advantages offered compared to bank cardholders.

Key Findings
What many consumers look for is the ability to save money and combat inflation by reducing purchase expenses. When it comes to their preferred redemption locations, the largest share of respondents (62%) said they favor grocery stores, followed by online retail (56%), gas stations or convenience stores (52%), and fast-food restaurants (45%).

More than a third (47%) of respondents said they have paid with points at least once, while slightly more (43%) said they were either aware of this payment option, but haven’t experienced it—or were just unfamiliar with it.

Loyalty Is a Driving Force
As previously mentioned, loyalty and rewards are what’s driving card choice. “The rewards program space has become more crowded as new players enter the field, and with it, consumers now have set a higher bar for which programs are worth their time and attention,” said Neil Kapur, Partner at TTV Capital. “Banks need a way to differentiate the value they offer to their customers, and to do so, they need to participate in e-commerce in a more meaningful way.”

During a PaymentsJournal podcast last year, Jeri Scheel, Senior Director of Product Strateg at Fiserv spoke to how rewards have become an expected feature and are no longer viewed as just another perk.

“Whether it’s consumers or businesses, a credit card is expected to have rewards,” Scheel said. “But the real opportunity for financial institutions is to think about how to tie in rewards on the debit side because it can really set them apart from their competitors.

“They’re a differentiator and determine which card gets top-of-wallet status. In fact, research has shown that 68% of people with a credit card have more than one, 90% of those have a go-to (card) that they use most often. And a majority, 71%, of multiple card users choose their credit card for the opportunity to accumulate rewards.”

ICYMI: Concern Trolls and Power Grabs: Inside Big Tech’s Angry, Geeky, Often Petty War for Your Privacy

Courtesy of Issie Lapowsky, Protocol

James Rosewell could see his company’s future was in jeopardy. It was January 2020, and Google had just announced key details of its plan to increase privacy in its Chrome browser by getting rid of third-party cookies and essentially breaking the tools that businesses use to track people across the web. That includes businesses like 51Degrees, the U.K.-based data analytics company Rosewell has been running for the last 12 years, which uses real-time data to help businesses track their websites’ performance.

“We realized at the end of January 2020 what Google was proposing was going to have an enormous impact on our customer base,” Rosewell said.

Under the banner of a group called Marketers for an Open Web, Rosewell filed a complaint with the U.K.’s Competition and Markets Authority last year, charging Google with trying to shut out its smaller competitors, while Google itself continued to track users. But appealing to antitrust regulators was only one prong in Rosewell’s plan to get Google to delay its so-called Privacy Sandbox initiative. The other prong: becoming a member of the World Wide Web Consortium, or the W3C.

One of the web’s geekiest corners, the W3C is a mostly-online community where the people who operate the internet — website publishers, browser companies, ad tech firms, privacy advocates, academics and others — come together to hash out how the plumbing of the web works. It’s where top developers from companies like Google pitch proposals for new technical standards, the rest of the community fine-tunes them and, if all goes well, the consortium ends up writing the rules that ensure websites are secure and that they work no matter which browser you’re using or where you’re using it.

The W3C’s members do it all by consensus in public GitHub forums and open Zoom meetings with meticulously documented meeting minutes, creating a rare archive on the internet of conversations between some of the world’s most secretive companies as they collaborate on new rules for the web in plain sight.

But lately, that spirit of collaboration has been under intense strain as the W3C has become a key battleground in the war over web privacy. Over the last year, far from the notice of the average consumer or lawmaker, the people who actually make the web run have converged on this niche community of engineers to wrangle over what privacy really means, how the web can be more private in practice and how much power tech giants should have to unilaterally enact this change. Read more

Dec. 22, 2023: Technology & Payments Articles

Compliance Isn’t Just for Banks

Courtesy of Michael Berman, FinTechNexus

Financial institutions are zeroing in on compliance when evaluating fintech partners. Nearly three-quarters (72%) of banks and credit unions cite compliance as their top criteria in the due diligence process, according to a recent survey conducted by Ncontracts. And that was before a rash of enforcement actions led some banks to reduce their exposure to fintechs.

Federal agencies are increasingly emphasizing the importance of third-party risk management. In June, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) released the Interagency Guidance on Third-Party Relationships: Risk Management, promoting standardization for assessing third-party risk and providing risk management principles when developing and implementing third-party risk management practices.

What does all this mean? It means that compliance isn’t just for banks and credit unions. If a fintech or other banking-as-a-service partner (BaaS) wants to enjoy the benefits of partnering with a chartered financial institution, it needs to know to play by the rules – or prepare to not get picked for the team.

Fintechs Must Prioritize Strong Compliance Management
According to the Ncontracts survey, more than 80 percent of financial institutions report that the fintechs they have evaluated possess a solid understanding of regulatory requirements, third-party vendor management, cybersecurity, and other key factors.

The data looks like good news for fintechs, but it doesn’t necessarily mean that most fintechs have demonstrated a sound understanding of compliance. What it does mean is that financial institutions are only considering fintechs that have mastered their own compliance and risk processes. If a fintech is perceived as lacking in this area, it doesn’t stand a chance of partnering with a financial institution.

Fintechs must prioritize risk and compliance if they expect to remain relevant and in business – and there is no time to wait. More than half of the banks and credit unions surveyed plan to evaluate fintech partnerships in the next one to two years. That makes compliance a top priority.

Compliance Red Flags Fintechs Must Avoid
To enhance their chances of partnering with financial institutions, there are seven areas they should avoid that signal elevated compliance risk: Read more

Payments Trends 2024: As Shopping, Buying, and Paying Blur Together, Banks May Lose Ground

Courtesy of Steve Cocheo, The Financial Brand

As payment options proliferate, merchants, platforms and consumers alike will cultivate new experiences that break down longstanding behaviors and business models. How can traditional institutions make sure they don’t get left behind?

In previous payments prediction articles, we’ve often picked a handful of leading payment types and discussed usage trends in each. This time around The Financial Brand interviewed frequent sources on payments trends and some new faces to take a strategic, even speculative look at payments in 2024 and beyond.

What emerged is the need to think more fundamentally about payments —and to think about the components of each channel — because new thinking may break up traditional approaches and build new methods from combinations of old and new parts.

Consider how Peter Davey, a payments veteran who goes by the handle @paymentsjedi on X, formerly known as Twitter, deconstructs credit cards. Davey spent years in payments and innovation roles at The Clearing House and Capital One and is now a venture partner for payments and identity at the Alloy Labs Alliance, a consortium helping smaller financial institutions. Read more

OCC Risk Perspective Report Focuses on Third-Party Relationships with Fintechs

Courtesy of Celia Cohen, Ronald K. Vaske & Peter D. Hardy, Money Laundering News

In its Fall 2023 Semiannual Risk Perspective, published on December 7, the Office of the Comptroller of the Currency (“OCC”) reported on key issues facing the federal banking system.  In evaluating the overall soundness of the federal banking system, the OCC emphasized the need for banks to maintain prudent risk management practices. The key risk themes that the OCC underscored in the report included credit, market, operational, and compliance risks.

Of particular note was the discussion on the Bank Secrecy Act (“BSA”)/Anti-Money Laundering (“AML”) compliance risks with respect to fintech relationships.  We also will discuss briefly certain other compliance and operational risks highlighted by the OCC.

Fintech Partnerships
The OCC cautioned banks that are adopting or considering fintech relationships to scrutinize each third-party relationship.  The OCC stressed that banks need to understand the risks associated with each third-party relationship, and enter into effective contracts to address the potential for default and termination.  It also emphasized the identification of nested relationships, in which fintech firm may be providing services to other fintech firms without appropriate controls.  In such circumstances, banks are considered on the hook for those partners’ practices.  Overall, the OCC recognized that the range of payment methods and their accessibility continue to expand and evolve, but cautioned banks to keep pace with the corresponding risks by continuing to evaluate their BSA/AML risks and corresponding controls.  In a separate section of its report, the OCC essentially reiterated these BSA/AML compliance risks with third-party arrangements with fintech firms as operational risks as well. Read more

Apple Faces Class Action Lawsuit Over Abuse of Market Power in Peer-to-Peer Payment Services

Courtesy of

In a proposed class action filed on Friday, Apple finds itself in legal hot water as Venmo and Cash App customers allege that the tech giant has wielded its market influence to stifle competition in the mobile peer-to-peer payments sector.

According to Reuters, the lawsuit, filed by four consumers from different states, claims that Apple’s actions have led to consumers paying “rapidly inflating prices.”

The legal action, brought forth in the federal court in San Jose, California, accuses Apple of violating U.S. antitrust laws through its agreements with popular payment platforms Venmo, owned by PayPal, and Cash App, owned by Block.

The plaintiffs argue that Apple’s agreements impose restrictions that hinder “feature competition” among peer-to-peer payment apps. Notably, the complaint points to clauses preventing platforms, both existing and new, from utilizing “decentralized cryptocurrency technology.”

According to the lawsuit, these restrictions limit innovation and hinder healthy competition within the mobile payment landscape. The plaintiffs seek an injunction that could potentially compel Apple to divest or segregate its Apple Cash business, a move aimed at restoring competition within the industry. Read more

Dec. 15, 2023: Technology & Payments Articles

Digital Identity Fintech Solutions Could Save the U.S. Billions of Dollars

Courtesy of Sarah Biller

Digital identity may be the defining factor driving fintech adoption in 2024. It is also central to efforts aimed at reducing fraud and improving national security.

Arguably, these efforts are long overdue. The earliest known recorded name of a person occurred during the early bronze age (4000 to 3100 BC). Using the most modern technique of the day – clay tablets – an ancient Sumerian by the name of Kushim recorded transactions related to the exchange of barley. We can debate which came first – the act of a transaction between counterparties or the understanding between the counterparties that they needed to record that transaction. Regardless of this chicken or egg question, some 3,000 years later a 2023 University of Maryland study found that almost one out of every 10 Americans lack a government-issued photo identification card.

Undeniably, this is one reason financial inclusion efforts are difficult and fraud is prevalent. The U.S. Government is making significant dollar investments and innovative companies and regions are rising to the challenge. The Department of Labor for one is using $1.6 billion from the American Rescue Plan Act to address digital identity verification at the state level, including $600 million to modernize vulnerable state IT systems and $380 million for fraud prevention.

