Technology & Payments

Nov. 22, 2024: Technology & Payments Articles

How FIs Can Get Ready for NACHA’s Upcoming New Rule

PaymentsJournal

As fraudsters become more innovative in their schemes, the National Automated Clearing House Association (NACHA) is rolling out new rules to address emerging fraud risks, particularly scams involving business email compromise, vendor impersonation, and the increasing use of money mules.

These key changes, centered around the ACH rules, began rolling out in October and will continue through 2026.

In a recent PaymentsJournal podcast, Glenn Fratangelo, Head of Fraud Prevention Product Strategy and Marketing at NICE Actimize, and Suzanne Sando, Senior Analyst of Fraud and Security at Javelin Strategy & Research, discussed what financial institutions need to do to enhance their fraud detection programs to better protect both banks and customers.

The Growing Threat
There’s no doubt that authorized fraud is on the rise. Fraud threats have increased in both volume and complexity, especially as payment innovations evolve to keep up with advancements in technology, as well as consumer and business needs.

“Javelin has noted these increases over the last few years in terms of imposter scams, fraud, and other new activity,” said Sando. “Anecdotally, we’re hearing so much about imposter activity, which is becoming more sophisticated and convincing. It relies on that sense of urgency for the unsuspecting customer to act, and it’s not going to go away anytime soon. The digital and fast-paced nature of payments has really emphasized the importance of dealing with the problem.” Read more

Has CFPB Started a War Over Open Banking — or Created New Opportunities for Banks?

Steve Cocheo, The Financial Brand

The same day that the Consumer Financial Protection Bureau unveiled its final personal financial data rule, the banking industry sued to stop the bureau’s controversial take on open banking.

Then Donald Trump regained the White House. Should institutions wait to see what happens after the smoke clears? Or should they exploit opportunities that may benefit early adopters? The banking industry and the Consumer Financial Protection Bureau have two very different viewpoints about “open banking.”

The industry and the CFPB have been circling and skirmishing for a couple of years over rulemaking. Now a major battle is looming over the result, even as some think it’s time for banks to simply acquiesce and figure out how to profit from an inevitability.

Given the changeover in the White House — and note that a federal court decided during the first Trump administration that the CFPB director serves at the pleasure of the President — the future of the rule could change. Certain late-stage regulatory moves in the Trump years were paused and killed when President Biden took office, so it’s not inconceivable.

The new rule arises, 14 years later, from the Dodd-Frank Act of 2010, though banks have maintained that the bureau overreached the letter of the law. As it is written, the CFPB open banking rule could have far-reaching effects, including a major boost to pay-by-bank payment models through fintech apps. Read more

Google Pay Adds Afterpay BNPL Services

Patrick Cooley, Payments Dive

Users of the Google Pay digital wallet now have access to Afterpay’s BNPL services, and the tech titan is expected to add rival services from Klarna next year as well.

Google Pay is giving its users access to new buy now, pay later services, adding Afterpay installment financing to its digital wallet Tuesday and promising the addition of Klarna next year.

Block, the Oakland, California-based parent company of Afterpay, disclosed the digital wallet update in a press release Tuesday. Klarna, its Swedish BNPL competitor, gave the pledge for next year in a separate Tuesday press release as well.

The precise timeline is still to be determined, Klarna spokesperson John Craske said in by email. Afterpay was available on Google Pay as of Tuesday, a Block spokesperson said in by email.

Google Pay users won’t be able to use Afterpay everywhere, according to the news releases. The Afterpay option is available at “select merchants,” the company’s release said. The Afterpay spokesperson declined to elaborate.

Google Pay users will be able to use Klarna at both integrated and non-integrated merchants, Craske said. Read more

Is the Future of Payments Public or Private? The Fed’s Waller Weighs In

Steve Cocheo, The Financial Brand

Federal Reserve Governor Christopher Waller favors a dominant footprint for private sector payment providers to produce and sift innovation.

He sees the Fed as mainly a provider of resiliency, redundancy and oversight. Waller, a potential new Fed chairman should Jerome Powell get the hook, also sees no need for central bank digital currencies but thinks stablecoins could have a future — and could help traditional providers including banks.

The debut of the FedNow instant payment service in the summer of 2023 raised afresh the issue of the appropriate role of the government in the U.S. payments system, particularly given the competing, private sector Real-Time Payment Network from The Clearing House.

For Federal Reserve Board Governor Christopher Waller, allowing the government to play a bigger role in payments would be a mistake.

“A better approach is one in which the private sector continues to have a significant footprint, with the role of government limited,” says Waller, who chairs the Fed’s payments committee. Waller, appointed to the Fed in late 2020 by then-President Donald Trump, was cited earlier this year by Bloomberg as a potential nominee for Fed chairman if Trump pushed out current Chairman Jerome Powell. (Powell has publicly stated that he plans to resist any such efforts, and Bloomberg pointed out that Waller is known as a staunch backer of Fed independence.)

Innovation Fares Better in Private-Sector Hands
Waller, commenting in mid-November at the annual meeting of The Clearing House in a speech and a fireside chat, has multiple reasons for preferring shared roles in payments, with an accent on private providers. Read more

Nov. 15, 2024: Technology & Payments Articles

Three Must-Have Features for Next Gen Banking Apps

Steve Cocheo, The Financial Brand

In spite of a raft of features and enhancements, banking apps in the U.S. and Canada are “rife with mediocrity,” according to Forrester. The research firm says focus on three frequently weak functions could move the needle: robust search, personal notifications, and in-app support.

Leading U.S. and Canadian banks have upped their mobile banking game in recent years, and some stand out for individual aspects of their apps. But in spite of those efforts, a Forrester report says that the banks aren’t yet keeping pace with what consumers want — and demand.

“Despite leading banks’ best practices, the market overall is rife with mediocrity,” says the report.

The report gets more specific: “The market as a whole tends toward the sufficient rather than the magnificent. The average overall score across North America is 69 (out of 100). This parallels consumers’ view of bank brands as reliable but largely undifferentiated — and mediocrity inhibits future growth.” [Emphasis added.]

The study looked at a cross section of major North American institutions to get a read on mobile banking progress. In the U.S., the study covered consumer mobile offerings from Bank of America, U.S. Bank, USAA and Wells Fargo. In Canada, the research looked at offerings from CIBC, Scotiabank and TD Canada Trust, as well as ATB Financial. The latter is an insured financial services provider owned and operated by the country’s Alberta province.

Mobile Banking’s Bar Keeps Getting Raised
In an interview with The Financial Brand, Peter Wannemacher, principal analyst, digital banking for Forrester, points out that between 2020 and 2024 consumers began doing much more via mobile banking — starting with Covid isolation — and they began expecting more from their providers. Features that would have put an institution on top in 2017 are just table stakes now, he explains. Read more

Fed Aims to Make Instant Payments the Norm

“It’s going to be up to us to move instant payments from being novel to being normal,” the Federal Reserve’s chief payments executive, Mark Gould, told Money 20/20 attendees.

