Global Payments Newsletter, September 2022

Hogan Lovells

Hogan Lovells

Key developments of interest over the last month include plans to consider increasing regulation on crypto firms in several countries; the Bank of Thailand publishing a payment development strategy for 2022-2024; and "The Merge" as Ethereum move to a proof-of-stake system.

In this Newsletter:

For previous editions of the Global Payments Newsletter, please visit our Financial Services practice page.

Regulatory Developments

Australia: Federal government to map crypto tokens as part of the regulatory ramp-up

On 22 August 2022, the Australian government announced that it would begin a project with the aim of mapping all crypto tokens in the country. This is with the intention to better inform future regulation of a sector that the Australian Treasurer currently describes as "largely unregulated". The Treasury has said that a better understanding of the industry will enable a broader framework for consumer protection.

Areas, where the government have expressed an intention to introduce further regulation, include:

  • Regulatory and licensing mechanisms;
  • Crypto custody offerings; and
  • Obligations of third-party providers.

A consultation paper is expected in the near future.

Singapore: Proposals to tighten cryptocurrency trading by retail investors are planned

On 29 August 2022, it was reported that the country is considering new measures to reduce the volume of retail crypto trading. This comes as a result of three factors:

  1. The central bank feels that consumers seem to be "irrationally oblivious" about the risks;
  2. A number of recent defaults of Singapore-based crypto firms; and
  3. Poor returns on traditional investments push retail investors towards riskier assets, including cryptocurrencies.

Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), has stated a desire to "add frictions" to retail access to cryptocurrencies such as customer suitability tests and restrictions on the use of credit or leverage.

MAS plans to seek public feedback on its proposals by the end of October this year.

United Kingdom: Crypto exchanges ordered to report sanctions breaches

On 4 September 2022, HM Treasury's Office of Financial Sanctions Implementation (OFSI) updated its guidance to require crypto exchanges to immediately report any breaches of sanctions rules and freeze the relevant assets or potentially face financial penalties and criminal charges. This is to reduce the likelihood of digital currencies or any other type of cryptoasset being used to avoid sanctions.

This brings the OFSI guidance in line with FCA guidance in March 2022 which stated that crypto exchanges are not exempt from sanctions obligations and that using cryptoassets to avoid economic sanctions is a criminal offence under the UK's Money Laundering Regulations 2017.

United States: Securities and Exchange Commission announces plan to open office focussed on cryptoassets

On 9 September 2022, the Securities and Exchange Commission (SEC) announced plans to create an Office of Crypto Assets to add to the Division of Corporation Finance's Disclosure Review Program (DPR). The DPR seeks to protect investors by reviewing the filings of issuers.

The Office of Crypto Assets will continue the DPR's current work in reviewing filings of firms in the crypto industry. Concentrating this work in one office will enable the DRP to be more efficient in using its resources and expertise to address evolving filing review issues related to cryptoassets.

Australia: ASIC bolsters its cryptocurrency team and looks to regulate more digital assets

On 20 September 2022, the Australian Securities and Investments Commission indicated a willingness to re-examine whether any cryptocurrencies should be considered "financial products" and, as such, be brought within its remit. The regulator has expanded the team focussed on crypto and its executive director for markets, Greg Yanco, has labelled cryptoassets one of its "core strategic projects".

Should any coins be deemed financial products, the crypto exchanges used to trade them would have to either delist the coins, or comply with the regulatory requirements imposed by ASIC, such as obtaining financial services licences and demonstrating adequate processes to safeguard client funds.

As of yet, no decision has been made in relation to Ethereum after "the merge" led to a change from a proof-of-work system to a proof-of-stake system (see the relevant item under Payment Market Developments below for more on this).

Thailand: Bank of Thailand publishes payment development strategy for 2022-2024

On 15 September 2022, the Bank of Thailand published a new directional paper titled "Directions for Development of Payment Systems Under the New Financial Sector Landscape of Thailand". The paper sets out Thailand's payment development strategy for 2022-2024. It highlights the importance of electronic payments as Thailand transitions to a digital economy and moves towards being cashless.