Separately, the Inflation Reduction Act included $500 million to establish Regional Technology Innovation Hubs. Out of this program, the state of West Virginia in collaboration with a consortium of Fortune 500 companies, academic institutions, extraordinary entrepreneurs and venture investors were awarded a planning grant to align existing and new capabilities for identity and authentication efforts. This follows the European Union, India and other nations’ introduction of national digital identity programs. There is much to learn from these efforts.

On a global basis, the World Bank estimates that “1 billion people worldwide do not have basic identity credentials, including as many as 1 in 4 children and youth whose births have never been registered”. The same 2019 World Bank report noted “countless others possess identification credentials that cannot be trusted because they are poor quality or cannot be reliably verified”.

Digital Identity are unique systems-based credentials rather than physical mechanisms such a passport to authenticate the identity of a person, application, or device (e.g., computer, smartphone, networks, etc.) in an online environment. These credentials can be anything from mobile devices to public key infrastructures, or PKI for short, to one’s personal biometrics. Blockchain technologies, computer visioning and edge computing and others are emerging as infrastructures technologies fundamental to establishing digital identity. Read more

Google Pay Pilots BNPL as Consumers Clamor for Payment Choice at Checkout

Courtesy of

Concert tickets are expensive, even if you’re not a Swiftie angling for a seat at the Eras tour or a golden oldie seeking Stones tickets. Travel isn’t cheap, and neither is clothing.

Drew Olson, senior director at Google Pay, told PYMNTS CEO Karen Webster in an interview that individuals shopping on Google — more than 1 billion times daily — are demanding more choice at checkout as they grow ever more familiar with buy now, pay later (BNPL) as a favored form of credit.

“Whatever calculus the user performs to determine the payment methods that they want to use, they want more options across more merchants,” he told Webster. To that end, Google Pay announced a pilot program with Affirm and Zip that will “surface” those providers’ multiple BNPL options at select apparel/accessories, theater and travel merchants in the United States that offer Google Pay at online checkout.

The move comes as PYMNTS Intelligence found that interest in and use of BNPL is skyrocketing, underpinning holiday shopping, and where repeat purchases are the norm, especially among younger consumers who use it as a budgeting tool and a way to make everyday goods and services more affordable.

“We’re working with the existing [BNPL] ecosyste …and these providers have a great amount of coverage in the space,” Olson said, adding that “these are merchants who already have an integration with Google Pay” while they gain the advantage of scaling their payment options without a direct integration with the BNPL providers.

Offering those choices, said Olson, can help increase merchants’ revenues. Affirm has noted that merchants using its offerings report 60% higher average order values versus other payment methods. For the BNPL providers themselves, there’s additional reach as Google Pay users link their wallets and look for new opportunities to use BNPL at other merchants in the future.

“This is a seamless and frictionless way to expand the distribution of these payment products, and we’re offering this in line with the Google Pay experience users are comfortable with today,” Olson said.

Integrated Into the Google Pay Flow

In terms of the mechanics of the pilot itself, Olson noted that when consumers click on a Google Pay button while transacting with a pilot-participating merchant, they’ll see a promotional banner alerting them to the option of using BNPL via Affirm or Zip. Read more

Eco-Friendly Debit Card Gives Bank a Bump

Courtesy of Tom Nawrocki, PaymentsJournal

Citizens Financial Group got a very favorable stock bump after unveiling its new eco-friendly Mastercard debit and ATM card this week. Given the existing pressures toward more environmentally-friendly cards, this could be the start of a larger trend.

The card is made from 90% recycled PVC and carries the Mastercard sustainable card badge, reflecting its lower environmental impact in terms of energy, material consumption, and carbon footprint. The response from Wall Street was immediate. Citizens Financial Group’s stock jumped 7.61% in a single day, ending a two-day losing streak.

Mastercard itself plans to produce all of its plastic payment cards using sustainable materials by 2028. This would include not just recycled PVC plastic as in the Citizens Financial card, but substances like Polylactic Acid and recycled Polyethylene terephthalate plastic as well.

New Modes of Eco-Friendly Cards

The Citizens Financial card is the latest in a series of moves designed to make plastic less of a factor in the cards we carry. California came very close to banning plastic retail gift cards this year, simply to cut down on the environmental impact of single-use plastic. Governor Gavin Newsom vetoed the measure over concerns about how it would affect small businesses, but that type of legislation is likely to come back at some point as concern for the environment grows.

The trend could possibly make even more of an impact on prepaid cards—which are single use—than on long-term credit cards. Future prepaid cards could be constructed out of eco-friendly recycled materials or even cardboard, depending on local laws and trends. If it becomes unrealistic for issuers to produce different stock of gift cards for different states, that could accelerate the move to digital cards.

“Debit and credit card products realize the benefit of being ahead of potential legislation on environmental topics,” said Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research. “In this way, they’re much like other card stock products in gift carding or even access cards, hotel keys, and such. Issuers also understand that the option creates goodwill among customers who value eco-friendly products, providing residual benefits in customer acquisition and retention.”

ICYMI: The Top 15 Features People Want in Their Mobile Banking App

Courtesy of Garret Reich, The Financial Brand

Any financial institution without a formidable mobile banking app will struggle to compete. But master the capabilities that are most important to customers before rolling out the advanced technology. Keeping people happy with the mobile banking experience starts with basic features that are intuitive to use.

What do Americans want most from their financial institution’s mobile banking app?

Chatbots and virtual assistants powered by artificial intelligence might come to mind, given that both are such hot topics in banking. But a two-way conversation with an automated — or even a human — customer service representative is far down the priority list for U.S. consumers, according to a survey conducted by the consulting firm iSky Research. It ranks at No. 25.

“Initiate a local person-to-person payment” is No. 40 on the list and “Initiate application for personal secured credit with data pre-population,” such as for a home or auto loan, comes in at No. 60. Instead, people are mainly focused on everyday transactions. In fact, iSky’s survey found eight of the top 10 priorities for U.S. consumers had to do with either basic account details or card-related activities.

Where The Cards Fall:

Mobile banking apps should prioritize making the ability to access account details and to perform card management intuitive and easy. Gleaning useful insights from that information to share with users should come next. Many financial institutions offer these types of features to customers, but few do it well, says Mark Donohue, the founder of iSky Research, which specializes in digital user experience. And only a small percentage of banks and credit unions analyze those simple interactions to generate useful insights for customers.

“The day-to-day interactions, those high-volume interactions, most banks tend to have a reasonable grip on that experience,” Donohue says. “Where they really struggle is understanding that customer in a way that can inform a discussion around ‘what to do next.’”

Read on for insight into the mobile banking capabilities U.S. consumers cited as most important and iSky’s analysis of how financial institutions are falling short. Scroll to the end for a chart of their top 15 priorities that also shows where these rank for mobile banking users in Canada, the U.K. and other countries. Read more

Dec. 8, 2023: Technology & Payments Articles

2024: The Beginning of The End of Bank-Fintech ‘Partnerships’

Courtesy of Ron Shevlin, Forbes

Observations From the Fintech Snark Tank

Prediction: By the end of this decade, bank-fintech partnerships will be a thing of the past.

This prediction flies in the face of recent industry trends. Fintech partnerships have been an important objective for banks for the past few years. Cornerstone Advisors’ 2023 What’s Going On in Banking study found that 70% of banks said partnerships were important to their 2023 business strategies, up from nearly two-thirds in 2022.

Bank-fintech partnerships have become inevitable in the eyes of some industry observers. According to a Knowledge@Wharton article titled Why Partnerships Are the Future for Fintech:

“As the finance industry grapples with what the next generation of banks and payment systems will look like, it’s clear that partnerships are a linchpin for riding the wave of change successfully.”

What are banks trying to accomplish with fintech partnerships?

It’s more than just providing banking as a service (BaaS) services to fintechs. In Cornerstone’s study, 40% of banks cited improving lending productivity as an important fintech partnership objective, 36% mentioned growing deposit volume, and 31% listed increasing loan volume.

The results from fintech partnerships have been less than stellar, however. Just one in three banks have seen a 5% or more increase in loan volume from partnerships, and half as many have realized at least a 5% gain in non-interest income.

Why Bank-Fintech Partnerships Fall Short

There’s no doubt that banks face technology-related issues—like integrating to core, ancillary, and digital banking systems, as well as a lack of API experience—when executing fintech partnerships. There are other contributing factors, however, like:

  • Insufficient personnel. Among banks with less than $100 billion in assets, half have no personnel dedicated to financial partnerships, and those that have them just 2.5 FTEs. How many partnerships can a bank identify, vet, negotiate, deploy, and scale with just 2.5 people?
  • Inefficient organizational structure. Among banks with dedicated fintech partnership roles, a third have only a centralized team and another third only have partnership personnel distributed throughout the bank. Banks need a hybrid model—a centralized team to handle IT integration and line of business personnel responsible for the execution of the partnership. Read more

Instant Payments: How to Navigate the FedNow Revolution

Courtesy of Financial Brand

Since its launch in July 2023, close to 200 institutions have signed on to the instant payments platform. For those still sitting on the sidelines, what are the emerging use cases and best practices discovered by the early adopters?

The U.S. payments landscape entered a new real-time era with the July launch of the Federal Reserve’s FedNow Service.

The 24/7/365 infrastructure for instant transfers represents the biggest payments modernization in decades. Several months later, however, questions linger about how and when financial institutions should implement its capabilities, and what instant payment products and services will be embraced by their banking customers.

In a recent webinar from The Financial Brand, leaders from the Federal Reserve, payments fintech Tyfone, and the California-based, FedNow-enabled Star One Credit Union, explored considerations and recommendations for banks and credit unions who are looking to adopt FedNow. They delved into practical dimensions like use cases, risk management, technology partnerships and monetization.

The consensus? While adoption exceeds expectations so far, delaying implementation poses real dangers as consumer expectations escalate.

Q: First, how does FedNow fundamentally change the payments landscape?

Eric van Bramer, Federal Reserve Bank of Chicago: FedNow represents a major modernization in U.S. payments. For the first time, funds can move instantly any time of day or night with near-universal reach.