Lynne Marek and Patrick Cooley, Payments Dive

The Federal Reserve aims to make its instant payments system FedNow an everyday utility in the U.S. financial services sphere, offered by every bank, Financial Services’ chief payments executive, Mark Gould, told attendees at a major industry conference last week. “It’s going to be up to us to move instant payments from being novel to being normal,” Gould said during a discussion on “the rise of instant payments” with Modern Treasury CEO Dimitri Dadiomov at the Money 20/20 conference on Oct. 27.

He likened the situation to telephone landlines being common ten years ago, but noted how today very few people in the audience probably have one at home. He said he didn’t know when real-time payments will be one of those types of commonplace services, but predicted they will be at some point.

The Fed, which launched the FedNow instant payments system in July 2023, is seeking to have every bank and credit union in the country adopt the new service, Gould said. “The important thing, that I would just emphasize, is that our goal was never to have 35, or 1,000” financial institutions connected to FedNow, Gould said at the conference. “Our goal is for every financial institution to be connected. We want instant payments to be ubiquitously available and broadly used for a wide variety of applications around the country.”

That’s a bit different from comments earlier this year from another Fed official, FedNow’s head of payments product, Dan Baum, who said the Fed was shooting to attract between 7,000 and 8,000 financial institutions to the system. Read more

Buy Now, Pay Later Provider Klarna Says It Filed Confidentially for U.S. IPO

MacKenzie Sigalos & Ryan Browne, CNBC

Key Points

Klarna, which is known for its popular buy now, pay later business, said Wednesday it has confidentially filed IPO documents with the SEC.
Analysts recently valued the company in the $15 billion range.
Klarna investors include SoftBank, Sequoia Capital and London-based firm Atomico.

Klarna, which is known for its popular buy now, pay later business, announced Wednesday that it’s confidentially filed IPO documents with the SEC. The Swedish payments company has yet to publicly file its IPO prospectus. The company said the offering would follow the SEC’s review process and is subject to market conditions.

Analysts recently valued Klarna, which was founded in 2005, in the $15 billion range. At its peak during the pandemic-led surge in fintech stocks and e-commerce, the company had a valuation of $46 billion in a funding round led by SoftBank’s Vision Fund 2. But Klarna took an 85% haircut in its most recent primary fundraising round, in 2022, when the company raised money on a valuation of $6.7 billion.

In addition to SoftBank, Klarna’s roster of shareholders includes Sequoia Capital and London-based firm Atomico. Klarna CEO Sebastian Siemiatkowski previously told CNBC in an interview that unfavorable rules in Europe on employee stock options could risk the company losing talent to U.S. tech giants such as Google, Apple and Meta. Read more

PayPal Rolls Out Money Pooling Tool for Group Purchases

PayPal has rolled out a money pooling feature for friends and family to share expenses on group purchases.

Finextra

Rolling out globally across the US, Germany, Italy and Spain, the new experience gives customers the ability to set up a pool in the PayPal app or online, invite friends and family to contribute, track group contributions and transfer funds to their PayPal balance to spend or withdraw.

“Everyday life is all about connections, whether it’s chipping in for a group gift or planning a trip with friends and family. PayPal understands this and aims to make those moments easier,” says John Anderson, GM, SVP of consumer at PayPal. “We’re excited to introduce a simple, no-cost solution for collecting and managing funds for group purchases, helping our customers navigate both the social and financial aspects of their lives with each.”

According to a 2024 PayPal survey, consumers in the US pooled money for group purchases approximately 86 million times last year with some of the popular use cases being group-funded gifts, group travel, and special events like concerts or sporting events.

Customers can set up a pool for free in the PayPal app and contribute to an existing pool using their PayPal balance or linked bank account. Pool organizers can invite any friend or family member to contribute to their pool, whether they have a PayPal account or not. Pool organizers will also be able to transfer the collected funds to their PayPal balance and instantly spend with PayPal or transfer funds to a linked bank account.

The new feature is a reimagining of an earlier money pooling tool that was first launched in 2017 and then summarily shut down in 2021 in the face of a number of competing alternatives that didn’t require all contributors to be PayPal users – an important lesson which the new service overcomes.

Nov. 8, 2024: Technology & Payments Articles

The U.S. Is Leading the Way in Embedded Finance

Wesley Grant, Payments Journal

The U.S. has lagged behind other countries in the widespread adoption of financial innovations like open banking and digital assets. However, in the world of embedded finance—where financial products are integrated into non-bank software—the United States is leading the way.

According to a report from PSE Consulting and The Strawhecker Group (TSG), a third of small to medium-sized businesses in the U.S. use embedded finance services provided through software-as-a-service companies. In comparison, only 11% of smaller businesses in the UK and 6% in Germany and France use these services.

The study found that European merchants weren’t averse to SaaS solutions, but that the software companies in the region weren’t able to pique merchants’ interest with their current embedded finance solutions.

“The number of small businesses in the U.S. who have adopted embedded finance is even higher, according to a recent survey by Javelin’s small business practice,” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “That research indicates that roughly half of U.S. merchants no longer obtain a business account from their bank. They are increasingly turning to their technology provider.”

No Business Too Small
In the past, a merchant’s point-of-sale system required multiple computers interconnected to form an internal server. This setup meant that a company needed substantial revenue to justify spending thousands of dollars on a payments system. Read more

OPINION: Regulators Should Take the Reins on Fintech Oversight

Austin Anton, Bank Policy Institute

The Bank Policy Institute and The Clearing House Association commented late yesterday on partnerships between banks and fintechs in a letter to the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Federal Reserve. The letter, submitted in response to a request for information, calls for the banking regulators to exercise their authority to regulate and supervise fintechs directly so that banks are not forced to serve as quasi-regulators. It also emphasizes the need for more public education to help consumers better understand the potential risks of doing business with a nonbank, such as the potential unavailability of federal deposit insurance.

“We believe the combination of direct agency oversight of fintechs and consumer education is imperative to achieve our shared goal of effective fintech risk management,” the associations wrote. “The current approach, in which the agencies place all responsibility for ensuring appropriate fintech risk management on the banks, suggests that compliance is primarily a ‘bank issue’ and need not be a major concern for the fintech.”

The letter makes three primary recommendations:

Regulators should regulate fintechs. Banks recognize their responsibility to conduct due diligence under third-party risk management frameworks. However, banks should not be expected to independently police fintechs. The banking agencies should exercise their regulatory tools and authority — including the Bank Services Company Act — to establish rules, govern compliance and demand greater accountability from fintech companies, especially when the partnership involves higher-risk activities such as when a large percentage of the bank’s business is attributable to the fintech’s customers. Read more

Financial Services Committee Republicans Provide Input on Bank-Fintech Partnerships

Dave Kovaleski, Financial Regulation News

Republican members of the House Financial Services Committee, led by Chair Patrick McHenry (R-MC), provided their input for federal banking regulators on bank-fintech partnerships.

In a letter to regulators in response to a request for information (RFI), lawmakers emphasized that allowing responsible innovation through bank-fintech partnerships will benefit consumers and the financial system.

