Global Payments Newsletter, July 2020

Hogan Lovells
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Hogan Lovells

Key developments of interest over the last month include:

  • Australia: Open banking launches with the initiation of the Consumer Data Right. Customers of Australia's four major banks can choose to share certain types of data with accredited data recipients. More banks will join the Consumer Data Right in due course.
  • Singapore: Monetary Authority of Singapore (MAS) completes testing of blockchain-based multi-currency payments network prototype (Project Ubin).
  • UK: FCA publishes final guidance for payment and e-money firms on prudential risk management and arrangements for safeguarding customers' funds during COVID-19. The FCA hopes to conduct a full consultation later in 2020/21 on changes to its Payment Services and E-Money Approach Document, which are likely to include incorporation of this additional guidance.

In this Newsletter:

  • Regulatory Developments
  • Payment Market Developments
  • Surveys and Reports

 

Regulatory Developments

Australia: Open banking goes live with launch of the Consumer Data Right (CDR)

On 1 July 2020 the Australian Competition and Consumer Commission (ACCC) announced the launch of the CDR, which allows consumers to choose to share their banking data with accredited data recipients.

For the initial phase, customers banking with Australia's four major banks (Westpac, NAB, Commonwealth Bank and ANZ) can share their data from deposit and transaction accounts, including credit and debit cards.

Other banks will join the CDR over the course of the year. The types of data that can be shared will also be extended later in 2020 to data relating to loans and joint accounts.

Data recipients need to be accredited by the Consumer Data Right Register & Accreditation Application Platform which manages the security and privacy protection for the CDR.

 

Singapore: Monetary Authority of Singapore (MAS) completes testing of blockchain-based multi-currency payments network prototype

On 13 July 2020 MAS announced the completion of the final phase of Project Ubin, and published a related report. Project Ubin refers to MAS's collaboration with other industry participants to explore how blockchain can be used in payments and securities.

The final phase involved the development and industry testing of a multi-currency payments network prototype based on blockchain technology. It was tested across different industries, including and beyond financial services, and involved more than 40 firms.

The report finds that testing was successful so there is potential for cross-border payments to be improved if an international settlement network were to be based on this prototype. The report also confirms the feasibility of using smart contracts on the prototype in certain use cases, e.g. conditional payments for trade. The success of Project Ubin may drive the commercial use of blockchain technology.

 

United Kingdom: FCA publishes final guidance for payment and e-money firms on prudential risk management and safeguarding during COVID-19

On 9 July 2020 the FCA published finalised guidance and a feedback statement on prudential risk management and arrangements for safeguarding customers' funds in light of COVID-19. This follows the FCA's consultation on draft guidance which was published on 22 May 2020.

The finalised guidance confirms the approach taken in the draft version (see our June 2020 Newsletter for more on the draft), with a few modifications. The main changes are:

  • The Guidance now allows for alternatives to an acknowledgement letter, such as demonstrating that the requirements are covered in account terms and conditions.
  • The FCA gives further guidance on treatment of unallocated funds.
  • More detailed guidance is given on governance arrangements and audit requirements.
  • There is further guidance on assessment of capital and liquidity requirements, including increased focus on stress testing.
  • There is a particular focus on firms which are members of Groups, to ensure they look at their risks on a solo (rather than Group) basis and at their risks from Group exposures and that they guard against failure of Group companies which provide them with services.
  • The FCA has toned down its requirement for the bank to confirm that it holds the safeguarded funds as trustee; the FCA considers the funds to be held on trust and the bank must make clear that the funds are held for the benefit of the firm's customers.
  • Capital adequacy assessments and review of wind-down plans should be carried out at least annually.

A "Dear CEO" letter to payment services firms and e-money issuers was also published alongside the finalised guidance. It highlights six regulatory areas in relation to which the FCA has found widespread issues and what actions firms should take.

The FCA hopes to conduct a full consultation later in 2020/21 on changes to its Payment Services and E-Money Approach Document. This is likely to propose incorporating this additional guidance on safeguarding and prudential risk management. The consultation will give stakeholders a second opportunity to comment on any measures that the FCA proposes to apply permanently, building on this temporary guidance.

 

United Kingdom: UK Finance publishes implementation plan for strong customer authentication (SCA) compliance in e-commerce

On 3 July 2020 UK Finance published an article setting out the key phases of an implementation plan to secure SCA compliance for e-commerce transactions in accordance with PSD2. The plan was developed by UK Finance's SCA Programme in co-operation with members and other industry stakeholders. It focuses on 3DSecure (scheme-based payment solutions) which serve the majority of e-commerce transactions.