By enabling real-time transfers at scale, FedNow aligns the U.S. with payment systems in many other countries. Decades of reliance solely on batch ACH transfers will cease with FedNow’s launch, ushering in an era of always-on-money movement. Read more

FCA Sets Out Credit Information Market Improvements

Courtesy of Finextra

People will find their credit files better reflect their financial circumstances, under proposals announced by the Financial Conduct Authority (FCA).

The change is one of a range of measures to improve the quality of the information collated by credit reference agencies (CRAs), which is used to inform lending decisions, and boost competition in the market.

In November 2022, the FCA published an interim report which found that whilst the credit information market was working well in a number of ways, there were also several areas where the market could be working better.

Issues included significant differences in data between CRAs and that consumers lacked awareness of how to access and dispute credit information.

Today’s proposals will:

  • Require FCA-regulated data contributors, such as lenders, to share credit information with CRAs.
  • Introduce a common data reporting format to enhance consistency across CRAs and promote competition.
  • Provide greater control for consumers over how they are viewed through making it easier for consumers to record non-financial vulnerability information.

Today’s announcement also includes the terms of reference for an Interim Working Group, set up to establish a new credit reporting governance body, designed to be more inclusive, transparent and accountable, which will oversee many of the changes proposed. The FCA expects the working group to start its work in January next year and deliver in nine months.

Jackie Keogh has been appointed as the Chair of the working group. She has more than 30 years’ experience in the financial industry, mostly in corporate banking, and has been a Senior Advisor at the FCA since 2020. She will step down from that role before taking up her new position. Read more

Amazon Will Discontinue Venmo Payments in January

Courtesy of

Amazon is set to stop taking payments via PayPal-owned Venmo in the coming weeks.

“Due to recent changes, Venmo can no longer be added as a payment method,” Venmo said on its website Thursday (Dec. 7). “Venmo will remain available to users who currently have it enabled in their Amazon wallet until 01/10/24.”

A spokesperson for Amazon confirmed the change in an email to PYMNTS Thursday.

“Customers can still use nearly a dozen other payment options, such as debit cards, credit cards, checking accounts, or installments to pay for their orders,” the statement said.

“Venmo and Amazon have agreed to disable Venmo as an option to pay on Amazon at this time,” a PayPal spokesperson said in a statement provided to PYMNTS. “Customers can continue to add their Venmo debit card or credit card to their Amazon wallet to pay on Amazon. We have a strong relationship with Amazon and look forward to continuing to build on it.”

Both companies declined to comment on why the partnership ended. Amazon and Venmo first teamed up last fall, saying their collaboration gave Venmo’s nearly 90 million active customers in the U.S. a new way to quickly make purchases on Amazon.

“We want to offer customers payment options that are convenient, easy to use, and secure — and there’s no better time for that than the busy holiday season,” Max Bardon, vice president of Amazon Worldwide Payments, said at the time. “Whether it’s paying with cash, buying now and paying later, or now paying via Venmo, our goal is to meet the needs and preferences of every Amazon customer.”

Recent research and reporting by PYMNTS has shown the importance of offering consumers a range of payment choices at checkout. 

For example, research by PYMNTS Intelligence has found that payment choice is crucial to consumers, so much so that they rank it above 33 other factors, including things like free delivery, when deciding on a merchant. 

And in an interview with PYMNTS’ Karen Webster earlier this week, Terry O’Neil, head of connected commerce and strategic growth for Citi Retail Services, said that his company’s research has found that 90% of shoppers want merchants to offer multiple payment options.

Dec. 1, 2023: Technology & Payments Articles

Will Federal Guidance Have ‘Chilling Effect’ on Banking-as-a-Service?

Courtesy of Steve Cocheo, The Financial Brand

Interagency guidance on third-party relationships released in June has banking-as-a-service in its sights, and could cause enough confusion to slow adoption. So says former FDIC chair Jelena McWilliams. Meanwhile, other experts warn that the guidance is a sign of increasing scrutiny of all fintech partnerships.

Federal regulators have been ramping up scrutiny of banks’ third-party relationships for years, but the emergence of banking-as-a-service and other fintech relationships intensified debate and produced new interagency guidance in early June. As the guidance nears the six-month mark, assessment of its impact is highly divergent — from “a chilling effect” on BaaS deals to a workaday belief that the document underscores the responsibilities of both banks and fintechs as they increasingly work together.

The June document, “Interagency Guidance on Third-Party Relationships: Risk Management,” was jointly issued by the Federal Reserve, the Comptroller of the Currency and the Federal Deposit Insurance Corp.

Two sessions at the November policy summit of the American Fintech Council exposed a wide assortment of viewpoints on its guidance. One featured a former FDIC chair and the other a panel of financial institutions, consultants and other experts on bank-fintech partnerships.

Banking Agency Document has ‘Chilling Effect’ on Partnerships

Twice during a fireside chat about federal legal developments, former FDIC Chairman Jelena McWilliams spoke of the guidance having a “chilling effect” on bank-fintech deals, including banking-as-a-service relationships. McWilliams, a Trump appointee whose term straddled the Trump and Biden administrations, is now managing partner of the Washington, D.C., office of Cravath, Swaine & Moore LLP and head of the firm’s financial institutions group.

This worries her because many of the nation’s surviving banks are small and can’t compete effectively without support, in her view. Read more

Open Banking Will Grow the Whole Economy, Not Only Fintech

Courtesy of David G.W. Birch, Forbes

I went to Las Vegas for Money20/20, one of the lighthouse events for me and a great many other fintech fans. I’m not saying this to make you jealous — although you should be, because I had a lot of fun and I won a couple of hundred dollars at blackjack — but because I was thinking about how at the same time last year Cameron D’Ambrosi wrote in the Liminal newsletter that Money 20/20 “isn’t a digital identity conference, but payments are more anchored on digital identity than ever before”. I couldn’t agree more. I was therefore not surprised to see plenty more talk about digital identity there this year, which was great because I never get bored talking about digital identity. What surprised me though was that I spent even more time talking about open banking. It has arrived in America.

1033 And All That

This time last year I wrote that governments across the globe were embracing open finance and noted that the Consumer Financial Protection Bureau (CFPB) had committed to finalize open banking rules for the U.S. by the end of this year. The Director of the CFB Rohit Chopra said on stage at last year’s Money20/20 that the Bureau would propose requiring financial institutions offering deposit accounts, credit cards, digital wallets, prepaid cards, and other transaction accounts to set up secure methods (such as APIs) for data sharing. Well, they have.

The CSFB are on schedule and have published their draft “Required Rulemaking on Personal Financial Data Rights”. These proposed rules are, make no mistake about it, a big deal.

Just to give a little context, the proposed Personal Financial Data Rights rule activates section 1033 of the Consumer Financial Protection Act of 2010 (CFPA) and aims to increase competition by forbidding financial institutions from hoarding a customer’s data and by requiring companies to share data at the customer’s direction with other companies who may be offering better products. The proposed rule would allow people to break up with banks that provide bad service and would forbid companies that receive data from misusing or wrongfully exploiting sensitive personal financial data.

(When it comes to the issue of increasing competition, by the way, there is no love lost between Mr. Chopra, the big banks and their trade associations and consortiums. The Bureau has made clear it hopes that open banking will support increased competition by making it easier for consumers to compare and switch providers, whether for checking or savings accounts, credit cards, loans, or mortgages, bringing to the market a dynamic not seen as an unalloyed benefit by the incumbents.)

To summarize, the proposed rule would require depository and non-depository entities to make available to consumers and authorized third parties certain data relating to consumers’ transactions and accounts; to establish obligations for third parties accessing a consumer’s data, including important privacy protections for that data; and to provide basic standards for data access. The CFPB want to ensure that consumers have the legal right to share their data free of what they call “junk fees” and switch accounts with ease to get better deals and better services. Read more

‘Pay-By-Bank’ Trend Builds Momentum into 2024

Courtesy of Steve Cocheo, The Financial Brand

Payments players have their eye on 2024, when expanded faster-payments channels like FedNow and RTP, changing consumer and business attitudes about payments, and Elon Musk’s ambitious push to turn X into a banking platform could add up to increased ‘pay-by-bank’ activity – all at the expense of the traditionally dominant (and lucrative) credit card.

“Pay-by-bank” services will accelerate in 2024 in the U.S., driven by a combination of at least five converging trends: the growing availability of real-time payment rails; increased interest from businesses seeking to avoid card processing fees and gain faster access to funds; increasing democratization of payments; a move away from subscriptions to micropayments, and even a potentially big push courtesy of Elon Musk’s banking ambitions.

Compared to much of the world, the U.S. has lagged on adoption of pay-by-bank, which is also commonly called “account-to-account,” or “A2A,” payments. Pay-by-bank entails payments being sent directly through the banking system from one deposit account to another, no checks, no cards.

“U.S. consumers display a remarkable attachment to the use of cards, accounting for more than two-thirds of point of sale transaction value and half of e-com spend,” according to the 2023 FIS/Worldpay Global Payments Report. In 2022 pay-by-bank represented 9% of ecommerce payments in the U.S., up marginally from 8% in 2021. With the launch of the Federal Reserve’s FedNow instant payments service, joining the Real Time Payments network of The Clearing House, and other factors, FIS forecasts that A2A payments will see a compound annual growth rate of 14% through 2026.

In much of the world, “A2A is disrupting payment value chains with lower costs of payment acceptance versus cards,” FIS reports. For example, in Europe, its research shows, pay-by-bank represented 18% of e-commerce transactions in 2022. Some experts predict that new European regulations requiring more use of the payment technology will goose this number considerably. In some countries, among them Poland, Finland and the Netherlands, A2A already dominates payments. In Poland, 67% of ecommerce relies on A2A.

With the advent of FedNow sparking change in the U.S., times are changing. Read more

Cash Recycling Is About to Shake Up U.S. Banking

Courtesy of Jodi Neiding Diebold Nixdorf/ATM Marketplace

In the U.S., automated cash recycling is just now emerging as a compelling solution that provides substantial benefits to financial institutions.

Managing cash volume and replenishment for ATMs can be a complex puzzle. From logistics and security to resource allocation and escalating cash-handling expenses, the limitations of traditional approaches are becoming increasingly evident. In recent years we have seen financial institutions employ cash recycling technology to solve for some of these challenges. While cash recycling has become an integral part of the banking ecosystem in many areas across the globe where access to cash is vital to financial inclusion efforts, in the U.S., automated cash recycling is just now emerging as a compelling solution that provides substantial benefits to financial institutions.