“Given fintech’s evolving nature and promising potential to enhance our financial system, it is essential that these newer products and services are not treated with undue regulatory scrutiny, which will only lead to stifling innovation,” the Republican lawmakers wrote.

They added that banking regulators must understand the unique nature of bank-fintech partnerships to avoid stifling innovation, ensure appropriate regulation, and deliver critical consumer protections.

“The potential benefits of bank-fintech arrangements hold significant promises: low-cost and more accessible financial products and services for consumers; tailored and seamless financial applications for consumers and businesses; an increased deposit base for community banks; and heightened competition in our financial system. As the RFI highlights, there are many different types of bank-fintech partnerships with varying complexities. Regulators should understand the nature of each type of partnership to avoid stifling innovation. Regulation and supervision should be appropriately scaled to address the nature of the partnership, not a one-size-fits-all approach. Consumers should be afforded the same protections they are afforded under existing law, regardless of how they access financial services,” they added. Read more

The FTC Comes After Neobank Dave for Misleading Marketing, Hidden Fees

Sarah Perez, Tech Crunch

The Federal Trade Commission (FTC) announced on Tuesday that it will be taking action against the online cash app and neobank Dave, which it says used “misleading marketing to deceive consumers.”

At issue is how Dave marketed $500 cash advances to consumers that it rarely offered, and the “Express Fee” it charged if customers wanted their money immediately.

The FTC claimed the service was misleading because Dave’s marketing implied that its cash advances would be “instant,” using terminology like “on the spot” to describe them, without disclosing the fees involved until after the consumer completed the sign-up process and gave Dave access to their bank account.

The fees ranged anywhere from $3 to $25, the complaint stated. If the user chose not to pay the fee, they’d have to wait two to three business days for the standard transfer to go through, the complaint says. What’s more, the FTC says, Dave would also sometimes charge a surprise fee, which it described as a “tip.” The user interface was designed to make this difficult for users to detect or avoid the fee, leading to consumers feeling scammed, according to the FTC.

This latter issue is another example of the “dark patterns” — or manipulative design practices — companies use to guide users to take actions benefiting their own goals, not the consumers. Examples of the type of behavior the FTC now wants to penalize are things like automatically checking boxes when users sign up, or showing larger buttons for the actions the company wants users to take. Read more

Nov. 1, 2024: Technology & Payments Articles

Can Digital Check Deposit Survive in the Face of Rising Fraud?

Liz Froment, The Financial Brand

Fidelity’s recent move to reduce mobile deposit limits amid a rise in check fraud highlights a growing challenge for banks: balancing fraud prevention with customer experience. Emerging technology like AI may provide the bridge addressing both issues.

In response to widespread check fraud, Fidelity’s recent decision to cut mobile deposit limits from $100,000 to $1,000 while adding a 16-business day hold on some accounts has put a spotlight on a growing challenge for banks and financial institutions. In September 2024, Fidelity flagged a surge in fraudulent activity, with scammers targeting its cash management accounts by leveraging social media to recruit customers and withdraw funds before deposits could be verified.

“Many recent cases of a ‘glitch’ are straight-up check fraud by the first party (i.e., the customer),” Thomas French, senior financial industry consultant, fraud, at SAS, a data and AI solutions provider, told The Financial Brand. “In effect, the customer deposits a check from themselves. Knowing the account will not have sufficient funds to cover the check, they withdraw the funds before the item is cleared. This is first-party fraud and abuse.”

While Fidelity managed to stem the fraudulent deposits, the move raised larger questions. How can financial institutions balance fraud prevention while maintaining the customer experience their clients expect? According to Recorded Future’s 2024 Check Fraud Report, check fraud is up by 90% from 2021 to 2023, with an estimated $21 billion in suspicious activity. This challenge is forcing financial institutions to rethink their digital deposit policies — or risk losing customer trust. Read more

OPINION: Open Banking Challenges America’s Cozy Lenders’ Club

John Foley, Financial Times

A new rule tells US banks to share data with rivals whenever customers demand it. They would rather not.

Consumers tend not to care how banks actually work. So it is unlikely many of them noticed a new rule on Tuesday making it easier to move personal data from one financial company to another — an innovation known as “open banking”. Banks and their lobbyists, though, care deeply.

The idea, which Britain introduced seven years ago, is that lenders must share data with rivals when a customer requests it. This initiative from the US Consumer Financial Protection Bureau is broadly helpful. Switching banks would become easier. Those with sparse credit records could invoke their transaction history to help get a loan.

Yet open banking is already turning into open warfare. The Consumer Bankers Association, a trade group, says the CFPB has overstepped its authority. JPMorgan Chase, the biggest US lender, describes the CFPB’s approach as “unconscionable”.The Bank Policy Institute filed a lawsuit challenging the rule within hours of its publication.

It does not help that CFPB head Rohit Chopra is pitching the initiative as a way for dissatisfied consumers to “fire” their banks. But opponents are right that there are wrinkles to be ironed out, such as exactly how the technology will work and how millions of data transfers will be policed effectively. Lenders are also bristling at the CFPB’s refusal to let them charge fees to offset the cost of complying. Read more

AWS and Plaid Advance the Business Case for Open Banking and Pay by Bank

PYMNTS.com

It’s still premature to say that open banking and pay by bank have truly arrived in the U.S. However, with the Consumer Financial Protection Bureau (CFPB) issuing the final Rule 1033 draft on Oct. 22, they certainly have more momentum.

The ruling seems to have raised as many questions as it answered, especially about liability and operational compliance changes in the banking and FinTech sector. One thing, however, is certain: Financial services companies of all shapes and sizes have waited for the CFPB to move the needle on open banking and pay by bank to advance them, and consumers may finally be ready to follow their lead.

Although the interview took place just before the official CFPB ruling came down, the spirit and intent of progressing toward open banking and pay by bank was evident in a recent conversation between Karen Webster, CEO of PYMNTS, Brian Dammeir, head of payments for Plaid, and Paul Chang, global payments market development for AWS.

As all three noted, since the advent of open banking in the U.K., consumer expectations and behaviors surrounding financial services have changed. Initially focused on the secure exchange of financial data, open banking is now evolving toward more seamless payment solutions, among them pay by bank.

Since open banking became a regulatory requirement in the U.K. in 2017, consumer behavior has evolved as well. The banking ecosystem has been moving toward more innovative, data-driven solutions. Read more

BofA Discloses Zelle Probe, Says It May Result in Litigation

Caitlin Mullen, Banking Dive

The bank also said it’s in contact with regulators over its Bank Secrecy Act/anti-money laundering and sanctions compliance programs, and a regulatory order could stem from those discussions.