There are three key principles highlighted in the paper:

  • Openness – utilising shared payment systems domestically, and increasing Thailand's role in the cross-border payments space;
  • Inclusivity – promoting digital payments amongst the population and ensuring that everyone has access to digital payment services such as by improving financial literacy; and
  • Resilience – avoiding creating systemic risks through fair and flexible regulation of digital payments.
Italy: Ministry of Economy and Finance issues decree on Italian register of payment services agents, e-money distributors and central contact points for AML supervision

On 6 September 2022, the decree of the Italian Ministry of Economy and Finance containing rules for the establishment of the Italian register of central contact points (CCPs), payment service agents and e-money distributors (Decree) was published in the Official Gazette.

The purpose of the register - to be kept by the Organismo per la gestione degli Elenchi degli Agenti in attività finanziaria e dei Mediatori creditizi (OAM) - is to ensure more efficient AML supervision of the activities carried out by payment services agents and e-money distributors operating in Italy on behalf of payment service providers and e-money institutions.

The OAM is to adopt relevant secondary implementing measures and is required to establish the register within the next 3 months.

For more on this development, see this Engage article by members of Hogan Lovells’ Rome office.

Global: CPMI requests initial feedback on proposed ISO 20022 harmonisation requirements

On 9 September 2022, the Committee on Payments and Market Infrastructures (CPMI) published an article on the harmonisation of ISO 20022. In the article, the CPMI sets out the initial thinking of a taskforce comprised of CPMI and the SWIFT Payment Market Practice Group (PMPG) on defining harmonised requirements for the use of ISO 20022 in cross-border payments. The CPMI requests feedback on the initial approach to the requirements set out in the article.

The deadline for responses is 21 October 2022. The CPMI intends to publish a formal consultation paper with more detail on the harmonisation requirements at the end of 2022.

United Kingdom: Financial Services and Markets Bill completes second reading in the House of Commons

On 8 September 2022, the Financial Services and Markets Bill 2022-23 (FSM Bill) had its second reading in the House of Commons. During the debate, Richard Fuller, Economic Secretary to the Treasury, who was presenting the Bill for the government, confirmed the government’s intention to table an amendment that would give HM Treasury the power to direct regulators to make, amend or revoke rules where there are matters of significant public interest at stake. He also confirmed that the government had no plans to merge the FCA and the PRA.

The Bill has now passed to the Public Bill Committee and the UK Parliament has published a webpage inviting written submissions on the Bill. The Committee is scheduled to report by 25 October 2022. It advises that any submissions should be made as soon as possible as the Committee will not be able to consider written evidence once the committee stage is concluded.

For more on the payments-specific aspects of the Bill, take a look at the July 2022 Global Payments Newsletter.

United Kingdom: Retained EU Law (Revocation and Reform) Bill 2022-23 introduced to Parliament

On 22 September 2022, the Retained EU Law (Revocation and Reform) Bill 2022-23 (Bill) was introduced to Parliament and had its first reading in the House of Commons. In addition, the text of the Bill and explanatory notes have been published.

Clause 1 of the Bill specifies that retained EU law in EU-derived secondary legislation and retained direct EU legislation will expire on 31 December 2023 unless otherwise preserved. Clause 1 will not, however, apply to most of the retained EU law relating to financial services as Clause 22(5) of the Bill excludes from its scope:

  • Anything referred to in Schedule 1 to the Financial Services and Bill 2022-23 (FSM Bill), ignoring any regulations made under clause 1(5) of the FSM Bill (which gives HM Treasury the power to exclude legislation from the scope of Schedule 1 to the FSM Bill).
  • Any rules made by the FCA, the PRA or the Bank of England.
  • Any generally applicable requirements (within the meaning of Part 5 of the Financial Services (Banking Reform) Act 2013 (as amended by the FSM Bill)), or directions of general application, imposed by the Payment Systems Regulator.