What’s driving cash recycling?

The key driver for cash recycling technology is the increasing cost financial institutions face when managing cash, as it remains a major and mandatory part of a financial institution’s day-to-day operations, accounting for nearly 50% of ATM network operating costs. Worldwide, the amount of cash being circulated through ATMs is increasing in aggregate, signaling that it will continue to be a mainstay as a form of payment. The value of currency in circulation passed $2.26 trillion in the U.S., a 28% increase compared to February 2020, while cash is the most used method for payments under $25.

In the U.S., cash availability remains a critical need, not just in underbanked communities, but also in large metropolitan areas like Los Angeles, where the local government is considering a ban on cashless businesses. According to a recent YouGov survey commissioned by Diebold Nixdorf, 82% of respondents would not sign up with a new primary provider that does not offer convenient access to cash, showcasing the importance of availability. Relying on legacy banking infrastructure to address evolving customer needs is increasingly becoming unsustainable, and financial institutions are coming to realize that the long-term cost benefits of offering more denominations, thanks to flexible cassette configuration, will be vital when attracting and retaining banking customers.

Cash access

Access to cash is also crucial for consumers who do not use traditional banking services and for those unfamiliar with digital means of payment, and it remains the most used form of payment for low-income households. As a result, 93% of consumers have no plans to stop using cash. Therefore, the self-service channel is becoming even more important due to the increasing consumer demand and the need for financial institutions to optimize operational efficiency. Thanks to cash recycling technology, newer ATMs can also reach rural populations in locations where it has been historically difficult to service communities or financially unfeasible to maintain a physical branch.

The automation opportunity presented by cash recycling can provide banks with 20% savings in total cost of ownership and reduce cash replenishment efforts by up to 75%. By creating a closed-loop recycling environment that automatically moves money through the system, it has the added benefit of prolonging cash-in-transit (CIT) intervals and drastically reducing CO2 emissions — in some cases, reducing the number of visits by 80% over a year. From higher and more flexible cassette capabilities to multi-denomination/currency support, cash recycling technology enables banks to optimize their cash processes while freeing up staff for more high-value customer interactions, which is particularly important in an environment where we see a scarcity of skilled resources and a sharp rise in workforce costs. Read more


Nov. 17, 2023: Technology & Payments Articles

A Fintech Titan in Community Banker’s Clothing

Already a force to be reckoned with in Silicon Valley, once-and-future billionaire Jackie Reses is out to disrupt financial services with a 95-year-old Missouri bank—without disturbing federal regulators.

Courtesy of Jeff Kauflin, Forbes

InMarch 2020, while Covid lockdowns were in full swing and small businesses’ sales had fallen off a cliff, Jackie Reses called Treasury Secretary Steve Mnuchin. As the head of Square Capital, the lending arm of Jack Dorsey’s payment processing company Square, Reses insisted that even though her company wasn’t a traditional bank, Mnuchin should make an exception and let Square help dole out the hundreds of billions of dollars in forgivable loans that the U.S. government had made available through the Paycheck Protection Program (PPP). She argued that Square’s relationships with millions of small businesses made it a good distribution channel.

After Mnuchin agreed to allow Square, Intuit, PayPal and other fintechs to become PPP lenders, Reses turned to her team and said, “We have three weeks to build a brand-new loan program from scratch, and it has to be mostly automated.” The 100-plus employees slated to work on it were exhilarated. “If we typed fast enough, these businesses could get saved. They wouldn’t lose their lease, they could make payroll,” says Audrey Kim, who worked under Reses as the head of product at Square Capital at the time.

When the Square Capital loans started flowing, the stakes rose even higher. The Small Business Administration gave out Reses’ cell phone number to businesses that were applying for loans through Square, and owners of coffee shops, nail salons and other small businesses were calling Reses directly, in tears. She helped them with basic questions like how to submit tax forms–both on phone calls and in tweets. Her team held meetings at 8:00 am and 8:00 pm every day, seven days a week for months to keep the loans coming. Square ultimately gave out 80,000 PPP loans worth $857 million. Its average loan size was about $11,000, compared with $113,000 for the overall PPP program. “It was one of the most exhausting experiences of my life,” Reses says. “It was incredibly emotionally taxing.” Read more

Third-Party Guidance Could Have ‘Chilling Effect’ on BaaS, Former FDIC Chair Warns

Courtesy of Anna Hrushka, Banking Dive

“I don’t think that the current set of regulators really want banking-as-a-service and third-party partnerships to blossom,” Jelena McWilliams said during an event in Washington, D.C. on Tuesday.

Former Federal Deposit Insurance Corp. Chair Jelena McWilliams said she has concerns with the new third-party guidance bank regulators released over the summer, saying she fears the updated text will have a chilling effect on bank-fintech partnerships.

“I think the message is clear. I don’t think that the current set of regulators really want banking-as-a-service and third-party partnerships to blossom,” she said during a fireside chat at the American Fintech Council’s Policy Summit in Washington, D.C. on Tuesday. “They can’t specifically prohibit [third-party partnerships]. And I think they’re trying to make it more difficult for banks to engage in those partnerships.”

Regulators, including the FDIC, the Office of the Comptroller of the Currency and the Federal Reserve in June issued long-awaited guidance on how financial institutions should approach third-party relationships, such as tie-ups with fintech firms.

That guidance, however, doesn’t give banks enough information and clarity regarding the parameters around third-party partnerships, said McWilliams, who stepped down from her role at the FDIC at the end of 2021 and is now a partner at Cravath, Swaine & Moore.

“When you read the guidance, it says a lot, but it doesn’t say anything to really help you understand, if I cross the line, where is that line?” she said. “The truth of the matter is, banks need to know how to comply. And if you don’t give them the road lines, painted in the lanes, they actually will be hesitant to engage in partnerships. … As a former general counsel, I think I would be taken aback having to explain that to my C-suite.” Read more

PCI Compliance: What Merchants That Own ATMs Need to Know

Courtesy of ATM USA/CUInsight

Payment Card Industry (PCI) Compliance has the ATM industry in a tizzy trying to figure out what’s real, what’s projection, and what it really means to an ATM operator’s bottom line. But the reality is PCI compliance is essential to the ongoing security of merchant ATMs. And it’s much more than protecting ATM users, it’s also important to the merchant’s bottom line.

While the January 2025 keypad and encryption software deadline largely applies to ATM manufacturers and processors, taking proactive steps now to meet compliance can significantly reduce your risk exposure. Here are the essentials merchant ATM owners and operators need to know.

Compliance Deadlines Apply to You
ATM industry experts have gone on records about who the upcoming compliance deadline truly points to – the ATM manufacturers and processors. According to a panel session at the recent National ATM Council conference in Las Vegas, NV, the 2025 standards require:

  • ATM manufacturers to have upgrade paths outlined and new, compliant equipment and software available.
  • Processors must be able to accept and encrypt using the latest secure key block standards.

While merchants may think this buys them time, failing to upgrade non-compliant machines can leave merchant ATM owners and operators highly vulnerable.

Exposure from Older, Non-Compliant ATMs
Criminals actively target older ATMs that have potential vulnerabilities. This concept has been consistently proven as bad actors go after machines that have failed to block off access points, lockdown software entry points, update operating systems, or upgrade to EMV. These machines are the ones most likely to lack:

  • Encrypted PINs and data
  • Anti-skimming and tampering protections
  • Updated software security

But it’s more than attracting ATM crime. Come 2025, non-compliant ATMs will face:

  • Supply delays if seeking last-minute upgrades or even newer ATMs, as demand spikes.
  • Greater liability if breached, as older ATMs lack security.

Read more

Investing in Fintech: Opportunities and Challenges in the Payments Industry

Courtesy of Sergey Golubev, PaymentsJournal

In this era of digital transformation, the fintech sector has emerged as a pivotal player, redefining the traditional financial services landscape and introducing innovative solutions that address the evolving needs of consumers and businesses alike. The payments segment, in particular, has experienced a surge in demand for digital payment solutions, driven by a combination of factors including technological advancements, changing consumer preferences, and a global shift towards a cashless society.

As a result, fintech companies operating in the payments space have witnessed unprecedented growth, attracting significant interest from investors seeking to capitalize on this upward trend. While the opportunities for investment are abundant, they are accompanied by a set of unique challenges and risks that necessitate a thorough understanding of the fintech ecosystem and a strategic approach to investment.

Payments Opportunities
Let’s dive into a comprehensive overview of the current landscape, highlighting the key opportunities and challenges that investors must consider when venturing into the fintech payments industry.

Growing Adoption of Digital Payments
The COVID-19 pandemic has served as a catalyst for the accelerated adoption of digital payments. With social distancing measures in place and a global shift towards online shopping, consumers and businesses have increasingly turned to digital payments as a safer, more convenient, and efficient alternative to cash. According to a report by McKinsey, the global digital payments market is expected to grow at a CAGR of 12.8% from 2020 to 2025. This surge in demand for digital payment solutions presents a significant opportunity for investors to tap into a market that is poised for substantial growth in the coming years.

Regulatory Support
Governments and regulatory bodies around the world are increasingly recognizing the importance of digital payments and are implementing policies to support their growth. For example, the European Union has introduced the Payment Services Directive 2 (PSD2) to foster innovation and competition in the payments industry. This regulatory support is crucial for the development and adoption of digital payment solutions, creating a favorable environment for investment in the sector. Read more


Nov. 10, 2023: Technology & Payments Articles

Why Last Week Felt Like 2021 In Fintech. Plus, Where Are All the Former Mint Users Headed?

Courtesy of Mary Ann Azevedo and Christine Hall, TechCrunch

The return of mega-rounds
Last week felt like 2021. Well, sort of.

There were at least three nine-figure funding rounds in the fintech space announced over the past week. It’s rare enough these days to see ONE nine-figure round, much less two or three. So we were excited to say the least.