The phases are as follows:

  • Phase 1: Development (2020) – all parties, especially e-merchants, to support 3DS and/or direct flagging of transactions.
  • Phase 2: Market readiness (1 January – 31 May 2021) – e-merchants and issuers to complete implementation, including testing and transition.
  • Phase 3: Full ramp-up (1 June – 13 September 2021) – SCA to be gradually introduced and allow for a period of adjustment. This will involve random checks of e-commerce transactions for SCA compliance.
    In this way, the plan provides that SCA compliance for e-commerce transactions should be secured by the FCA's enforcement date of 14 September 2021.

 

United Kingdom: UK Finance publishes report on future of Open Banking following current implementation phase

On 18 June 2020 UK Finance published a report setting out its recommendations for the future of Open Banking after the end of the CMA's Roadmap in early 2021. The report was produced in collaboration with Accenture, and involved input from various stakeholders, including banks, third party providers, representatives of end-users and regulators.

The report explores how the functions of Open Banking can be maintained, and proposes a model centred around the creation of a new entity, Open Banking Limited (OBL). OBL will be a "service company" which provides services to membership groups/schemes in accordance with its mandates, e.g. maintaining Open API Standards. Firms would also pay "fairly and equitably" to receive these Open Banking services.

To ensure a fair and representative governance structure across the industry, the report recommends that the service company Board should consist of a mix of independent and industry experts with customer experience. It also suggests that the monitoring of the original CMA Order on the CMA9 remains separate from the service company, to enable the service company to adapt to future mandates subject to the promotion of competition.

In terms of next steps, the report recommends:

  • Further design work to close-out outstanding design issues and plan for transition.
  • Industry engagement to impact assess other initiatives, including the FCA's Call for Input on Open Finance and the government's review of Smart Data.

 

France: Government increases payment limits for contactless cards and meal vouchers

Payment service providers should have notified their customers of this increase before the end of the state of health emergency on 10 July 2020. If a customer refuses to accept the increase, they can disable the "contactless payment" function and terminate their contract at any time and free of charge.

Similarly, from 12 June 2020 meal vouchers, which are regulated payment instruments in France, have had their maximum usage thresholds increased from €19 to €38 per day under the decree no 2020-706 of 10 June 2020. Meal vouchers can also now be used on Sundays and public holidays. This measure will last until 31 December 2020.

 

Canada: Payments Canada publishes ISO 20022 messages for Lynx

On 15 June 2020 Payments Canada, the provider of Canada's national payments systems, announced that it has published ISO 20022 messages for Lynx. Lynx is Canada's new high-value payments system with real-time settlement functionality. It is anticipated to replace the current Large Value Transfer System and is expected to go live in 2021.

With ISO 20022 messages, Lynx will give financial institutions access to enhanced remittance, cross-border interoperability and increased digitisation of payments.

 

United Kingdom: Bank of England (BoE) publishes industry review of CHAPS enhanced ISO 20022 messages

On 6 July 2020 the BoE published an industry review of the enhanced messages (also known as "schemas") for migrating CHAPS to the ISO 20022 messaging standard. These schemas are near-final drafts and subject to industry review and feedback before the final versions are published in September 2020. In addition to feedback on the schemas, the BoE seeks input on the adoption process and how the enhanced data should be used, e.g. Legal Entity Identifiers and remittance data.

ISO 20022 is anticipated to increase resilience, improve efficiency and allow for more informed decision-making for organisations. It will also line up with the real-time gross settlement payments messaging to be used internationally, and Pay.UK's New Payments Architecture.

The deadline for comments is 31 July 2020. The adoption of the finalised schemas may be postponed until early 2023 due to the delay to the SWIFT migration.

 

United Kingdom: BoE publishes annual report on real-time gross settlement (RTGS) and CHAPS

On 14 July 2020 the BoE published its annual report relating to its RTGS and CHAPS services. The report sets out the developments during the previous year and the BoE's strategy for RTGS and CHAPS for 2020/21.

The BoE's strategy focuses on the following themes:

  • Operational resilience – The BoE will consider what further measures might be needed to comply with its proposals in the December 2019 consultation on operational resilience. Assurance will also be conducted on the CHAPS Reference Manual's new and enhanced security requirements.
  • Reliability – The BoE will work to ensure the safe transition to the renewed RTGS service and continually improve its systems.
  • Responding to the industry – Continued engagement domestically with stakeholders and internationally.
  • Renewed RTGS service – The BoE aims to appoint a Technology Delivery Partner in late summer 2020, and publish the specification and technical market guidance for enhanced ISO 20022 messages by September 2020.

 

United Kingdom: Payment Systems Regulator (PSR) updates Powers and Procedures Guidance

On 16 June 2020 the PSR updated the March 2015 version of its Powers and Procedures Guidance following its consultation last year (CP19/7). This guidance outlines the PSR's current role and remit and how it collaborates with concurrent regulators and authorities. As the PSR became fully operational in April 2015, after the guidance was originally published, updates have been made to reflect the PSR's increased powers and experience.

The updated version also contains more information about the procedures and processes the PSR uses. For example, the revised guidance provides more detail about how the PSR decides whether to make a formal direction and about how and when it conducts an enforcement investigation. There is now more useful information about how enforcement decisions are made, including settlement decisions.