Part 1 of the FSM Bill contains a mechanism that allows for the revocation of financial services retained EU law specified in Schedule 1 to the FSM Bill, which covers practically all UK law relating to financial services that reflects or implements EU law.

A date for the second reading of the Bill has yet to be announced.

Payment Market Developments

United States: Currencycloud partners with Future FinTech Labs to launch Tempo app

On 22 August 2022, Currencycloud announced that it had partnered with Future FinTech Labs to launch the Tempo app, which aims to provide easier and more secure methods for U.S. immigrants to send money to North America, Italy, Spain, France, Germany, the United Kingdom, India, and the Philippines.

Tempo will give customers access to a multi-currency wallet, making sending money internationally more cost-effective. Tempo charges users a fee of $2.99 pre-transaction for sending amounts between the minimum $20 and maximum $1,500, and customers can use Future FinTech Labs' Conversion Tool to trade currencies.

Global: Mastercard partners with Binance to enable payment with crypto in 90 million stores

On 24 August 2022, Binance and Mastercard announced that they would partner to launch a cryptocurrency payment card. This enables consumers to use their crypto holdings to pay in over 90 million physical and virtual stores worldwide that currently accept Mastercard. The roll out will start in Argentina and expand from there.

The transactions are not settled with merchants in cryptocurrency, but the cryptocurrency being used to make payment is converted to fiat currency in real-time at the point of purchase.

United States: Aeropay partners with Dispense to enable cashless payment

On 24 August 2022, digital payments provider Aeropay and cannabis e-commerce platform Dispense announced a partnership. This will integrate Aeropay's digital payment capabilities with Dispense's online cannabis marketing software.

U.S. dispensaries cannot process traditional card payments whilst cannabis is illegal under federal law. As a result, most traditional payments institutions are unwilling to engage with dispensaries. This means that most transactions are made with cash, despite a majority of consumers expressing a preference for contactless payments. The Aeropay partnership will allow customers to make secure payments compliant with state laws using ACH bank transfer, improving the offering of dispensaries.

China: Central Bank of China enables consumers to link their bank accounts to a digital wallet in digital yuan pilot

On 24 August 2022, it was reported that Chinese consumers involved in the pilot of the digital yuan became able to set their digital wallets to automatically top up whenever the balance runs low. This removes the need for manual top-ups and reduces the possibility of a payment being declined for insufficient funds, thereby making the digital wallet more reliable and convenient. This requires linking the e-yuan wallet to an account with a commercial bank.

United States: OGPay announces mobile wallet cash-out at ATMs

On 29 August 2022, Original Digital Corporation announced that it had introduced the ability to make ATM withdrawals using the OGPay Mobile Wallet. Cash withdrawals can now be made without a physical bank card at more than 20,000 ATMs across the United States.

Japan: JCB to become first Japanese credit card company to offer mobile payments

On 5 September 2022, JCB was reported to be poised to be the first major Japanese credit card to launch a mobile payment app, with plans to roll out in 2023. The service will enable app users to transfer money from their bank account or credit card (including non-JCB credit cards) and pay using one of several mobile payment options, including scanning a QR code.

JCB intend to eventually enable consumers to access their work income through the app, rather than it needing to be paid into their bank account, although this would require the Japanese government to remove a regulatory restriction.

Whilst cash is still king in Japan, cashless options are becoming more popular. The Ministry of Economy, Trade and Industry reported that the share of cashless transactions reached a record 32.5% in 2021, from 29.7% in 2020.

Philippines: Roxe blockchain network partners with GCash to provide digital payments to users of the mobile wallet

On 8 September 2022, blockchain infrastructure developer Roxe announced a partnership with G-Xchange Inc, the leading mobile wallet provider in the Philippines. This allows G-Xchange to provide fast cross-border remittances to its customer base by making use of the Roxe blockchain network.

This also makes cross-border payments to or from the Philippines more affordable as G-Xchange can make use of the Roxe Payment Protocol, which offers lower foreign exchange rates than the interbank USD to PHP rate.