First, I covered Brazilian banking-as-a-service startup QI Tech’s $200 million raise led by General Atlantic. This was a big deal, besides just being a lot of cash, because it also marked the largest venture round in Brazil so far this year — not just in fintech, but across all industries. The company was gracious enough to share revenue figures, which is also not very common, noting that revenue was up 89% in the first half of 2023 compared to the same period last year. This also proves that infrastructure continues to be resilient, even during this downturn. Earlier this year, Visa announced it was going to acquire Brazilian payments infrastructure company Pismo in a $1 billion deal.

Meanwhile, in the Middle East, Tabby nabbed $200 million in a Series D funding round that valued it at $1.5 billion. I was a bit surprised that a buy now, pay later platform would attract so much venture capital considering that so many players in the space have had their challenges in the past year or so. But TC’s Tage broke it down for us, explaining that the markets in which Tabby operates don’t have the same kind of access to credit cards that we do in the U.S. He wrote: “As a result, BNPL serves as a crucial source of credit; where it is seen as a convenience in developed markets with abundant credit options, it is essential for many consumers in the Middle East and, by extension, the Gulf.” Tabby’s profitable, too!

And last but not least, Palo Alto, California–based Next Insurance announced it had landed $265 million in strategic capital from Allianz and Allstate. As reported by CNBC, Next “is nearing $1 billion in premium revenue but remains unprofitable.” In April 2021, TechCrunch reported that the SMB-focused insurance provider had raised a $250 million round at a valuation of $4 billion.

Combined, the three fintech companies raised $650 million alone. And it’s noteworthy that two of the three companies were located in markets outside of the U.S.

Related Reading: Fintech, Big Tech, and The Safety of The Banking System

What Does The ‘Perfect’ Ai Regulatory Framework Look Like?

The perfect artificial intelligence (AI) regulation should ensure the technology doesn’t turn on its creators. 

Courtesy of

But it also needs to ensure that the regulation itself doesn’t turn on the technology, by dampening or stamping out innovation. That’s why PYMNTS CEO Karen Webster sat down with Shaunt Sarkissian, CEO and founder of AI-ID, and asked him to play a game of “AI Regulation Roulette.”

The advent of AI has put nations around the world in a unique position and has certainly heralded the end of the world as we formerly knew it. But will the innovative technology one day lead to — as some doomsday adherents believe — the end of the world itself? And where should the ball stop in the AI regulation game?

Three-Ingredient Puzzle
Sarkissian said that the age-old fear of AI turning against its creators are mostly unfounded and highlighted the importance of “air-gapping” AI systems from critical functions. As long as AI is provided with a limited mission and role, it can help reduce the scope for catastrophic outcomes, he added, noting that military simulations consistently show that autonomous AI systems do not pose an existential threat.

But to wholly ensure the absence of any “Terminator scenario,” the world will need to not just figure out AI regulation, but also get it right. And Sarkissian proposed a hypothetical three-step approach to doing so. “You have to think about the regulation of the apparatus itself and the human touching or working with that apparatus. Number one: What does the human need to know about the AI? It needs to know that first, it is an AI and not human, and it needs to know its rules and what it is supposed to, and allowed to, do,” he said.

After ensuring transparency and defining AI’s roles and rules, it is important to compartmentalize the AI’s functions to restrict its scope and purpose, he added. Third, and most critical, Sarkissian said, is to develop specific rules and regulations for different use cases, focusing on copyright, law protection and compensation. “For everything to work and happen, you need to establish the copyright and compensation rules; here’s what you have to track and what you have to pay for, as well as what you can’t,” he explained.

Building Frankenstein’s Monster
Key to balancing innovation and regulation in the burgeoning AI landscape is acknowledging that while the technology is ever-evolving, use cases often fit within existing regulatory frameworks. Read more

What We Know After 6 Years of Asking Consumers About Receiving Instant Payments

Courtesy of

In the last year, 62% of consumers received disbursements from various corporate and government agencies, with the average consumer receiving $34,000.

25%: Portion of consumers who have received income and earnings disbursements In the last two years, consumers have received just 36% of payouts via instant payment rails. Payors have an opportunity to increase the use of instant payments, as 72% of consumers prefer this method, and 62% would have chosen instant options if they had the chance. Consumers are also willing to put their money where their mouth is. Many are willing to pay a fee to receive payouts via instant rails, especially those receiving payments for freelance, contract or consulting projects.

These are just some of the findings in “Measuring Consumer Satisfaction With Instant Payouts,” a PYMNTS Intelligence and Ingo Money collaboration. This report draws on a census-balanced survey of 3,903 U.S. consumers to examine consumer satisfaction with the disbursements they receive from government and nongovernment entities. This report series is in its sixth year and provides insight into consumers’ growing interest in instant payouts, even as some issuers are lagging in offering instant options.

Other findings in the report include:

36%: Share of all disbursements that instant payments accounted for in the past two yearsThe share of consumers receiving disbursements has remained stable year to year, yet the number of payouts consumers have received has decreased.

Even as the share of consumers receiving disbursements has remained stable, the number of payouts consumers have received has decreased. As of September 2023, consumers received, on average, nine disbursements so far, down from 14 in 2021. This decrease suggests that payers are consolidating payments to lessen their frequency, likely due to the inefficient process of making these payouts.

Consumers opted to receive instant payments 72% of the time when given the option. Those receiving income and earnings payouts are most likely to choose instant rails.

On average, 54% of consumers had the choice to receive their most recent disbursement via instant payment rails. Of these, 72% ultimately chose to receive the disbursement as an instant payment. Across all disbursement categories, consumers receiving payouts for income and earnings chose instant more often than the average, at 77%. Those receiving income and earnings disbursements for freelance, contract or consulting projects chose instant the most, at 81%. Read more 

The Basel Proposal: What It Means for Retail Lending

Courtesy of Paul Calem and Francisco Covas, Banking Policy Institute

The federal banking agencies’ proposed capital rule includes risk weights for the credit risk of consumer cards and other consumer credit products. These risk weights are based on the standardized approach for credit risk agreed upon by agency staff at the Basel Committee on Banking Supervision, yet they have been calibrated to levels that exceed those agreed upon in Basel. More significantly, while the Basel agreement allows banks to use their own internal default loss data for assigning risk weights to consumer credit exposures—provided the results do not fall below a specified range of the standardized approach—the version proposed by the U.S. agencies discards this option. Finally, the proposed rule would apply a separate operational risk capital charge for consumer loans.

On top of the regulatory capital charges for credit and operational risk applied under this rule, consumer cards and other consumer credit products would continue to incur capital charges determined by the Federal Reserve’s stress test. This double charge would be unique to the United States, as a stress test capital charge has not been adopted in any other jurisdiction.

In summary, the findings presented here indicate that the proposed rule lacks empirical support and is unduly punitive to U.S. consumers. We estimate that the all-in credit risk capital charge for credit cards amounts to a risk weight of 174 percent. This risk weight far exceeds the applicable risk weight under the Basel agreement and what historical loss data would support. Furthermore, the proposed credit risk capital charge for other consumer loans, as well as the treatment of operational risk for cards and other consumer loans, are also higher than what would be deemed reasonable.

  • The risk weight for the credit risk of consumer cards would increase from the current 100 percent to 111 percent, due to the new capital charge for unused credit lines.[2] The addition from the stress test would contribute another 63 percentage points to these risk weights, elevating the cumulative risk weight to 174 percent.
  • We estimate the combined risk weight (inclusive of stress testing) for the credit risk of other consumer loans would be 100 percent, 25 percentage points above the standardized approaches risk weight under the Basel agreement and about double the advanced approaches risk weight.
  • The newly introduced risk weight for credit card operational risk is estimated to vary between 20 percent to over 100 percent. This variation largely hinges on whether card revenues are reported as gross amounts or whether the operational risk charge calculation permits the netting of credit card-related expenses, which is arbitrary. Combined, the capital requirements for operational and credit risk of consumer cards can range between about 200 percent and 250 percent. Read more

Nov. 3, 2023: Technology & Payments Articles

5 Fintech Lessons from 5 Ecosystems, Ending at Money2020

Courtesy of Alex Lazarow, Forbes

The fintech industry has grown rapidly in recent years, with new companies and innovations emerging across the globe. I’m emerging from a two-month long set of back-to-back trips, from Texas to Nairobi to Dubai, to Riyadh, to New York and to Montreal, with the final stop today in Vegas for Money 2020.

Each has their own growing fintech and startup ecosystems budding. And they each offer unique lessons for us. Here are five I reflect on.

The Power of Mafias

The term: “startup mafia” was coined originally to reference Paypal, given the staggering amount of multi-billion dollar companies that emerged from its alumni. Yet, they were of course not the first (Fairchild Semiconductor famously had a similar ecosystem impact a generation before) or certainly the last. The same phenomenon is being repeated globally – from Rappi in Latam, to Jumia in Africa, to Grab in SEA, etc.

In the Middle East, the effect of Careem felt palpable. Careem is the ride-hailing champion in the region, and the largest ever exit in the Middle East ($3b to UberUBER +6.6%). There are over 100 startups founded by Careem alumni. They have raised over $830 million themselves, nearly all in the region.

As Mudassir Sheika told me: ““Careem’s purpose to simplify and improve lives in the wider Middle East has been a powerful driver for many of our colleagues to join us and then go on to launch their own ventures. There’s still so much more that needs to be done to unleash the potential of the region and entrepreneurship brings creativity and innovation to both old and new challenges.”

But mafias don’t happen everywhere. For example, I was surprised to not (yet) see a Mafia from Shopify in any meaningful way.

Before mafias emerge, arguably you need role models – to first prove that scaling is possible. This is taking place as well. For instance, Nigerian payments startup Paystack was acquired by Stripe for over $200 million in 2020. This exit established Paystack’s founders as role models and demonstrated that big exits are possible in Africa. And as Shola explained, a number of startups have spun out of Paystack. Read more

Follow-up From Last Week: Elon Musk Wants X to Replace Users’ Bank Accounts Within a Year

Courtesy of FinExtra

Elon Musk wants X to manage users’ “entire financial life” so that they “won’t need a bank account” by the end of next year.

Musk has long boasted about his plans to move X (formerly Twitter) beyond its microblogging beginnings into an app that does everything, including an array of financial services. At an all hands call with employees this week, audio of which was obtained by the Verge, Musk said: “When I say payments, I actually mean someone’s entire financial life.”