The PSR's guidance on the EU Interchange Fee Regulation has also been updated to reflect the changes made to the Powers and Procedures Guidance.

 

United Kingdom: FCA and PSR statement on joint approach to Access to Cash

On 16 June 2020 the FCA and the PSR published a statement on their joint approach to Access to Cash.

The statement emphasises that in the longer term, legislation announced in the 2020 Budget should enhance the regulators' ability to protect access to cash for those who need it in a way that works for them. In the meantime, the FCA and the PSR will work with the industry to explore how it can provide an appropriate and sustainable model for accessing cash, e.g. through wider use of shared services and initiatives involving local communities.

Alongside this, the regulators recognise that firms may need to take decisions on their provision of cash machines and bank branches. In considering these issues, the FCA's focus will be on engaging with them on the steps they are taking to consider the impact of these decisions on consumers who need to withdraw cash, and businesses who need to deposit cash. The PSR will continue to work with LINK to ensure that it does all that it can to protect widespread access to cash through the geographic 'footprint' of free-to-use cash machines.

On 30 June 2020 the PSR and the FCA published an update on their work which confirms the above, and includes a map of the UK's cash access points.

 

South Korea: Bank of Korea sets up legal team to research central bank digital currency (CBDC)

On 15 June 2020 it was reported that the Bank of Korea has set up a legal team as part of the central bank's programme to introduce CBDC. This follows the central bank's previous announcement that they would initiate a 22-month long programme (lasting until December 2021) to investigate CBDC.

The legal team consists of officials from the Bank of Korea, external lawyers and professors specialising in fintech. The team will explore the legal issues arising from CBDC and determine what laws are needed to prepare for CBDC.

 

Italy: Italian Banking Association (ABI) says banks are ready to test digital euro

On 18 June 2020 the ABI published a position paper on a central bank digital currency (CBDC). The paper confirms that Italian banks are ready to participate in any related projects and sets out 10 criteria in relation to CBDC. These were pulled together by the working group that the ABI set up last year. Some of the points raised include:

  • The importance of monetary stability and respect for the European regulatory framework.
  • The fact that Italian banks are already using distributed ledger technology with the Spunta project.
  • Digital money needs to earn the trust of citizens, so high standards are required.
  • The banks will need to help identify a distribution model, explore how to effectively store and transmit CBDC and consider monetary policy.
  • CBDCs must be easy to use.

The position paper also notes that the CBDC holds further potential, e.g. to settle cross-border peer-to-peer transactions, mitigate interest rate risk and increase administrative efficiency through automated execution.

 

Thailand: Bank of Thailand announces project to develop CBDC prototype

On 18 June 2020 the Bank of Thailand announced a project to develop a prototype of a payment system using a central bank digital currency (CBDC).

The project will include a feasibility study and integration of the prototype into certain corporate systems. The aim is to see how the prototype can increase payment efficiency for businesses, e.g. increased flexibility for transfers, and quicker payments.

The project is expected to begin in July 2020 and finish by the end of the year. The Bank of Thailand will then publish a summary of the project and its outcomes.

 

Global: Bank for International Settlements (BIS) encourages central banks to consider CBDCs

On 24 June 2020 BIS published a report on central banks and payments in the digital era. Key takeaways from the report included the encouragement of central banks to innovate by issuing central bank digital currencies (CBDCs). The report points out that CBDCs can boost competition within the private sector, enhance the safety of payment systems and be a foundation for further payments innovation.

 

Japan: Bank of Japan to experiment with digital yen

On 3 July 2020 it was reported that the Bank of Japan has announced its intention to experiment with a central bank digital currency (CBDC) via its recent report "Technical Hurdles for CBDC".

The report identifies two substantial technical issues for CBDC:

  • Universal access – only 65% of the Japanese population had smartphones in 2018.
  • Resilience – this refers to the risks arising from where a CBDC goes offline, e.g. because of a power outage or natural disaster. The report considers whether to base the CBDC on blockchain technology.

The Bank of Japan hasn't provided any timeline for CBDC testing.

 

Italy: Ministry of Economic Development consults on use cases for blockchain and distributed ledger technology (DLT)

On 18 June 2020 the Ministry of Economic Development published for public consultation a document containing recommendations on how DLT and blockchain may be applied to various sectors.

Among other industries, the recommendations look at:

  • FinTech and digital payments: fostering the development of blockchain technology in the payments industry would have a significant positive economic impact and allow Italy to become an important payments hub globally.
  • Central Bank Digital Currencies (CBDCs): CBDCs have several advantages, such as:
    1. reducing the costs of cash management;
    2. facilitating access to banking services for the unbanked; and
    3. increasing the use of digital money and smart contracts.
  • Cryptoassets: the Italian legal framework needs to align with the EU Fifth Anti-Money Laundering Directive in relation to the regulation of virtual currencies.
  • AML: blockchain technology can reduce the time and cost needed to comply with KYC obligations.