Dive Brief:

Bank of America is responding to a Consumer Financial Protection Bureau inquiry related to the bank’s processing of electronic payments through Zelle, the lender disclosed Tuesday in a quarterly filing with the Securities and Exchange Commission.
The CFPB has reached out to the bank seeking to resolve the inquiry or file an enforcement action, and the bank “is evaluating next steps, including litigation,” it said in the filing.
The Charlotte, North Carolina-based lender is also in touch with “several of its federal regulators” related to aspects of the bank’s Bank Secrecy Act/anti-money laundering and sanctions compliance programs, “including transaction monitoring, training, governance, and customer due diligence,” according to the filing.

Dive Insight:
Bank of America “has been, and plans to continue, implementing enhancements” to its AML/BSA and sanctions compliance programs, as it cooperates with regulators, the lender said in Tuesday’s filing.

The bank’s discussions with regulators continue, “and resolution of these discussions may include one or more public orders by the regulators,” the filing noted. The bank doesn’t, however, expect the issues to carry a material adverse financial impact. A Bank of America spokesperson declined to comment Wednesday on either of the disclosures. Read more

Oct. 18, 2024: Technology & Payments Articles

How U.S. Instant Payments Can Catch Up to the Rest of the World

Steve Cocheo, The Financial Brand

After a near-death experience in 2023, a shift in marketing has helped get the Real-Time Payment Network of The Clearing House back on a growth path. The launch of rival FedNow in 2023 also helped.

As David Watson, president and CEO of The Clearing House describes it, the early years of its Real-Time Payments Network passed in an atmosphere of “Kevin Costner, ‘If you build it, they will come. We’ll take any payment, every payment’.”

In Costner’s “Field of Dreams,” the ghosts of the Chicago White Sox, besmirched by the “Black Sox” gambling scandal, arrive after his character builds a baseball diamond in a cornfield. RTP, introduced in late 2017, the first new payments settlement system to come along in decades, didn’t prove so magnetic at first.

Watson joined The Clearing House — owned by 22 major U.S. banks — in early 2023. Soon after the future of RTP came before a concerned TCH board. The Federal Reserve was on the verge of introducing its own instant payments network, FedNow, and RTP’s usage was looking anemic compared to the significant role played by instant payments in other countries. With FedNow on the horizon, “a lot of people had sat back and waited,” said Watson. As a country, he said, the U.S. lost a few years of growth in instant payments.

“We took a long, hard look at RTP and said, ‘Look, this has not really performed as we thought. Is it really needed? Should we turn it off?’,” said Watson. “‘Or do we actually believe in it, and should we double down?’” Read more

Treasury Official Calls for Federal Regulations for Nonbank Payment Service Providers

PYMNTS.com

A federal regulatory framework for nonbank payment service providers is needed to reduce risks and promote innovation, Nellie Liang, under secretary for domestic finance at the U.S. Treasury Department, said Wednesday (Oct. 9).

In remarks prepared for delivery at the Chicago Payments Symposium hosted by the Federal Reserve Bank of Chicago, Liang said that “our current state-based regulatory framework has not kept pace with the growth in new kinds of money and payments, raising risks for the integrity of the payment systems and trust in money.”

“The state-level framework with varying requirements also raises barriers to entry, limiting competition and innovation,” Liang said.

Liang said a modern regulatory framework for nonbank payment service providers should include as “key foundation elements” financial resources, risk management and activities restrictions. To protect against loss and reduce the risk of insolvency, eMoney issuers should be subject to financial resource requirements that reflect their limited product offering while also backing customer claims with high-quality and liquid assets, Liang said.

In terms of risk management, standards should be established to address operational risks, third-party risk and other concerns, Liang said. A third key foundational element, activities and affiliation restrictions, would ensure that eMoney issuers don’tact as banks without following bank-like rules and would mitigate anti-competitive behavior, Liang said. Read more

Real-Time Payments to Make Uneven Progress, Report Predicts

Lynne Marek, Banking Dive

The number of banks receiving real-time payments will outpace the number of those sending payments through at least 2028, according to a new survey by the U.S. Faster Payments Council.

Dive Brief:

Payments processors and core bank technology providers that responded to a U.S. Faster Payments Council survey said they expect that 70% to 80% of U.S. financial institutions will be capable of receiving instant payments by 2028.
By contrast, respondents anticipate that a much smaller percentage of such banks and credit unions, between 30% and 40%, will be sending instant payments by 2028, per the report.
The factors driving firms to receive instant payments include mobile wallet funding or defunding, earned wage access and government disbursements. However, fewer banks may send instant payments due to fraud threats, a lack of alias tools and limited end-user interfaces, among other reasons, the report said.

Dive Insight:
“There’s definitely work to be done on send,” the council’s executive director, Reed Luhtanen, said in an interview last month. “In order for your customers at a financial institution to really have the full benefit of a network, you need to be able to send transactions as well. So, I think the focus is definitely expanding to include, ’hey, we need to get not only financial institutions up and connected for receive, but also having that conversation about, how are we going to transition and expand into send.”

The latest U.S. Faster Payments Council’s report offers a closer look at bank adoption rates and possible use cases for instant payments in the near future. Read more

Banks Fight Payday Lenders with Cheaper Small-Dollar Loans

Cheryl Winokur Munk, American Banker

More banks are offering customers small-dollar installment loans or lines of credit at lower costs than nonbanks as alternatives such as payday lenders fall out of favor with regulators.

Financial institutions are on track to save consumers millions of dollars each year, said Gabriel Kravitz, a Pew Charitable Trusts manager who researches this market. Multiple large banks including Bank of America, Huntington Bank, Regions Bank, U.S. Bank and Wells Fargo offer these products to customers. Several mid-size and community banks — including First National Bank, WesBanco and First Financial Bank — have also entered the fray.

This more consumer-friendly effort follows joint regulatory guidance in May 2020 that encouraged financial institutions to offer small loans to account holders. “It’s something banks have realized is a competitive necessity,” said Christopher Leonard, chief executive of Velocity Solutions, which works with about 100 community banks and credit unions to offer small-dollar installment loans to consumers. “The alternatives are not good. Payday loans are harmful and trap people in a cycle of debt,” Leonard said.

More U.S. households turned to installment loans in 2022, with total spending on these loans climbing 25% to an estimated $36.7 billion, according to a report from the Financial Health Network. Nonbanks still dominate this market, but Pew’s research found that borrowers would prefer to turn to their bank, Kravitz said.

“The big picture is that these loans are gaining traction in the market and serving as affordable options to things like payday loans,” Kravitz said. Read more

Oct. 11, 2024: Technology & Payments Articles

Pats on the Back, Questions and Suggestions for NIST’s Digital Identity Guidelines

Chris Burt, Biometric Update

Technology Committee Republicans and NGOs offer feedback

The U.S. National Institute of Standards and Technology should communicate clearly with Congress and continue to refine key concepts in digital identity management, according to comments from organizations responding to a call for feedback on second public draft of its Digital Identity Guidelines.

The revised Digital Identity Guidelines presented in the second draft of NIST SP 800-63 Revision 4 flesh out guidance on the use of digital wallets and passkeys. The comment period closed on Monday, October 7.

Three Republican members of the House Committee on Science Space and Technology want to hear from NIST on the findings of its research into digital identity and facial recognition, and how the Guidelines can address reliability, security and accuracy concerns.