“If it involves money. It’ll be on our platform. Money or securities or whatever. So, it’s not just like send $20 to my friend. I’m talking about, like, you won’t need a bank account.” With X currently applying for money transmission licenses across the US, Musk and CEO Linda Yaccarino are aiming to have a host of financial features available by the end of 2024.

“It would blow my mind if we don’t have that rolled out by the end of next year,” Musk told staffers. Twitter has previously nibbled around the edges of financial services, adding a tipping feature for users to reward creators on the platform and enabling people to charge subscription fees for exclusive content, like newsletters.

However, Musk is determined to go further, fulfilling his vison for the original, which he founded a quarter of a century ago. “The X/PayPal product roadmap was written by myself and David Sacks actually in July of 2000,” Musk said on this week’s call.

“And for some reason PayPal, once it became eBay, not only did they not implement the rest of the list, but they actually rolled back a bunch of key features, which is crazy. So PayPal is actually a less complete product than what we came up with in July of 2000, so 23 years ago.”

Fact Sheet: President Biden Issues Executive Order on Safe, Secure, and Trustworthy Artificial Intelligence

The Executive Order establishes new standards for AI safety and security, protects Americans’ privacy, advances equity and civil rights, stands up for consumers and workers, promotes innovation and competition, advances American leadership around the world, and more.

As part of the Biden-Harris Administration’s comprehensive strategy for responsible innovation, the Executive Order builds on previous actions the President has taken, including work that led to voluntary commitments from 15 leading companies to drive safe, secure, and trustworthy development of AI.

The Executive Order directs the following actions:

New Standards for AI Safety and Security

As AI’s capabilities grow, so do its implications for Americans’ safety and security. With this Executive Order, the President directs the most sweeping actions ever taken to protect Americans from the potential risks of AI systems:

  • Require that developers of the most powerful AI systems share their safety test results and other critical information with the U.S. government. In accordance with the Defense Production Act, the Order will require that companies developing any foundation model that poses a serious risk to national security, national economic security, or national public health and safety must notify the federal government when training the model, and must share the results of all red-team safety tests. These measures will ensure AI systems are safe, secure, and trustworthy before companies make them public.
  • Develop standards, tools, and tests to help ensure that AI systems are safe, secure, and trustworthy. The National Institute of Standards and Technology will set the rigorous standards for extensive red-team testing to ensure safety before public release. The Department of Homeland Security will apply those standards to critical infrastructure sectors and establish the AI Safety and Security Board. The Departments of Energy and Homeland Security will also address AI systems’ threats to critical infrastructure, as well as chemical, biological, radiological, nuclear, and cybersecurity risks. Together, these are the most significant actions ever taken by any government to advance the field of AI safety.
  • Protect against the risks of using AI to engineer dangerous biological materials by developing strong new standards for biological synthesis screening. Agencies that fund life-science projects will establish these standards as a condition of federal funding, creating powerful incentives to ensure appropriate screening and manage risks potentially made worse by AI.

Read more

Enigma CEO: Domain-Specific Regulation Will Shape Future of Payments

Courtesy of PYMNTS

The not-so-secret sauce in the 21st century’s growth engine is a mix of digital innovation and data-decisioning. Digital innovations beget digital gains, and while the world is changing faster and faster, payments sector innovation is keeping pace, driven by parallel advancements in technological capabilities and shifts in consumer behavior.

“With the increased digitization of everything, there’s a lot to think through, a lot to build, and at the same time, regulate,” Hicham Oudghiri, co-founder and CEO of Enigma, told PYMNTS CEO Karen Webster as part of the “What’s Next in Payments” series. “I think what we are going to see is much more domain-specific regulation,” Oudghiri added.

Given the rapid clip of today’s technical advancement, regulation increasingly plays a critical role in shaping the payments industry, ensuring consumer protection and maintaining the integrity of financial systems. Oudghiri explained that right now, “regulation in FinTech is like a proxy regulation,” where FinTechs are regulated “off of the back of the ecosystem that they plug into.”

But regulators are getting smarter, increasing their scrutiny as concerns around shadow banking move up their priority list. As regulatory authorities become more tech-savvy, Oudghiri predicted the emergence of domain-specific regulations within the FinTech sector, tailoring rules that cater to the unique characteristics of various financial services.

Challenges and Opportunities in the Digital Age

The payments industry is now extending its efforts to combat more subtle and complex fraud activities, in one way by leveraging innovative digital tools to fight next-generation digital scams. For instance, behavioral analysis can identify anomalies in user behavior, such as copying and pasting a password, and trigger security measures. This approach ensures a more personalized and effective security framework.

Still, the emergence of digital payments has led to a significant identity verification problem, particularly in the commercial sector. The challenges of verifying the identity of businesses are more fluid and dynamic than individual identities. Businesses can change names, jurisdictions and addresses, making it difficult to establish trust. Innovative solutions are required to address these challenges and ensure smooth, secure transactions in the digital economy. Read more

Oct. 27, 2023: Technology & Payments Articles

Why Elon Musk Wants to Disrupt Banking Next

Photo courtesy of Reuters

Courtesy of Steve Cocheo, The Financial Brand

Elon Musk has dreamt for years about combining digital banking with social media, if not from the banking side, then from the social media side. His purchase of Twitter launched another chapter in what has been a long saga. But as a new biography of Musk tells it, his aim to remake financial services began farther back than people realized before, when he was just in his teens.

Elon Musk’s interest in — some might even say obsession with — financial services harkens way back to a wad of lost traveler’s checks.

In Walter Isaacson’s new biography of the tech titan, titled simply “Elon Musk,” the reader joins Musk, at 18, exploring Canada by Greyhound bus. The future founder of Tesla and SpaceX has left behind his native South Africa and a frequently unhappy and sometimes abusive childhood.

Musk’s parents, estranged from each other, separately gave him small stakes to start life in America, which included a detour through Canada. His father’s contribution was $2,000 in traveler’s checks. Musk was making his way to a cousin’s house via a meandering, ultra-local bus when he took the opportunity at one stop to grab some lunch. He had to hustle to make the bus again, catching it just as it was pulling out.

One hitch: The driver thought Musk had reached his stop and removed his suitcase from the bus. It contained most of his clothing … and all of his traveler’s checks.

Musk was bereft.

“All he had now was the knapsack of books he carried everywhere,” Isaacson writes. “The difficulty of getting traveler’s checks replaced (it took weeks) was an early taste of how the financial payments system needed disruption.”

When Musk Worked for a Bank (Really!)
Musk — who took over Twitter in 2022 and has talked about turning the social media platform into a payments service and possibly a superapp — always had America as his destination. But first came a yearslong detour in Canada, where he had relatives. He would end up attending college there, along with his younger brother Kimbal.

As part of a plan to get ahead, the two of them would pore over newspapers and pick out businesspeople they admired. Then Musk’s brother, who had better people skills, would make a cold call to see if the person would be willing to mentor them. Read more

2024 May Mark a Year of AI Regulations and Bring Clarity to Risks

Courtesy of PYMNTS

Regulations over data, how it’s accessed and used — and especially, safeguarded — are changing rapidly. And they’ll keep changing. In one recent example, the Consumer Financial Protection Bureau proposed a rule tied to open banking, which seeks, in part, discussion and regulation of data sharing and access among service providers, third parties and banks.

Kathleen Yeh, director of product compliance at Galileo Financial Technologies, told PYMNTS that next year (and beyond), companies are going to grapple with the larger questions that arise at the intersection of consumer-level information and technology.

“As we move forward into 2024,” she said, “we’ll need understanding on how we are going to leverage technology — and what it’s going to used for, what type of data is going to be capture, and what the potential risks are.” Beyond the data itself, as Yeh noted, “currently, at the Federal level, we don’t have specific regulations or laws that pertain, specifically, to AI and the risks surrounding it.”

The integration of payment systems and artificial intelligence (AI), she said, may be among the most “prolific” areas of innovation in finance and in commerce. Robust data flows and analytics can help personalize recommendations in real time. Banks have been using AI to help refine chatbots and improve customer interactions and cut down on time spent on the line with call centers. Yeh pointed to Cyberbank Konecta, a Galileo SaaS offering that improves response times by more than 65% and has cut the “drop out” rates from online chats by more than 50%.

We’re seeing some movement at the state level to regulate AI, perhaps most visibly in California. Oregon’s taken steps, too, to allow consumers to opt out of letting their data be used to profile them.

Compliance becomes even more complicated against the backdrop of companies operating internationally, because regulations can vary widely from country to country when it comes to data and risk mitigation. It’s an optimal strategy for firms to have proverbial boots on the ground in each country or region where it does business. That may not always be possible, due to limited resources, so a partnership approach — as described below — may be helpful.

Precedents in Place
Yeh noted that regulators and lawmakers are closely monitoring the developments in the space and are adamant that AI firms are not exempt from having to comply with existing federal regulations and laws. “There are a lot of laws on the books and a lot of existing regulations,” she said, “and those are not going away.” Read more

Sens. Tillis, Hickenlooper Sponsor Bill To Put Certain Safeguards On Digital Assets

Courtesy of Dave Kovaleski, Financial Regulation News

U.S. Sens. Thom Tillis (R-NC) and John Hickenlooper (D-CO) introduced legislation that seeks to establish safeguards against instances of unethical co-mingling of customer funds by financial institutions that hold digital assets.

The Proving Reserves of Others Funds (PROOF) Act would establish regulatory standards on how digital asset institutions can hold customer assets, including a prohibition of the co-mingling of customer funds. It would also require digital asset exchanges and custodians to submit to a Proof of Reserves inspection by a neutral third-party.

The lawmakers point out that the implosion of the digital asset platform FTX was largely possible due to two key organizational weakness and failures. One, FTX co-mingled customer funds with its institutional and proprietary funds, and two, FTX diverted significant portions of its customer deposits to its subsidiary, Alameda Research. This resulted in a systemic lack of adequate reserves to back its customer balances.

“The FTX fiasco was a direct result of mismanagement and grossly unethical decision-making, leading to significant fraud and loss of investor funds. Americans deserve better assurances regarding their deposits and the solvency of these platforms,” Tillis said. “The PROOF Act would improve regulation of the cryptocurrency industry by explicitly prohibiting the co-mingling of funds, while also setting a strong transparency standard with the already-used industry best practice of PoR. Combined, these two steps will help build trust that investors, both institutional and retail, can engage in digital asset markets.”