The consultation closes on 20 July 2020.

See further information here.

 

Global: Committee on Payments and Market Infrastructures (CPMI) publishes stage 2 report on enhancing cross-border payments

On 13 July 2020 the CPMI published the stage 2 report for the G20 on enhancing cross-border payments. This follows the stage 1 report which was published by the Financial Stability Board (FSB) in April 2020.

The purpose of the stage 2 report was to identify building blocks which stage 3 (the roadmap for global response and action) would be founded on. 19 building blocks were identified, which centre around five focus areas:

  • Joining up the public and private sector in relation to cross-border payments.
  • Promoting and aligning regulatory, supervisory and oversight frameworks.
  • Improving existing payment infrastructures and arrangements.
  • Harmonising data and market practices to improve data quality and processing.
  • Considering new payment infrastructures, e.g. CBDCs, cross-border payment platforms.

The FSB will build on stages 1 and 2 to develop a roadmap containing practical steps and timeframes. This will take the form of a report which will be published in October 2020.

 

Europe: European Commission intends to legislate for cryptoassets and digital operational resilience

On 23 June 2020 the European Commission published a speech from Executive Vice-President, Valdis Dombrovskis, in which he set out the focus areas for the Commission's digital finance strategy, namely:

  • To help digital financial services take advantage of the single market (e.g. a passport for cryptoasset markets).
  • To assess the potential of an open finance policy, this builds on the concept of open banking.
  • To provide legal certainty in order to stimulate innovation.

The speech confirms that the Commission plans to propose legislation later in 2020 in relation to cryptoassets. The strength of regulation will be proportionate to the risk posed by cryptoassets. For example, global stablecoins will be treated differently from stablecoins developed by smaller fintechs. Existing regulations which cover some cryptoassets will also be adjusted.

The Commission also plans to propose a pilot scheme to facilitate the testing of distributed ledger technology under more flexible regulations, but with close supervisory oversight.

As the number of digital finance users grows, Dombrovskis says that the operational resilience legislation being developed currently will cover cyber resilience. The proposed legislation will also create a financial oversight mechanism for third-party ICT providers. The legislative proposal is anticipated to be released in autumn this year.

 

United States: Virtual currency initiatives proposed in New York

On 24 June 2020 the New York State Department of Financial Services (DFS) announced that it has signed a memorandum of understanding with the State University of New York (SUNY) to launch a virtual currency programme, SUNY BLOCK.

In parallel, the DFS also proposed a new licensing framework under which start-ups participating in SUNY BLOCK can apply for a conditional licence from DFS. In this way, the DFS hopes to foster and support the innovation emerging from SUNY.

The conditional licensing framework can also be used by non-SUNY entities, if they partner with those who are already authorised by the DFS to conduct virtual currency-related business. The authorised entity would provide the conditional licensee with the operational support it might need until it can apply for a full licence.

The proposed licensing framework is open to feedback from the public until 10 August 2020.

 

United Kingdom: FCA research shows jump in number of UK cryptoasset buyers

On 30 June 2020 the FCA reported that the number of UK consumers who have bought cryptoassets has increased by 1.1 million compared to last year.

The FCA's research also showed that:

  • Most cryptocurrency owners were knowledgeable about the products and the associated risks, e.g. the lack of protection, price volatility and the underlying technology. 11% of cryptocurrency owners, however, lacked such knowledge. As a result, approximately 300,000 consumers were at risk of harm.
  • 83% of UK cryptocurrency buyers used non-UK based cryptocurrency exchanges.
  • There is increased awareness of the existence of cryptocurrencies (around 31%).

As many cryptoassets are not regulated in the UK, the FCA is working as part of the UK Cryptoassets Taskforce to determine what harms can result from cryptoassets, and how to address these.

A policy statement is due to be released this year following the FCA's consultation last year which proposed a ban on selling certain cryptoasset derivatives to retail investors.

 

Global: Financial Action Task Force (FATF) publishes report on stablecoins and review of FATF Standards on virtual assets

On 7 July 2020 the FATF published a report to the G20 on what it calls "so-called stablecoins", which had been requested in October 2019. The FATF considers "stablecoin" to be primarily a marketing term rather than a legal or technical word, and so the report refers to "so-called stablecoins". The report covers the following:

  • The characteristics of stablecoins.
  • The money laundering and terrorist financing risks that stablecoins pose, e.g. because of the anonymity, potential global reach, and layering options.
  • How the FATF Standards apply to stablecoins and the different kinds of entities involved.

How the FATF plans to strengthen the AML/CTF framework for stablecoins and other virtual assets.
Although the FATF doesn't currently perceive any need for the FATF Standards to be changed to address stablecoins, it calls on all jurisdictions to implement the revised version (which includes provisions for virtual assets) as soon as possible. The FATF also plans to provide guidance for jurisdictions on AML/CTF controls in relation to stablecoins, and to strengthen cross-border cooperation between virtual asset service providers (VASPs).