Botswana: Cellulant partners with Orange Money to enable card-to-wallet transfers

On 12 September 2022, Cellulant announced a partnership with Orange Money to provide card-to-wallet transfers for eight banks in Botswana. This will enable customers to transfer money online from any bank account to an Orange Money wallet. To send money, only an Orange sim card is required, although an Orange Money wallet is required to receive funds sent in this way.

Europe: Multi-country consortium debuts cross-border payments pilot for EU digital wallet

On 14 September 2022, six European countries (Denmark, Germany, Iceland, Italy, Latvia and Norway) announced a proposal to develop a pilot EU digital wallet. The consortium is led by the Nordic-Baltic eID Project, which seeks to harmonise eID processes across the Nordic and Baltic countries. The proposed wallet is a biometrically secure app, which will allow citizens to verify their ID, access public and private services, store digital documents, and make payments all in one place.

Global: Ethereum moves from proof-of-work to proof-of-stake

On 15 September 2022, the world's second largest cryptocurrency underwent a process dubbed "The Merge" as Ethereum changed the way its blockchain operates. Using proof-of-stake is more secure and more sustainable, with energy consumption 99.95% lower than when Ethereum used proof-of-work. This has been estimated to be a reduction in energy consumption equivalent to Finland shutting off its national grid.

The Merge proceeded without any significant effects on the cryptocurrency or its price and has made the currency more scalable in terms of faster potential transaction speeds, and more transactions per second. Realising these potential benefits would make Ethereum a more attractive payment method.

Global: MoneyGram and e& International Expand Partnership

On 20 September 2022, MoneyGram and e& International announced their partnership would be expanded, enabling e&'s 160 million customers to take advantage of MoneyGram's network of mobile wallet operators, bank accounts, card deposit services, and retail locations to give greater flexibility to users. The service is live throughout Saudi Arabia, the United Arab Emirates and Afghanistan with Egypt, Pakistan and several other markets in Africa expected to launch in the next few months.

Surveys and Reports

United Kingdom: Lloyds Bank says 90% of payments are now by contactless card

On 2 September 2022, Lloyds Bank published figures showing that the use of contactless payments on debit cards has risen from 65% in 2019 to 87% in 2022. This spike is explained as being due to a combination of COVID-19 leading to consumers preferring contactless options, and the contactless limit rising from £30 to £100 facilitating greater use of contactless payments.

Africa: McKinsey predict e-payments in Africa to increase by 152% between 2020 and 2025

On 7 September 2022, McKinsey published an article entitled The Future of Payments in Africa, which analysed the growth in electronic payments in Africa. The e-payments market is predicted to experience revenue growth of 20% per year, reaching $40 billion by 2025. This is in comparison with an expected global revenue growth of 7%.

This growth in likely to be spread unevenly across Africa with countries such as Egypt, Ghana, Kenya, Nigeria and South Africa best set in terms of regulation and infrastructure. These countries will continue to be the primary drivers of e-payment growth across the continent but other countries are also expected to see strong growth, including Ivory Coast, Senegal and Uganda.

Four factors behind this growth are:

  • Favourable demographics with a young median age;
  • Economic growth;
  • Technological innovations and a government prioritisation of internet and mobile phone penetration; and
  • Advances in payments infrastructure, including the Pan-African Payment and Settlement System being developed to reduce cross-border friction.

Nonetheless, McKinsey note that cash is still the most used payment method in Africa, although this is likely to change in the near future.

Global: Juniper Research study finds mobile adoption is key as contactless payments space sees major growth

On 12 September 2022, Juniper Research published a study reporting that the global value of contactless payment transactions will increase from $4.6 trillion in 2022 to $10 trillion in 2027. A key driver of this growth is investment in the infrastructure to facilitate contactless payments, including point of sale terminals and wearable tech.

Contactless payments via mobile phone and wearable tech is expected to increase 221% between 2022 and 2027, compared to an increase of 119% for contactless card payments during the same period.

[View source.]

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