PoR is an already-existing industry best practice that is used to verify whether an institution holds sufficient reserves to back its customer balances.

Under the PROOF Act, the results of monthly PoR inspections are submitted to the U.S. Department of the Treasury, which is required to post the information publicly. The bill states that failure to submit to this inspection would result in a civil fine, derived through a tiered system that increases penalties for repeat offenders. Read more

The European Fintech Collapse Spreads to the U.S.

Courtesy of Angel Au-Yeung, Wall Street Journal

The fintech contagion spread across the ocean on Wednesday following a dramatic repricing in the European sector.

Shares of buy-now-pay-later company Affirm dropped 15%. Payments company Block fell 8%. And PayPal Holdings retreated by nearly 5%.

These sell-offs were on the heels of a warning from a European payments company that there would be economic slowdowns in Germany and other core markets.

Investors have pointed out that American fintechs such as Affirm and Block have limited exposure in the European market. But this industry has come under scrutiny in recent months, with many wondering whether some of its players will be able to survive a high interest-rate environment.

Oct. 20, 2023: Technology & Payments Articles

Cheat Sheet: Understanding the CFPB’s Brief Against Apple and Google in Contactless Payments

Courtesy of Craig Guillot, the Financial Brand

In a September report, the Consumer Finance Protection Bureau argues that Apple and Google, through their respective operating systems and accompanying restrictions on access to NFC capabilities, inhibit both consumer choice and industry competition. In a new regular feature from The Financial Brand, we explain the report’s background, notable data, key findings and next steps.

Executive Summary

Apple iOS and the Google Android operating systems are the only two major mobile operating systems in the United States. The Consumer Financial Protection Bureau is concerned that as mobile wallet contactless payment use grows, both companies have an outsized role in determining consumers’ payment options.

The CFPB argues that restrictions on NFC (near-field communication, short-range wireless technologies typically operating at a distance of 2 inches or less) in mobile devices can inhibit consumer choice and innovation in payments and the development of a truly open ecosystem. One particular issue is Apple iOS’ restrictions on NFC capabilities, which force consumers to use Apple Pay service and prevents them from using contactless payments with PayPal, Venmo, or Cash App.

While Google’s Android system does not restrict access to NFC capabilities, it does come at a cost by collecting significant amounts of data on consumer purchases.

Notable and Quotable: “Given the growing use of contactless payments, hardware and software provider business decisions and models can have a significant impact on payment rails and the future of open banking. Policies that impose restrictions on competition and raise consumer switching costs must be carefully scrutinized.” Read more

SEC Head Warns AI Could Cause Financial Crisis

Courtesy of FinExtra

It is “nearly unavoidable” that AI will trigger a financial crisis within the decade unless regulators step in, says Securities and Exchange Commission head Gary Gensler.

In an interview with the Financial Times, Gensler warns that regulating AI is a “hard challenge” because a host of financial institutions may all be using the same base models. In addition, these models could be developed not by the financial firms themselves but by technology companies that are not regulated by the SEC and other Wall Street watchdogs.

Gensler tells the FT: “It’s a hard financial stability issue to address because most of our regulation is about individual institutions, individual banks, individual money market funds, individual brokers; it’s just in the nature of what we do. And this is about a horizontal [matter whereby] many institutions might be relying on the same underlying base model or underlying data aggregator.”

He continues: “If everybody’s relying on a base model and the base model is sitting not at the broker dealer, but it’s sitting at one of the big tech companies. And how many cloud providers do we have in this country?”

If firm use the same models, there is a risk of herd behaviour, says Gensler: “I do think we will in the future have a financial crisis…in the after action reports people will say ‘Aha! There was either one data aggregator or one model…we’ve relied on’.”

Gensler says he has discussed the issue with the Financial Stability Board and the Financial Stability Oversight Council, noting that “it’s really a cross-regulatory challenge”.

How Is Technological Innovation Breaking Down Barriers and Increasing Access to Financial Services?

Courtesy of Financial Technology Association, Protocol

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Financial technology is breaking down barriers to financial services and delivering value to consumers, small businesses, and the economy. Financial technology or “fintech” innovations use technology to transform traditional financial services, making them more accessible, lower-cost, and easier to use.

Fintech puts American consumers at the center of their finances and helps them manage their money responsibly. From payment apps to budgeting and investing tools and alternative credit options, fintech makes it easier for consumers to pay for their purchases and build better financial habits.

Nearly half of fintech users say their finances are better due to fintech and save more than $50 a month on interest and fees. Fintech also arms small businesses with the financial tools for success, including low-cost banking services, digital accounting services, and expanded access to capital.

The Financial Technology Association represents the innovators shaping the future of finance, whether it’s streamlining online payments, expanding access to affordable credit, giving small businesses and creators the tools for success, or empowering everyday investors to build wealth. We advocate for modernized financial policies and regulations that allow fintech innovation to drive competition in the economy and expand consumer choice.

Join FTA’s inaugural Fintech Summit in partnership with Protocol on November 16 as we discuss these themes. Spots are still available for this hybrid event, and you can RSVP here to save your seat. Join us as we discuss how to shape the future of finance. Read more

The Hidden Risks of Buy Now, Pay Later: What Shoppers Need to Know

Courtesy of Vivek Astvansh & Chandan Kumar Behera, The Conversation

Buy now, pay later is a relatively new form of financial technology that allows consumers to purchase an item immediately and repay the balance at a later time in instalments.

Unlike applying for a credit card, buy now, pay later doesn’t require a credit check. Instead, these programs use algorithms to perform “soft” credit checks to determine a shopper’s eligibility.

This means buy now, pay later loans target low-income, tech-savvy millennials and Gen Z shoppers in an effort to supposedly improve financial inclusion for these groups.

However, the newness of buy now, pay later programs means existing consumer credit laws don’t cover it. This lack of regulation puts shoppers at financial risk of accumulating higher levels of debt.

Credit cards versus buy now, pay later

There are three key differences between credit cards and buy now, pay later loans. First, while buy now, pay later loans are a line of credit like credit cards are, they don’t impact credit reports. Because of this, shoppers might be less cautious when using buy now, pay later services.

Credit cards typically have annual interest rates ranging from 15 to 26 per cent. While most buy now, pay later loans have no interest, longer term loans have annual interest rates of about 37 per cent.

Shoppers are at risk of overusing buy now, pay later programs and accumulating more debt than they can manage. In addition, formal lenders, such as banks, currently have no way of knowing what buy now, pay later debt a person is carrying. The lender, therefore, likely incurs more risk than they are aware of. Read more

Oct. 12, 2023: Technology & Payments Articles

Should Fintechs Buy or Build Their Way into Banking Today?

Courtesy of Michele Alt of Klaros Group/The Financial Brand

Obtaining approval to build a bank from scratch has become next to impossible in Washington under the current administration and regulators. Receiving approval to acquire a bank and obtain a bank charter in that way has grown tougher, but it is still a practical strategy. Veteran federal banking lawyer Michele Alt weighs issues that will impact banks as much as fintechs as banks compete with fintechs or seek to be acquired by them.

Preparing a bank charter application requires a multi-disciplinary team and many months to complete and submit to regulators. It’s a big deal. But since 2017, more than half of the fintechs that put in that effort later withdrew the de novo bank charter applications they filed with the Office of the Comptroller of the Currency. Most of these withdrawals came after a lengthy review period.

Why would an applicant pull the plug after so much effort and so much time? Because the applicant learned one or more of four important lessons while waiting for the OCC to act:

      • The advantages of a bank charter would be outweighed by the costs.
      • The fintech didn’t really need a bank charter to succeed.
      • The OCC was unlikely to welcome the fintech into the regulatory fold.
      • The fintech was more likely to obtain a bank charter by acquiring an existing bank.

Going forward, will fintechs choose to “build” their way into the banking business or will they choose to “buy” their way in?

The answer to this question is not only of interest to fintechs, but also to banks. Banks can play several roles with fintechs, including competitor, acquisition target or provider of banking as a service at some point in the fintech’s lifecycle. That last role may prove somewhat more difficult than in the past, but we’ll get to that. Read more

Embracing Fintech Led to Trouble for One Small Bank. So Did the Aftermath.

Courtesy of Kevin Wack, American Banker

Blue Ridge Bank, a community bank in Virginia that dove headfirst into the business of partnering with fintechs, has been in a pinch ever since getting hit with a broad enforcement action last year.

After nearly a year of turmoil, the company’s new CEO told S&P Global Market Intelligence this summer that the bank was reducing its focus on fintechs and shifting back to its roots in community banking.

Since that interview was published, the stock price of parent company Blue Ridge Bancshares has fallen more than 50%, adding to a rout that was already underway. The market punished the bank when its compliance problems first surfaced, then punished it again when executives decided to scale back the bank’s exposure to the fintech market. Blue Ridge’s travails illustrate the perilous path facing numerous small banks that did not pay enough attention to compliance as they embraced the high-growth business of partnering with fintechs.

That business — often called banking-as-a-service — may now be in a consolidation phase, according to industry watchers. “Banking-as-a-service as a silver bullet for community banks — I think that idea is dead,” said Alex Johnson, an industry veteran who writes the Fintech Takes newsletter.

The pressure is mounting on not just small banks, but also middleware providers that stand between those banks and fintechs. Community banks may now be more hesitant to work with middleware platforms than they were in the past, Johnson said.

One such firm, Synapse, said it laid off 40% of its staff last week after losing a major client. Read more

Inside Paypal’s Billion Dollar Battle for Payment Processing Dominance

Courtesy of Emily Mason, Forbes Staff

Last year PayPal slashed its prices in its payment services business in an attempt to fend off Dutch giant Adyen and other encroaching competitors. The strategy is working, but at what cost?

Consumers rarely even think about who processes their payments at checkout. Whether it’s being handled in the back offices of a traditional bank like JPMorgan or by a fintech like PayPal or Stripe, it merely needs to be fast, and hassle free. However, behind the scenes there is a battle underway to control ‘buy now’ technology. Last year e-commerce sales in the U.S. alone surpassed $1 trillion, from which billions in revenues and profits flowed to dozens of firms vying to be at the center of the transactions.