In a letter to NIST Director Laurie Locascio, the trio, who chair the Committee, as well as its subcommittees on Research and Technology and Investigations and Oversight, note concerns regarding the privacy compatibility and accuracy of facial recognition. They also note that in learning about the Identity Assurance Levels (IALs) defined by NIST, some of their concerns have been addressed.

“That said, some concerns remain with the reliability, accuracy, and security of the technology as well as future developments in face recognition technology and other forms of digital identity,” the write. Read more

3 Things to Know as Private Credit Heads Toward a $2 Trillion Industry

PYMNTS.com

The private credit market is booming — and has the potential to reshape lending, and risk, too, in financial services.

Generally and conceptually speaking, the private lending market, estimated by the International Monetary Fund to top $2 trillion at present, offers a capital “lifeline” of sorts to a variety of borrowers, especially smaller firms that may have been, or still are, underserved as they seek capital from traditional channels. Private lending may also be extended to firms that are backed by private equity vehicles.

The American Investment Council, as noted here, has estimated that as recently as 2022, the median size of a firm receiving private credit — $500 billion of which went to U.S. firms — has been an enterprise with 150 employees.

Marquee Names Are Forming New Alliances
Several headlines through the past few days have shone a spotlight on bank/asset manager tie-ups — with marquee names in both segments of finance — that are putting tens of billions of dollars to work in private credit.

As reported by Bloomberg, JPMorgan Chase has struck a partnership with Cliffwater, FS Investments and Shenkman Capital Management Inc. As part of those joint efforts, JPMorgan will reportedly originate loans and invest in them “alongside the direct lenders,” per the report.

Separately, and also this month, Citigroup has linked up with Apollo Global Management to form what the firms termed a “landmark $25 billion private credit, direct lending program initially in North America, with the potential to expand to additional geographies.” Read more

Why Shoulder Surfing Is a Key Threat for Fintech

James O’Sullivan, FinExtra

As the digital and physical worlds collide, smartphones have become central to our existence. From keeping us connected to our friends, family, and workplaces to providing access to payments, banking, and the online world, the devices in our pockets contain valuable information about our lives.

Yet, with this ease of access comes worrying risks. A reemergent threat for users and businesses alike is shoulder surfing: the act of spying over someone’s shoulder to gain access to sensitive information such as their banking passcodes, PINs or confidential login information. It is a tactic that has historically been associated with users of ATM machines but is now becoming more widespread and, therefore, a pressing consideration not just for members of the public but also for fintech companies needing to secure their operations.

A pervasive threat: shoulder surfing and its risks
Mobile theft is on the rise globally. In London alone, it is estimated that a phone is stolen every six minutes, according to the Met Police. At the same time, 1 in 10 US smartphone owners are victims of phone theft, and 68% of victims cannot recover their devices after the theft has occurred. Biometric recognition, such as FaceID and fingerprint scanning, promises a more secure smartphone experience.

Yet, most operating systems require a numerical passcode to be entered if biometrics fail several times, meaning that criminals with access to these codes can still unlock the entirety of a phone’s information, from banking details to sensitive work correspondence. Read more

Could Walmart Move Accelerate Instant Payments, Cutting Out Mastercard and Visa?

Steve Cocheo, Senior Executive Editor at The Financial Brand

When Walmart speaks, banks and other retailers have to listen. The retail giant plans to step up a pay-by-bank effort launched in 2024 by adding instant payments to the option. The new push involves ecommerce first, but payments experts forecast its arrival soon in a Walmart store near you.

The news that Walmart plans to step up its online pay-by-bank option in 2025 by hooking into both The Clearing House Real-Time Payments network and the Federal Reserve’s FedNow instant payments network has heated up the instant pay agenda in the payments business — and in a hurry.

Payments experts foresee significant implications for banks and credit unions, consumers and other merchants. Many fully expect this approach will migrate to Walmart’s in-store payments experience in its Walmart Pay mobile app before long.

Retail payments encompass a huge number of players on all sides of transactions, but when one of the country’s 800-pound retail gorillas makes a strategic shift to instant payments, that is going to change the conversation, and right quick. Read more

Oct. 4, 2024: Technology & Payments Articles

Chime’s Free Overdraft Feature Extended $30 Billion to Users

FinTech firm Chime says it has covered billions in overdrafts for its users.

Pymnts.com

Through SpotMe, the banking app’s free overdraft feature, Chime’s members have received a collective $30 billion since 2019 in overdrafts without having to pay a fee, Chime said in a Tuesday (Oct. 1) news release. Noting that traditional banks typically charge $35 for an overdraft fee, Chime said by offering fee-free overdrafts with SpotMe, it is meeting the short-term liquidity needs of its users. SpotMe allows eligible members to overdraw their account by up to $200 without having to pay a fee.

“We’re happy to announce this important milestone,” Chime CEO and Co-founder Chris Britt said in the release. “SpotMe has changed the lives of millions of Americans who need greater flexibility and access to liquidity. Its widespread impact has been felt beyond our members, and we’re pleased to see others in the industry follow our lead.”

Chime is considering an initial public offering (IPO), PYMNTS reported in March, with plans to go public in 2025. Britt said in December that the company was “as IPO-ready as a company can be” and was keeping an eye on the conditions of the economy and the stock market. The FinTech has reportedly selected Morgan Stanley to lead its IPO efforts, PYMNTS wrote last week, citing a report from Bloomberg. When reached by PYMNTS, Chime declined to comment. Morgan Stanley did not reply to a request for comment at the time.

In 2021, Chime was valued at $25 billion and has been seen as a potential IPO candidate, according to the Bloomberg report. Chime recently expanded its partnership with self-service banking provider NCR Atleos. Following the expansion, Atleos will start branding ATMs at 4,000 Walgreens stores with the Chime brand to increase customer awareness, according to an Aug. 7 press release.

Since 2021, Atleos has provided ATM access for Chime members at over 50,000 fee-free ATMs. The expanded relationship will make it “easier than ever for Chime cardholders to identify and use fee-free ATMs to access cash,” Atleos Chief Operating Officer Stuart Mackinnon said in a statement at the time.

Fidelity Slashes Mobile Deposit Limits Following Fraud Wave

Online check-fraud scheme shares some similarities with the fraud wave that hit JPMorgan Chase

Justin Baer and Oyin Adedoyin, Wall Street Journal

Fidelity Investments put stricter guardrails on the deposits customers make through its mobile app, hitting back against a check-fraud scheme that targeted the investing giant earlier this month. Fidelity slashed the amount certain customers can deposit into their cash-management accounts to $1,000 from $100,000, people familiar with the matter said. The Boston firm is also subjecting some account-holders to a 16 business-day hold on deposits before the money is made available for withdrawal or investment.

The restrictions don’t impact retirement accounts, such as 401(k) plans. Instead, they focus on cash management accounts, a type of brokerage account used to make purchases, pay bills online and withdraw funds from ATMs. Deposited checks typically take two to six days to clear. The scheme targeting Fidelity’s mobile-app shares some similarities to the check-fraud scams that have hit JPMorgan Chase and other banks recently.