This complements the FATF's report, which was published on the same day, on the implementation of the revised FATF Standards. The report sets out jurisdictions' and private sector progress in implementing the revised Standards.

The FATF will continue to closely monitor virtual assets and VASPs and conduct another review by June 2021.

 

Europe: EBA call for input on impact of de-risking

On 15 June 2020 the EBA issued a call for input on the impact of de-risking on the financial sector and its customers. "De-risking" refers to a financial institution's decision not to serve a particular category of customers or certain sectors, because they are associated with higher money laundering and terrorist financing risks.

Through this call for input, the EBA aims to understand why institutions would choose to de-risk rather than manage the risks associated with the customer or sector. It notes that payment institutions in particular are affected by de-risking.

The deadline for contributions is 11 September 2020. The EBA plans to use the contributions it receives to inform its future opinion on money laundering and terrorist financing risks, which it intends to publish in Q1 2021.

 

Europe: Council of the EU calls for better response against serious and organised crime

On 17 June 2020 the Council of the EU approved conclusions which call on Member States and the European Commission to do more to tackle serious and organised crime and make financial investigations a top priority.

According to the Council, although the EU has significantly strengthened its legal framework for fighting money laundering and terrorism financing, and improved law enforcement's access to financial information, further improvements are needed.

The Council therefore calls on the European Commission to:

  • Consider further enhancing the legal framework in order to interconnect national centralised bank account registries.
  • Explore whether certain aspects of the work of financial intelligence units could be further adapted to enable a more efficient exchange of information.
  • Re-engage with Member States regarding the need for a legislative limitation on cash payments at EU level.
  • Consider the need to further improve the legal framework for virtual assets introduced by the EU Fifth Anti-Money Laundering Directive.

The Council also calls on Europol, the EU enforcement agency, to use the potential of the newly created European Financial and Economic Crime Centre as a dedicated structure to support co-operation among law enforcement authorities and recover criminal assets.

See further information here.

 

France: AML/CTF measures relating to e-money issued in non-EEA jurisdictions come into force

On 10 July 2020 certain measures contained in the decree no 2020-118 of 12 February 2020 (the Decree) came into force. This included in particular the introduction of a new Article R. 561-16-2 in the Monetary and Financial Code (MFC) which relates to measures applicable to e-money issued in a third country.

The Decree provides that "[payment service providers] acting as acquirers [...] shall accept a payment made by means of electronic money issued in a third country that can be used on a physical medium and whose holder is not identified, or whose identity has not been verified, [in accordance with the French KYC regime], only if the electronic money instruments in question meet the requirements of Article R. 561-16-1 [of the MFC] in that country".

The requirements refer to those applicable to anonymous e-money issued in France, i.e. e-money issued without KYC measures, in accordance with the EU Fifth Anti-Money Laundering Directive.

 

Europe: List of high-risk third countries under the Fourth Money Laundering Directive (MLD4) is updated

On 19 June 2020 Commission Delegated Regulation (EU) 2020/855 was published. It updates the list of third countries with high AML/CTF risk under MLD4 to align with the Financial Action Task Force (FATF). The new methodology used to update this list also involved further engagement with third countries, Member States and the European Parliament.

The following changes were made:

  • Bosnia-Herzegovina, Ethiopia, Guyana, Lao People's Democratic Republic, Sri Lanka and Tunisia were removed from the list.
  • The Bahamas, Barbados, Botswana, Cambodia, Ghana, Jamaica, Mauritius, Mongolia, Myanmar/Burma, Nicaragua, Panama and Zimbabwe were added to the list.

The Delegated Regulation came into effect on 9 July 2020, but the additions to the list only apply from 1 October 2020. This is to give enough time for firms to implement these changes.

 

United Kingdom: Supreme Court hands down judgment in appeals relating to Mastercard's and Visa's multilateral interchange fees (MIFs)

On 17 June 2020 the UK Supreme Court handed down its judgment in the appeals from the Court of Appeal's judgment of 4 July 2018 in Sainsbury's v Visa, Sainsbury's v MasterCard, and Asda v MasterCard (see the related press release).

Europe: European Commission publishes report on the effect of the Interchange Fees Regulation (IFR)

On 29 June 2020 the European Commission published a report on the IFR's impact on card payment transactions.

The aim of the IFR was to improve market integration between Member States and promote competition by capping interchange fees for consumer credit and debit cards and reducing market barriers, e.g. banning territorial restrictions.

In summary, the report finds that these objectives have been achieved as interchange fees have been reduced. By addressing the problem of diverse interchange fees, the IFR has also boosted cross-border card transactions. As a result, there are currently no plans to revise the IFR.