Among processors PayPal, with $27.5 billion in 2022 revenues, is an industry giant. In September, its new CEO Alex Chriss, 46, took the reins, inheriting a company that has embraced a risky low price strategy, similar to Dell’s approach to selling IBM PC clones in the 1990s. Last year, the San Jose company began cutting the cost of payment services it offers under its Braintree brand, a white-label service that lets companies small and large accept debit cards, credit cards and other payment methods from consumers. Research firm MoffetNathanson estimates that Braintree revenue jumped to $8.4 billion in 2022 from $6.2 billion in 2021, making up roughly 30% of PayPal’s total net revenue. Braintree is now growing faster than other parts of PayPal and unbranded transactions, which are mostly driven by Braintree, jumped 40% in 2022. PayPal’s branded business, when consumers click on the yellow PayPal button, grew only 5% in 2022.

“PayPal was doing something to juice that growth and it was likely giving it up on pricing,” says Chris Donat, fintech and payments research lead for BWG Strategy.

PayPal is making a land-grab play in North America to gain market share over close competitors including Dutch processor Adyen and fintech darling Stripe, analysts say. PayPal’s advantage is the broad suite of services it provides including processing, a digital wallet and its flagship branded checkout. It’s trying to reel in merchants by offering lower prices on Braintree services and then bundle them with more profitable features like branded checkout, its credit products or PayPal Payouts, which helps merchants like Uber pay their drivers. Read more

Some Consumers Might Need Rewards and Discounts to Try Biometric Logins

Courtesy of

Biometric authentication, a technology that uses unique physical or behavioral traits for identity verification, has gained popularity in recent years.

In fact, according to joint PYMNTS Intelligence-AWS study “Tracking the Digital Payments Takeover: Biometric Authentication in the Age of Mobile,” of the nearly 60% of consumers completed online purchases in the last 30 days, 51% used biometric authentication to validate their transactions, eliminating the need to remember passwords or enter credit card information.

However, not all consumers have embraced biometrics’ potential, and convincing those who are not interested in adopting the technology can be a challenging task.

Biometrics interestAccording to the PYMNTS Intelligence study, baby boomers and seniors are the generation most likely to resist using biometrics. This resistance may stem from a lack of knowledge on how to use the technology or a preference for manually entering information. Additionally, a significant portion of Generation Z consumers who do not use biometrics express concerns about identity theft, indicating that security is a primary worry for this age group.

One effective approach to persuade uninterested consumers to use biometrics is by offering rewards or discounts. The study found that 72% of uninterested consumers would be willing to use biometric methods if merchants provided such incentives. Additionally, one-third of consumers who have used biometric authentication methods also expressed their willingness to use it if rewards or discounts were offered.

While offering incentives can be effective, it is important to consider the associated costs. Therefore, alternative strategies should also be explored. One such strategy is to increase the acceptance of biometric authentication among merchants. Two-thirds of consumers who already use biometrics for online shopping stated that they would use it more often if more merchants accepted this form of authentication, highlighting the importance of expanding the availability of biometric authentication across various platforms.

Another aspect that can drive greater adoption is the ability to use biometric authentication on multiple devices. Over half of nonusers interested in using biometric authentication methods expressed openness to trying it if it could be used on multiple devices. This indicates the need for seamless integration across different devices to enhance user convenience and encourage adoption.

Additionally, consumers value having control over the authentication process. A significant percentage of biometric users emphasized the importance of having more control over how often authentication is required. This suggests that allowing users to customize the frequency of authentication can contribute to a more positive user experience and potentially increase adoption rates. Read more

Oct. 6, 2023: Technology & Payments Articles

How Bank-Fintech Partnerships Make Banking Better for Consumers and Small Businesses

Courtesy of Penny Lee, Forbes

A fundamental shift is happening as more Americans move towards digital financial services. Eight in ten consumers use a fintech product to manage their finances, and businesses benefit from access to a wide range of services to improve their financial operations.

Despite recent statements that missed the mark from Federal Deposit Insurance Corporation Chairman Marty Gruenberg, bank-fintech partnerships are a significant reason digital financial tools are so popular and widely available. That’s because fintechs are safe, sound, and regulated. More specifically, fintechs can partner with banks to provide best-in-class technology that helps consumers and small businesses alike.

In June, federal banking regulators unveiled long-awaited guidelines for banks looking to partner with third-party vendors such as fintechs. The guidance – developed by the Federal Reserve Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency – not only takes steps to provide clarity for banks that want to adopt leading technologies but also recognizes the benefits of these partnerships to drive responsible innovation and expand access to financial services.

To truly be successful, regulators should recognize that fintechs are indeed regulated and look to seasoned and responsible partnerships as a point of context, if not a playbook, to oversee and manage bank-fintech relationships. Such case studies can be captured in follow-on, more detailed guidance, as alluded to in the recent guidance release.

The Power of Partnerships: How Cooperation, Collaboration, and Integration Act as a Force Multiplier for Banks and Fintechs

Once viewed as a disruptive force in traditional banking, bank-fintech partnerships have become increasingly common and highly effective. Four out of five of the top 100 banks by asset size have partnered with at least one fintech company, according to McKinsey & Co., and fintech partnerships are the most common, and arguably the most effective, step banks are taking to digitize. Read more

Consumers can now add PayPal and Venmo credit or debit cards to Apple Wallet

Courtesy of Aisha Malik, TechCrunch

PayPal announced today that users can now add their PayPal and Venmo credit or debit cards to their Apple Wallet. With this new integration, you can now make payments in-store, online or on apps using Apple Pay. The company notes that users will continue earning their cashback and rewards.

You can get started by opening up the Apple Wallet app and selecting the “add debit or credit card” option. Next, you can either scan your PayPal or Venmo credit or debit card or enter the card details manually.

For now, you have to add your cards through the Apple Wallet app, but PayPal notes that users will be able to do so directly in the PayPal or Venmo apps in the coming months. The company also says that users will be able to use a PayPal Business Debit Card with Apple Pay in the coming months.

Once you have added a card, you can make an in-store purchase by using Apple Pay, which can be enabled by double-clicking the side button, authenticating with Face ID or Touch ID, and then holding your iPhone or Apple Watch near a reader. When making online or in-app purchases, you need to head to the checkout page and tap the Apple Pay button.

The new integration comes two weeks after PayPal announced that PYUSD, its stablecoin for payments and transfers, is now available on Venmo. PYUSD, which launched last month, is issued by Paxos Trust Company and is backed by U.S. dollar deposits, short-term U.S. Treasuries and similar cash equivalents.

Artificial Intelligence in the Modern Workplace: A Multi-Part Series Highlighting Concerns and Implications of Using Artificial Intelligence Within a Company

Courtesy of A.J. Bahou , Ashley M. Robinson of Bradley Arant Boult Cummings LLP, IP IQ

As artificial intelligence (AI) grows in prevalence and accessibility, it is important for employers to consider the implications of its use by their employees. One method of anticipating and quelling potential liabilities that may arise is through deploying certain internal AI policies. This article focuses on certain issues employers should strongly consider when drafting and implementing an internal AI policy. In later articles, the use of AI in software development, intellectual property issues, and confidentiality concerns, among other issues, will be explored.

What is AI?

As the modern workplace becomes increasingly more open to and reliant on the use of technology generally referred to as AI for daily tasks, this begs the question, what exactly is AI? At present, there is no uniform definition of AI, however, it is generally understood to refer to computer technology with the ability to simulate human intelligence in order to analyze data and reach conclusions, find patterns, and predict future behavior along with the ability to learn from such data and adapt its performance over time. At its core it is computer software programed to execute algorithms. Additionally, generative AI is a certain type of AI that uses unsupervised learning algorithms to create new digital content based on existing content, which can include things such as images, video, audio, text, or computer code.

Employer Considerations

Employers have many things on their plate, which now includes managing how their employees use AI in the workplace. In looking, for example, specifically at healthcare IT companies, the types of employees can generally be divided into roughly three categories: (1) those involved in the administrative side of the business, (2) those involved in healthcare technology services, and (3) those involved in software development. The considerations relevant to developing an AI policy applicable to the administrative side (human resources, the C-suite, and marketing) are detailed below, while technology services and software specific concerns will be addressed in later editions of this series.

Human Resources

Companies are increasingly using AI for certain repetitive, and data-based human resources and employee management functions. Certain common uses include recruiting, hiring, and onboarding new employees. While it can be more efficient and potentially cost reducing to automate these tasks through the use of AI, there are certain practical, legal, and regulatory challenges that all employers should consider. Read more

Appeals Court Limits Cyberdefense Agency’s Contacts with Tech Companies

The 5th Circuit order could have sweeping implications for government efforts to protect elections from disinformation campaigns

Courtesy of Cat Zakrzewski, the Washington Post

The U.S. Court of Appeals for the 5th Circuit on Tuesday ruled that a key cybersecurity defense agency probably violated the First Amendment in its efforts to coordinate with Silicon Valley to protect elections from online hoaxes, in a decision that could have sweeping implications for government efforts to secure the vote in 2024.

The panel of three judges nominated by Republican presidents wrote that the Cybersecurity and Infrastructure Security Agency “used its frequent interactions with social media platforms to push them to adopt more restrictive policies on election-related speech,” revising an injunction issued last month.

The decision bars CISA as well as its director, Jen Easterly, and several other top agency officials from taking actions that “coerce or significantly encourage” tech companies to remove or reduce the spread of posts. CISA, which was established in 2018, has played a prominent role in efforts to secure elections from online threats, in part through communicating with social media companies during the 2020 elections.

The ruling clears the way for the Supreme Court to decide whether to take the case, after the Justice Department asked the justices to put the 5th Circuit ruling on hold. It’s a significant reversal of a September decision by the same panel, which found that though CISA flagged posts to the platforms, there was not sufficient evidence that the agency’s activities crossed the line and were coercion.

The litigation, Missouri v. Biden, is at the center of a growing conservative legal and political movement that has cast a pall over efforts to fight misinformation online. This case and recent probes in the Republican-controlled House of Representatives have accused government officials of actively colluding with platforms to influence public discourse, in an evolution of long-running allegations that liberal employees inside tech companies favor Democrats when making decisions about what posts are removed or limited online. Read more