The organizers rely on social-media platforms such as Telegram and TikTok to recruit customers of those firms. In exchange for access to their accounts, customers are promised a cut of the proceeds. The swindlers deposit fake or doctored checks and then quickly withdraw those funds. Some people who promoted the Fidelity scheme on social media used the hashtag #fidelityboyz.

“We recently identified individuals attempting to commit fraud using their Fidelity checking accounts,” a Fidelity spokesperson said. “To be clear, these individuals were committing fraud with respect to their own accounts: no other customer information, accounts, or assets were at risk.” The company spokesperson added that Fidelity took immediate steps to address the issue. Read more

Who Wins in An Open Banking Future?

Kate Berry, American Banker

When Rohit Chopra, the director of the Consumer Financial Protection Bureau, proposed an open banking rule last year, he framed the proposal as an opportunity for small banks to compete head-to-head with large banks that currently hold most consumer data.

“The business opportunity is about how you can steal the lunch of your bigger competitors — that is going to be key,” Chopra said last October, the day after the CFPB issued its open banking proposal. “You cannot look at open banking as a compliance burden only — you have to look at it as a business opportunity too.”

Chopra has envisioned open banking — known as the 1033 rule, for the section in the Dodd-Frank Act of 2010 that mandates bank customers retain control over their financial data — as a way to potentially level the playing field for small community banks and fintechs, allowing them to better compete with the largest banks that make up a greater share of the consumer banking market.

Open banking would give consumers control over their own financial data, including their ability to share that data with other banks or financial institutions, thus making it easier to switch banks. Increased competition should allow companies to create and offer new and different financial products once a final rule is issued in late October.

Yet Bill Demchak, the chairman, president and CEO of PNC Financial Services, threw cold water on the theory behind the proposal earlier this month. Demchak argued that once the rule is finalized, large and regional banks would be able to draw customers from smaller competitors. Read more

39% of Millennials Say They’ve Used BNPL as a Payment Option in the Last Year

Pymnts.com

Buy now, pay later (BNPL) has emerged as a compelling payment option, particularly among millennials. This shift presents an opportunity for subscription merchants to enhance their offerings, potentially increasing revenue and creating long-term customer loyalty.

A PYMNTS Intelligence report, “‘Adjustable’ Is the New ‘Agreeable’: BNPL Flexibility for Subscription Success,” a collaboration with Sezzle, examines how this trend can enhance revenue growth and help build a more sustainable subscriber base.

A New Payment Paradigm
BNPL is gaining traction as a preferred payment method, with 16% of U.S. consumers abandoning traditional payment methods in favor of BNPL solutions. This trend is particularly pronounced among millennials, with 39% reporting they used BNPL in the past year. The surge in popularity is underscored by a 28% year-over-year increase in gross merchandise volume for BNPL purchases through a single service, indicating its effectiveness in driving sales. Subscription merchants that adopt BNPL can leverage this to capture a larger market share, transforming casual buyers into loyal subscribers.

The financial impact is significant. On Black Friday, shoppers using BNPL spent an average of $150 more than those using conventional payment methods, showcasing the heightened purchasing power this payment option enables. Millennials exhibit a strong preference for flexible payment methods, making it essential for merchants to incorporate BNPL to meet their demands. Subscribers reliant on BNPL are 2.9 percentage points more likely to cancel if this option is unavailable, emphasizing its importance in maintaining customer satisfaction.

Enhancing Subscriber Experiences
BNPL enhances the overall subscriber experience by offering flexibility that aligns with consumer expectations. In the subscription economy, 30% of subscribers generate 79% of total revenue, highlighting the importance of retaining loyal customers. To combat churn, which has become a solvable issue for 96% of businesses, subscription merchants must adopt data-driven strategies, integrating BNPL into seamless onboarding processes and exemplary customer service. Read more

Sept. 27, 2024: Technology & Payments Articles

The Programmable Money Promise: Potential Advantages and Opportunities at Stake

Imagine a case where a payment sent by a buyer is credited to the seller’s account only after the goods are received, or government assistance for a skill development program is disbursed only after beneficiaries complete their training on an online portal. These are just a few possibilities that programmable money can bring to life.

Rajashekara V. Maiya and Raktim Singh, Fintech Futures

Programmable money is a revolutionary concept poised to enhance monetary and financial systems by enabling seamless securities settlements, tokenized deposits, and regulatory compliance embedded within transactions.

Central banks worldwide are exploring their potential through pilots and adoption programs. For instance, the European Central Bank (ECB) is investigating the potential of a digital euro, which could incorporate programmable features for more controlled and purpose-specific transactions.

In this article, we’ll dive into the transformative promise of programmable money and the vast opportunities it unlocks.

Understanding programmable money and how it works
Programmable money can be understood as a monetary system that can be programmed with predefined rules and conditions, dictating the terms of its usage. According to JP Morgan, “programmable money takes things a step further by embedding rules directly within the store of value itself. These rules dictate or restrict the usage of money, introducing new levels of control and security.” This controlled usage differentiates it from other forms of digital monetary systems.

There are various conditions that can be attached to programmable money. Using contractual agreements, it is possible to even incorporate monetary policies into programmable money and create stability by making rule-based adjustments to interest and inflation rates etc. Or, in the retail context, parents can allocate a portion of their children’s pocket money to healthy snacks, to limit the consumption of junk food. Read more

Walmart to Offer Instant Bank Payments

Walmart is teaming up with Fiserv to let online shoppers pay directly, and instantly, from their bank accounts.

FinExtra

According to Bloomberg, the retail giant is tapping into Fiserv’s NOW Network, which integrates with The Clearing House’s Real Time Payments network and the Federal Reserve’s FedNow. The feature – coming next year – provides shoppers with an alternative to the card networks, which Walmart and other retailers have long been in conflict with over interchange fees.

The company first dipped its toe into pay-by-bank earlier this year with Walmart Pay. However, with payments processed through the Automated Clearing House, transactions took around three days to finalize. On the latest feature, Jamie Henry, VP, emerging payments, Walmart, tells Bloomberg: “When the transaction processes as a real time payment, customers get immediate access to see that payment come through, I see it hit my account and I can properly budget. It’s not as if I’ve got this phantom payment out there that’s going to take place a couple days down the road.”

The new offering is a sign that FedNow and RTP are maturing, as enough banks connect to the systems to make it attractive to large retailers. Matt Wilcox, head, digital payments, Fiserv, tells Bloomberg: “As an industry we believe we need to create this connectivity. “FedNow and RTP, they don’t necessarily talk to one another. The NOW Network can play that role in the industry of bringing all these networks together to enable applications like pay-by-bank.”

Multi-banking: Convenience or Chaos?

Dharmesh Mistry, Fintech Futures

Since the dot-com boom, I have heard people saying that the end of banks is nigh.

