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From Washington comes news that Congress is setting out to bolster the longstanding (but lately besieged) boundary between commerce and banking: the latest attempt to scale the wall comes from Twitter, whose new owner is keen to monetise the service for payments. Currently, short of creating an actual bank, such ambitions are pursued through a state-issued Industrial Loan Company (ILC) charter from either Utah or Nevada. Crucially, ILCs are not subject to the regulatory oversight common to traditional banks. This week the Senate joined the House of Representatives in publishing a bill designed to address the issues involved, with the very name of the proposed law – Close the Shadow Banking Loophole Act – spelling out the crafters' concerns
Applicants for ILC charters include Ford and Rakuten, with American Express' 2020 acquisition, Kabbage, possessing one already, as does Square Financial Services: a wholly owned subsidiary of the payments company now known as Block. "In the US, we have generally had a separation between banking and commerce, but as Big Tech-style business practices are adopted in the payments and financial services arena, that separation can go out the door," CFPB chief Rohit Chopra told the media over the summer.
Across the Atlantic, where the banking/commerce divide is much less of an issue, tech-originated lending is nonetheless a growing concern. European-Union lawmakers and the bloc's Council of Ministers have agreed proposals to update the Consumer Credit Directive in order to ensure borrower creditworthiness is factored in before any loan is granted. As things stand, amounts of less than €200, instalment loans that don't charge interest and crowdsource-platform loans fall outside the existing Consumer Credit Directive.
Given that laws in the area are distributed across 27 member states and local interpretations differ, some standardisation is also involved. Other measures should see APR and fee caps for newer and potentially riskier lending formats. The move is part of a general trend worldwide to tighten up systemic and consumer protections as digital innovations and popular appetite drive new kinds of financial activity.
"This reform will remove blind spots in current rules concerning smaller value, interest-free or very short duration loans as well as certain leasing arrangements, such as Personal Contract Purchases for vehicles," said David Hickey, research head at Argus Advisory Research. "While full details have not yet been published, BNPL players, some of which have exploded in popularity recently, will be obliged to carry out more extensive credit checks and will see their marketing approach restricted." In practice, it will be some time before the updated directive comes into force as several steps of EU approval are required before member states, in a two-year window, legally enact the agreed directions.
For many years, successive administrations in Rome have been trying to increase the state's tax take at the point of sale by way of payments modernisation – and have met with stout resistance from MSC-averse shopkeepers.
However, the latest draft budget from the country's new leadership wants to let merchants avoid digital methods for transactions worth less than €60. Another measure would allow people to legally transfer up to €5,000 by cash if desired: if enacted, that would represent a fivefold increase of the existing threshold.
The prospect is contentious: in the words of a political rival, such a pushback would hobble the "well-developed digital payments framework [needed] to develop new, modern services". As the chart above from Argus Advisory Research quickly demonstrates, Italian card payments, even accounting for popular prepaid products, is falling behind most other markets in the region.
Other payments news stories of interest this week...
Australia: Regulator sues Amex on alleged breach of distribution laws
Netherlands: Rollout of OVpay takes major step with Amsterdam launch
Nigeria: ATM withdrawals being limited to boost CBDC, digital payments
UK: Three in ten consumers set to cut back on Christmas spending
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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.
About Argus Advisory Research The market-leading online, interactive database and data dashboards covering the global cards and payments industry in detail, plus a range of data-packed country and regional reports. Leveraging financial cards data going back to 2010 – and forecasts up to 2025 – our unique datasets cover countries around the world and feature more than 250 metrics per market.