However, further monitoring and data collection are needed in certain areas (e.g. circumvention of caps) so that the full effects of the IFR can be seen. As a follow-up to the report, the Commission is planning a public hearing with stakeholders on 7 December 2020.

 

United Kingdom: FCA lifts restrictions on Wirecard

On 29 June 2020 the FCA announced its consent for Wirecard (more specifically, Wirecard Card Solutions) to resume regulated activity so that Wirecard could issue e-money and provide payment services from 30 June 2020 onwards.

The FCA's restrictions were imposed on 26 June 2020 following news that Wirecard's German parent company filed for insolvency in light of its accounting issues. Through these restrictions, the FCA aimed to protect client funds and ensure that money could not be sent to Wirecard's parent. However, this impacted Wirecard's customers and end-consumers who could not use payment cards issued by Wirecard or access related accounts during this period.

Certain restrictions remain, including in relation to when Wirecard can hold client money and transfer its own assets.

 

Europe: European Payments Council (EPC) confirms SEPA payment instructions after Brexit transition period

On 14 July 2020 the EPC confirmed the measures which payment service providers should take to ensure that cross-border payments involving UK-based payment scheme participants run smoothly after 31 December 2020.

After the end of the Brexit transition period, the UK will remain a participant in SEPA. However, the UK will be treated as a non-EEA jurisdiction, so the relevant rules would apply to SEPA credit transfers and SEPA direct debit transactions with the UK.

The EPC also confirmed what SEPA instructions involving a UK-based participant should contain from 1 January 2021. If the required transaction details aren't included, transactions could be rejected. Therefore, SEPA payment scheme participants should identify cross-border SEPA transactions involving the UK, and inform the relevant customers about the data requirements.

 

Europe: Major banks start developing pan-European payment scheme, the European Payments Initiative (EPI)

On 2 July 2020 BNP Paribas announced that it is part of a group of 16 major banks from Belgium, France, Germany, the Netherlands and Spain, which have decided to launch the EPI.

The EPI aims to create a pan-European payment solution to reduce the fragmentation created by national card schemes and boost cross-border retail payments. This will result in a payment card product, a digital wallet and peer-to-peer payment capability. The initiative has been formally welcomed by the European Central Bank.

Implementation will begin with the incorporation of a company in Belgium and the creation of a roadmap. Other payment service providers can apply to join the EPI as a founding member until the end of 2020.

It is anticipated that the EPI will start operating in 2022.

 

Germany: BaFin requires first market participant to establish CCP under PSD2

On 22 June 2020 the German Federal Financial Supervisory Authority, Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), published a decision requiring Western Union Payment Services Ireland Ltd. to establish a Central Contact Point (CCP) under PSD2 in Germany to coordinate AML efforts. The decision is enforceable immediately. This is the first time that BaFin has required a market participant to establish a CCP under PSD2.

 

Payment Market Developments

Spain: CaixaBank launches ATMs equipped with facial recognition technology

On 6 June 2020 Spanish retail bank, CaixaBank, announced the release of ATMs equipped with facial recognition technology. These ATMs remove the need for a user to enter their PIN, and will be particularly useful during the COVID-19 pandemic. Users who want to use facial recognition at ATMs need to register with their local branch.

This project won the award for the best technology project of the year at The Banker Tech Projects Awards 2019 in relation to delivery channels.

CaixaBank plans to deploy over 100 of these ATMs throughout Spain.

 

Global: TransferWise launches multi-currency peer-to-peer payments

On 8 June 2020 TransferWise announced a new feature of their app where users can send money to another user with just their phone number. These payments can be cross-border and conducted in over 50 currencies. The peer-to-peer payments will also be carried out instantly, so transferees should receive funds in seconds.

 

Spain: BBVA Open Platform facilitates real-time payments

On 9 June 2020 BBVA Open Platform, which provides API-based solutions, announced that its Move Money API can now facilitate real-time payments. This new service is enabled by Visa Direct, which is Visa's real-time payments platform. The Move Money API serves as a single endpoint which supports multiple payment methods.

Real-time payments are not prevalent in the business-to-business payments sector, but BBVA Open Platform notes growing demand, e.g. for faster payroll and billing.

 

Global: Verrency releases new "Pay Later" feature on API platform

On 10 June 2020 Verrency announced a new "Pay Later" feature on its payment API platform for banks and issuers. This leverages an increasingly popular payment method where users pay in instalments.

Verrency's new feature allows bank customers to migrate to an instalment plan with a single click at any time. The feature works by enabling the bank to direct the customer to the bank's own instalment solution, or a third party lender who services or underwrites the instalments.

Verrency's new capability removes the need for a customer to set up an account with a "Buy Now Pay Later" provider and offers a greater network of merchants worldwide. In this way, Verrency also assists banks to develop their own "Pay Later" solutions as banks no longer have to worry about building a platform or merchant on-boarding.