The direction of travel is clear – we are all going to be increasingly “multi-banked.” After the dot-com bubble burst, they said that mobile banking will kill the banks, but that view subsided as banks launched their own mobile services. With the arrival of open banking and the launch of many new digital banks, we again began to hear that the demise of traditional banks is coming. However, as of now, I don’t know of any traditional bank that has closed because their customers went off to digital providers.

It’s difficult to find exact numbers of how many products a customer has with their bank, let alone the number of financial institutions they have to deal with. The picture is complex, so I am actually not surprised these numbers aren’t readily available. However, what is surprising is that although we have more new banks, the rates of attrition from incumbent banks are low.

Neobanks Monzo, Starling and Revolut have 20 million users between them in the UK. Of course, there will be overlapping customers that have accounts with two or even all three. However, at the end of last year, the top three banks that gained customers from switching accounts were Nationwide, Barclays and Lloyds. And the number one reason given as to why they switched was for better online/mobile banking, according to Pay.UK. Read more

Buy Now, Pay Later Services to Hit Record This Holiday Shopping Season

BNPL firms like Klarna, Afterpay, and Affirm are set to take market share away from debit cards and other forms of payment on purchases.

Fast Company/Reuters

U.S. shoppers are expected to spend a record $18.5 billion using third-party buy now, pay later (BNPL) services for holiday purchases in the last quarter of the year, according to projections by data firm Adobe Analytics released on Wednesday.

With many Americans recently carrying more debt, spending on buy now, pay later services is set to increase by 11.4% over the holiday season a year ago, Adobe said. BNPL services let shoppers expand their purchasing power by paying for merchandise in monthly installments spread out over as many as 36 months; however, the most common payments are four-installment plans.

The expected jump in spending using BNPL exceeds the projected 8.4% increase in overall spending in the upcoming holiday-shopping period, which could reach about $240.8 billion, according to Adobe Analytics. Its forecast applies to the period between November 1 and December 31.

That means that firms such as Klarna, Afterpay, and Affirm are set to take market share away from debit cards and other forms of payment on purchases of electronics and beauty products for the holidays, a time when many shoppers increase their debt by purchasing gifts. Yet some shoppers use credit cards to cover the installment payments due with BNPL services, which consumer watchdogs say could worsen their debt. Read more

Sept. 20, 2024: Technology & Payments Articles

Anti-Money Laundering Compliance in High-Risk B2B Payments

Lissele Pratt, Forbes Business Council

While the struggle against illicit gains has been a constant in finance, it’s a battle that has changed over time, with evolving laws, rules, and practices.

What Is Anti-Money Laundering?
Anti-money laundering (AML) aims to stop illegal money from entering the financial system. It’s crucial for high-risk sectors like cryptocurrency, gambling and international trade.

It encompasses a wide range of potential financial crimes—from the more traditional offenses like corruption and tax evasion to newer challenges like money laundering through digital currencies, fraudulent transactions in online gambling or illicit financing linked to cross-border trade.

AML involves verifying customers (“know your customer” or KYC), keeping detailed records, and reporting suspicious activities. Failure to comply can lead to hefty penalties; for example, Binance paid over $4.3 billion in 2023 for violating AML laws.

AML Through The Years
In 1970, the U.S. kicked off its anti-money laundering efforts with the Bank Secrecy Act. By 1989, the Global Financial Action Task Force (FATF) was formed to set international standards and later added terrorism financing to its scope.

The IMF helps 189 countries keep the global financial system stable, while the EU introduced its first anti-money laundering directive in 1990, which is updated regularly. In the U.K., the Proceeds of Crime Act 2002 (POCA) handles AML laws, and even after Brexit, the U.K. still follows FATF guidelines and EU regulations.

Tips For Creating An AML Compliance Framework
Now that you understand AML compliance, here are some tips for creating an effective AML compliance framework. While the examples noted are for high-risk businesses, you should be able to do this whatever business you run. Read more

Consolidation Trend Puts Bank-FinTech Partnerships in New Light

Pymnts.com

Good things tend to consolidate as the cream rises to the top.

The FinTech sector has seen meteoric growth over the past decade, disrupting traditional financial services and revolutionizing how consumers and businesses transact. Recent trends, however, indicate a shift toward consolidation in the space.

However, while bank-FinTech collaborations offered the promise of blending the strengths of both parties — stability from financial institutions and innovation from FinTechs — many smaller players, particularly those with unproven technology, began to fall away as the FinTech ecosystem matured.

The shift marked a departure from the period of rapid expansion and experimentation that characterized the early days of bank-FinTech partnerships. Now, the market is composed of banks that are more selective in choosing partners and FinTechs that have proven their value proposition, Kiewiet said.

The Best of Both Worlds: Using Bank Strengths and FinTech Innovation
At their best, bank-FinTech partnerships allow both parties to use each other’s strengths.

“It’s the promise of the best of both worlds,” Kiewiet said.

He highlighted how banks provide the stability that customers value, ensuring that core functions like safeguarding deposits remain reliable and consistent. On the other hand, FinTechs bring speed and innovation, enabling services such as real-time payments and access to funds that meet modern consumer expectations. This synergy is crucial, as it allows banks and FinTechs to deliver enhanced financial services without each side needing to become what they are not. Read more

U.S. Regulator Proposes Strengthened Rules for Banks Working with Fintechs

Hannah Lang, Reuters

Summary

FDIC proposes banks identify beneficial owners of fintech accounts
Synapse Financial’s bankruptcy led to freezing of thousands of accounts
DOJ withdraws 1995 bank merger guidelines in favor of broader rules

A top U.S. banking regulator on Tuesday proposed that banks bolster recordkeeping requirements for accounts held by fintech companies on behalf of their customers, following the collapse of bank-fintech middleman Synapse Financial Technologies earlier this year that led to the freezing of thousands of accounts.
Taken together, the new requirements would ensure that consumers have timely access to their funds, even in the absence of a bank’s failure, the Federal Deposit Insurance Corp said.

The FDIC also finalized updated bank merger guidance, and separately, the U.S. Justice Department announced it would be withdrawing from its 1995 bank-specific merger guidelines in favor of its broad merger guidelines finalized late last year.

Under the FDIC’s proposal to strengthen recordkeeping, banks that work with fintech companies would need to identify the beneficial owners of each account and its balance. Third parties — like Synapse — would be allowed to maintain those records as long as certain requirements are met, such as a bank retaining unrestricted access to that data even in the event of a middleman’s bankruptcy or insolvency. Read more

Affirm Opens BNPL Offering to Apple Pay Users

Pymnts.com

Buy now, pay later (BNPL) network Affirm is now available for Apple Pay users.

bnplThe integration, announced Monday (Sept. 16), lets Apple Pay users in the U.S. pay for purchases via iPhone and iPad over time using Affirm, breaking down their payments into biweekly or monthly installments. “We are thrilled to bring the power of Affirm to Apple Pay users in the U.S. and the retailers where they shop,” Vishal Kapoor, Affirm’s senior vice president of product, said in a news release. “This integration combines the ease, convenience and security of Apple Pay alongside the features users love in Affirm — flexibility, transparency and no late or hidden fees.”

