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Visa and Mastercard are set to adjust their interchange fee tables the month after next, according to an article published on Wednesday by the Wall Street Journal. Details remain scanty, but rates will reportedly climb on some purchases made at restaurants and small supermarkets, for example, as well as particular transactions taking place online. Other purchase types will see their swipe fees reduced, though the newspaper calls these "certain low-price transactions", with the net effect apparently being a bigger interchange take for issuers. As noted in Argus Advisory Research's market report for the United States, practice in this area contrasts with overseas markets in remaining unregulated, despite longstanding lobbying by merchant advocates. "It appears that the networks plan to take advantage of the growing consumer preference for online consumption in the wake of the pandemic", commented Patrick Houlihan of Argus Advisory Research. "While merchant fees are already higher on such transactions compared to card present transactions, online is now so important that merchants may have little choice but to acquiesce. However, the networks should exercise caution, as excessive fees may prompt calls for regulatory intervention."
A brand-new Australian code of conduct to cover Buy now, pay later (BNPL) lending is being studied closely by the British regulator, which is currently considering what measures to take in response to reports that many consumers are failing to keep up with their payments schedule. The new code was announced this week and comes into effect on Monday, with the lack of any intervening transitionary period a clear sign that the authorities are not pleased with how some players have behaved. From next Monday on, BNPL lenders will be prevented from lending again to a customer who is late on their repayments, cannot lend to minors, must determine borrower identity for AML purposes and are mandated to carry out credit checks for loans worth over 2,000 Australian dollars ($1,594). The code provides a readymade blueprint for the Financial Conduct Authority (FCA) in London, which said earlier this month that "BNPL products which are currently exempt from regulation should be brought within the regulatory perimeter as a matter of urgency". Buy now, pay later products in Britain nearly quadrupled last year to reach a value of £2.7 billion ($3.8bn), says the FCA, with five million people having turned to BNPL there since the pandemic began.
As contactless grows ever more important to consumers, it is also deepening fault lines in Australian acquiring, with the question of whether merchants can choose to route to the country's EFTPOS system revived as a group of issuers look to the global networks to process their debit card transactions. Retailers in the country have been able to send contactless transactions to the EFTPOS system for two years now, but the group of mid-tier banks, including HSBC and Macquarie, have started issuing debit cards that process exclusively through Visa or Mastercard, newly energising a debate that has long been a source of contention. The central bank has made no secret of its wishes: it wants dual network cards so that merchants maintain routing choice and keep their interchange exposure low. Last year, an official said that "if market forces are not generating competition to lower the cost of debit card payments, we may need to consider lowering the benchmarks that serve as a cap on average interchange fees". Unusually, considered in a global context, Australian issuers still control acquiring. Visa, for its part, responded to central bank pressure last year by arguing that use of its rails offers extra benefits including liability protections and fraud detection.
New rules for online lenders that come into force next year will see entities such as Ant Group needing to partner with an established traditional bank for at least 30 percent of the funding required for loans. As noted by CNN, Ant had $333bn out on loan to small business or consumer customers in early summer of last year, putting it in the same league as large traditional lenders – but without funding mechanisms to match. Now, Ant is going to have to rethink exactly how it plans to grow, and any growth seems unlikely to realise the breathless forecasts spawned by its planned IPO in November, which was cancelled at the eleventh hour when Beijing withdrew approval. Last month, founder Jack Ma responded to extreme government pressure in agreeing to allow Ant to be overseen by the central bank. Although the official argument is that Ant and its new breed of lenders might start to pose a systemic risk, China has also taken a more authoritarian turn in recent years and is newly keen to avail of payments technologies in widespread use, such as Ant's Alipay and Tencent's WeChat Pay, to cement social control.
To end, links to some other stories of interest this week...
EU: Banks plan homegrown rival to Visa and Mastercard by 2025
Mexico : Apple Pay arrives with Citibanamex, Banorte and Amex
US: Consumer watchdog looks set to ramp up enforcement
The Weekly News Digest from Argus Advisory Research highlights significant developments in payment cards, digital payments, acquiring, processing, retail banking and consumer credit. Our writers and researchers frame these items in contexts such as historical, sectoral and regional trends, adding a layer of value often missing from the rolling news cycle.
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