 

China: American Express obtains clearing licence in mainland China

On 13 June 2020 American Express announced that its joint venture in mainland China (Express (Hangzhou) Technology Services Company Limited) has obtained a network clearing licence from the People's Bank of China.

The joint venture is the result of a partnership witch Chinese fintech, Lianlian DigiTech Co. Ltd. With this new licence, it can set up a payments network in mainland China, and process domestic transactions. American Express is the first foreign payments network to be able to build a network in mainland China.

 

Brazil: WhatsApp launches payments service in Brazil

On 15 June 2020 WhatsApp announced the release of a new feature which would allow WhatsApp users in Brazil to send digital payments through the app. This includes purchasing products from local businesses that also use WhatsApp, as well as peer-to-peer payments.

To ensure security, users must set a six digit PIN or use their fingerprint in order to authorise transactions. Initially, users can use accounts held with Banco de Brasil, Nubank and Sicredi to fund these payments, but WhatsApp encourages more partners to join the network.

There are no transaction fees except for businesses who receive customer payments.

On 24 June 2020, however, it was reported that the Brazilian authorities suspended this payment feature. Brazil's central bank said that it will evaluate the risk the feature poses to the domestic payment system and regulatory compliance. The competition regulator will also check for competition risks.

 

United Kingdom: NatWest testing behavioural biometric technology for SCA purposes

On 15 June 2020 the RBS Group announced that NatWest will be testing behavioural biometric technology to see how it could be used to implement strong customer authentication (SCA) as required under PSD2.

Behavioural biometric technology aims to analyse customer behaviour in relation to their device, e.g. how the device is held, or what time of day the customer does their online shopping. With this information, the technology could determine whether an attempted transaction is fraudulent or not depending on whether it recognises the user.

According to Visa, behavioural biometric technology has been accepted as a mode of inherence for SCA purposes, following work with regulators and other industry participants.

 

Brazil: Banco Rendimento is first bank to use RippleNet Cloud

On 15 June 2020 blockchain solution provider, Ripple, announced its first bank customer for RippleNet Cloud, Banco Rendimento.

RippleNet Cloud will give the bank's customers more transparency in relation to payments and trading. Payments can also be sent and received through RippleNet, Ripple's global blockchain payments network, with a single integration, which gives the bank easier and cheaper access to RippleNet partners around the world.

 

United Kingdom: FIS launches new payment solution, Open Banking Hub

On 17 June 2020 FIS announced the launch of Open Banking Hub, which is a new payment solution for its merchant customers. With this payment method, consumers are routed to their bank and can pay merchants directly from their bank account. This means that they won't need to enter their card details onto the merchant's site. Consumers can also see their account balance in real-time during checkout.

 

UAE: Commercial Bank of Dubai to boost cross-border remittance through partnership with Thunes

On 24 June 2020 leading national bank, the Commercial Bank of Dubai, announced its partnership with Thunes, a global cross-border payment provider. Through this partnership, the bank's real-time international remittance capabilities will be expanded to cover more countries, including India and the Philippines. Though the service will start with remittances to bank accounts, transfers to cash pick-up points and mobile wallets will be added in due course.

According to the Central Bank of the UAE, AED 165 billion was sent to home countries by migrant workers last year, so this partnership will target this large market.

 

Europe: Digital bank N26 launches international money transfers with TransferWise

On 25 June 2020 N26, the European digital bank based in Germany, announced that its customers can transfer money abroad thanks to its partnership with TransferWise. These transfers can be made from the app and in more than 30 currencies.

This builds on N26's consumer research which has shown that many of its customers make international payments, such as to pay student loans and buy foreign goods and services.

 

Global: Currencycloud partners with Ripple to boost cross-border payments

On 2 July 2020 Currencycloud announced its partnership with Ripple. Currencycloud facilitates business-to-business cross-border payments with its 85 different APIs that are used around the world. With Ripple, a global payments network based on blockchain technology, Currencycloud aims to discover new ways in which money could be efficiently transferred across borders. In particular, Currencycloud wants to look at countries where SMEs are under-represented.

 

France: PayPal launches instalment payment method

On 3 July 2020 PayPal launched an instalment payment method for its customers. This payment method allows customers to split an eligible purchase (between €100 and €2,000) into four instalments over 3 months. If PayPal approves a customer's request, the credit will be provided subject to a fee representing 2.1% of the transaction's value, though this is capped at €20. This service can help SMEs who can't offer similar "buy now, pay later" schemes themselves.

 

United Kingdom and Denmark: Banks to launch open banking payment feature

On 6 July 2020 Monzo announced that users can now test its new "easy bank transfer" feature. Enabled by open banking, this feature allows users to transfer money into their Monzo accounts from other bank accounts without having to provide account details. Monzo aims to officially roll out the new feature in a few weeks.

On 8 July 2020 in a similar vein, it was reported that Nordic API Gateway had announced an extension of its partnership with Danske Bank. This means that Nordic API Gateway will help Danske Bank to add a payment initiation feature to its app that allows customers to pay from their other bank accounts while in-app. This feature is expected to launch in Denmark initially in August 2020.

 

Global: International card schemes to expand "Click to Pay" checkout

On 8 July 2020 the major international card schemes, namely American Express, Discover, Mastercard and Visa, announced that they are working to expand "Click to Pay" globally. "Click to Pay" is an online checkout that speeds up online purchases by removing the need for bank details and account information. It also focuses on interoperability so that it can accept multiple card brands.

It was first announced in the US in October 2019, and more than 10,000 merchants have used it since then. For global expansion, the card networks will start to engage its payment service providers and payment gateways.

 

Europe: Mobile account provider Monese partners with Paysafe to give customers access to cash services

On 13 July 2020 Monese announced its partnership with payments platform, Paysafe, so its customers can top up their accounts with cash. Monese provides its customers with mobile accounts and aims to boost financial inclusion.

With this partnership with Paysafe, Monese's customers can top up their accounts with cash at more locations via Paysafecash payment points. There are about 170,000 of these payment points in 28 countries around the world, but the partnership will be rolled out in Europe initially.

 

Europe: Viva Wallet partners with ClearBank in the UK

On 13 July 2020 Viva Wallet announced its partnership with ClearBank for banking services in the UK. Viva Wallet is a European cloud-based payment services provider which offers acquiring and issuing services to businesses as a principal member of Visa and Mastercard.

ClearBank is a cloud-based clearing bank in the UK which can offer real-time access to payment and banking infrastructure. Through this partnership, Viva Wallet hopes to enhance its service offering.

 

United States: Visa pilots "Buy Now, Pay Later"

On 14 July 2020 Visa announced that it is testing an instalment payment solution in the US. Partners who will be deploying this technology include TSYS, which will be the first issuer to offer the solution at point of sale.

Visa hopes that this new solution will help issuers meet consumer demand for payment flexibility, especially in light of COVID-19.

 

Surveys and Reports

Global: Mastercard research shows boost in digital payments worldwide

On 18 June 2020 Mastercard published research findings from a survey it conducted in 15 countries. The findings, along with a recent report, illustrate a global shift towards digital payments in light of COVID-19, including the following:

  • Nearly half of respondents plan to move away from cash payments, even after COVID-19 passes.
  • 64% of European respondents prefer to pay contactless in-store.
  • E-commerce spending in the US increased by 93% in May 2020 compared to the same time last year.

E-commerce made up 33% of total retail sales in the UK in April and May 2020.
According to the findings of the consumer research, this may indicate a permanent change in payment habits which could present new opportunities for payment innovation.

 

UAE: Survey illustrates increase in e-commerce and digital payments

On 22 June 2020 Visa published an infographic setting out results from a survey it conducted in partnership with Dubai Police and Dubai Economy. It included the following findings:

  • 71% of consumers surveyed preferred digital payments over cash when making payments in-store. There was an almost even split between those who used contactless cards and those who used mobile wallets.
  • 49% of respondents said that they made more online purchases in light of COVID-19.
  • 43% of respondents said that they would continue to use contactless payments more for in-store transactions after COVID-19.
  • 53% of respondents were comfortable sharing their personal data with banks, telecom companies and government owned entities.
  • 66% of respondents said they prefer authentication processes that don't require one-time passcodes.
  • 58% of respondents said that they have experienced authentication delay or failure while online shopping.

The survey results therefore show that there is a general trust in digital payments, though operationally there is room for improvement and innovation.

This survey was conducted in the context of the partnership's "Stay Secure" campaign which aims to help consumers use digital payments safely and reduce fraud.

 

Asia-Pacific: GlobalData sees accelerated shift towards digital payments

On 9 July 2020 GlobalData published a press release on the increasing popularity of digital payments across the Asia-Pacific region. It expects total card payments in the region to grow by 6.5% and reach $20.3 trillion this year. It also predicts a further increase of $7.4 trillion by 2021.

GlobalData says it is particularly interesting to see growth in card payments in cash-intensive countries such as Japan, India, and the Philippines. It notes that the reasons for the trend include not only COVID-19, but also encouragement from governments, banks and payment service providers. The boost in e-commerce also serves as another reason. For example, South Korea reported an increase of 34.3% in March 2020 compared to March 2019.

 

Global: ACI Worldwide reports 28% increase in e-commerce

On 14 July 2020 payments company ACI Worldwide published research findings in relation to global e-commerce. Their analysis reports a 28% increase in e-commerce sales and a 31% increase in payment volume in June 2020, compared to June 2019. It notes that the UK's year-on-year increase was particularly steep in June compared to May.

ACI Worldwide also notes that this increase has occurred despite the easing of COVID-19 restrictions, which may indicate a more permanent behavioural shift in consumers towards online shopping.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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