To use the service, consumers with iOS 18 and iPadOS 18 or later can pick “Other Cards & Pay Later Options” when checking out with their Apple device before undertaking an eligibility check that will not affect their credit score. Users who are approved will see customized payment plans and can select the one that works best for them.

Last month, Affirm released earnings showing a 31% year-over-year growth in gross merchandise volume (GMV), reaching $7.2 billion, as well as a 48% surge in revenue, taking in $659 million. As PYMNTS wrote, these figures “underscore the growing appetite for flexible payment options as consumers deal with financial pressures.” CEO Max Levchin told analysts on an earnings call that potential reductions in interest rates could increase BNPL usage. Read more

Sept. 13, 2024: Technology & Payments Articles

Revolut Sees Jump in Scam Complaints as APP Fraud Grows

Pymnts.com

Revolut enjoys the distinction of being the most valuable FinTech in Europe.

But as a report Wednesday (Sept. 11) by Bloomberg News points out, the company has also been saddled with a less desirable title: it leads its competitors in complaints about authorized push payment (APP) scams.

These are scams in which fraudsters dupe their victims into transferring money to an online account beyond their control. Last year, Bloomberg notes, Revolut began to show greater pushback on requests for reimbursements from thousands of victims. Data from the United Kingdom’s Financial Ombudsman Service says this triggered a wave of customer complaints, more so than the ones made about all other U.K. competitors combined.

According to Bloomberg, Revolut has increased its anti-fraud efforts. The company has a seat on the advisory board of Cifas, the U.K. agency that fights economic crime, and has bolstered advertising on its security features. And Revolut’s lead anti-fraud executive has even given evidence before an inquiry by the British Parliament.

The report also points to recent comments by Revolut U.K. CEO Francesca Carlesi, who argues there is external “misperception” around the company’s approach to fraud. “We have a duty and moral obligation to be a pioneer to fight fraud,” she said, adding that the company considers the problem a “national emergency.”

Last month, the U.K.’s Payments Systems Regulator (PSR) issued a report showing that APP fraud rose in volume last year, from 224,603 in 2022 to 252,636 last year, a 12% increase. However, fraud cases also declined in value by the same amount, coming to nearly 341 million pounds ($433 million) last year. Read more

VIDEO Bank-Fintech Partnerships: Tensions on the Rise

K&L Gates

Our speakers discuss the recent Request for Information promulgated by federal regulators, which is seeking industry input on bank-fintech partnership arrangements. Specifically in light of Synapse’s failure, the RFI solicits information on the nature of these arrangements, effective risk management practices, and the implications of such arrangements.

We have guided both fintech and banking clients (as well as digital asset clients) as they’ve navigated these new waters in forming partnerships. Our panelist—along with a Q&A—discuss problems currently facing the industry as well as possible solutions to enable more robust and compliance solutions, including Banking-as-a-Service. (Registration required to watch, CLE Credit Available)

Speakers (Click here to watch)

Jeremy McLaughlin
Grant Butler
Andrew Glass
Jennifer Crowder
Greg Blase

Klarna Forges Strategic Alliance to Revolutionize Payment Options in the $1T Air Travel Sector

FinTech Global

UATP, renowned for its robust global payment network that facilitates streamlined payment processes, has entered into a strategic alliance with Klarna, a leader in AI-driven global payments.

This partnership introduces Klarna’s flexible payment solutions, including its popular interest-free Buy Now Pay Later (BNPL) service, to UATP’s extensive network of airlines and travel agencies.

This collaboration represents a pivotal junction for both entities, leveraging their complementary strengths. Klarna will gain unprecedented access to a broad spectrum of airlines and travel agencies across the EU and APAC regions, establishing itself as a preferred BNPL provider. The partnership is strategically positioned to tap into the $1trn air travel market, currently dominated by credit card payments which incur substantial costs for airlines and hefty interest fees for consumers.

UATP stands out in the travel payment sector for its capability to simplify complex payment systems and extend versatile payment options to a global clientele. On the other hand, Klarna, a pioneer in the BNPL space, offers a range of payment methods from immediate settlements to flexible, short-term financing solutions. Klarna’s offerings are particularly appealing due to their transparent terms and high consumer repayment rates, which boast a 99% success rate globally. Read more

PERSPECTIVE: ‘Banks Use About 35% of Their Available Technology, and We Didn’t Want to Be That Bank’: On Evolving Tech Preferences Among Community Banks

Sara Khairi, Tearsheet

Community banks have weathered a storm of challenges in recent years, including macroeconomic pressures and the uncertainty following three regional bank failures in 2023. In particular, young community banks launched during the peak of Covid-19 have had to contend with additional complexities due to their timing.

These community banks may operate on a smaller scale, but their ambitions rival those of Wall Street giants. As the digital wave sweeps across the globe, these banks are not just staying in the game — they’re hustling to keep pace and stay relevant by adopting emerging technologies.

One example is Atlanta’s Craft Bank, which opened its doors in 2020, right when the world was facing a pandemic. Primarily a commercial bank with a business-centric focus, Craft Bank currently operates with a team of 19 employees and manages total assets of $250 million.

Ross Mynatt, CEO of Craft Bank, joins us to discuss his journey as a first-time CEO, the choice of Jack Henry as their core tech partner, and the strategies behind Craft Bank’s $250 million asset growth at a time when most smaller institutions were struggling just to stay afloat.

Throughout our talk, it becomes evident that although 92% of banks aim to maintain or elevate their technology spending in 2024, community banks and large financial institutions take markedly different approaches when it comes to investing, forming partnerships, and selecting technology providers.

Ross also discusses whether community banks could potentially leverage technology more effectively than their larger peers. This first episode kicks off a three-part series exploring the tech and partnership strategies of three emerging community banks. First up: Craft Bank – its origin and its tech evolution. Let’s dive in! Read more

Sept. 6, 2024: Technology & Payments Articles

U.S. Wants EU Members to Give Access to Travelers’ Biometric Data By 2027

Masha Borak, BioMetric Update

The U.S. authorities continue to push for access to EU member states’ biometric databases to conduct traveler screening as part of its visa-free travel regime.

The U.S. wants all countries participating in the U.S. Visa Waiver Programme (VWP) to sign the Enhanced Border Security Partnership (EBSP) agreement by 2027, according to a document circulated by the Belgian Council Presidency in June and published by the non-governmental organization Statewatch last week.

Alongside the International Biometric Information Sharing Program (IBIS), EBSP is designed to gain access to national biometric databases to authenticate travelers’ identities. The EBSP would require direct connections between the biometric databases of participating states and the U.S.’ IDENT/HART system.

Almost all EU member states are covered by the U.S. Visa Waiver Programme. The proposed transfer of biometric data, however, is not covered by any existing EU-U.S. agreement.

In the document, the Belgian Presidency suggests that a new international treaty may be needed for the transfers. At the same time, EU lawmakers are also questioning whether the data exchange would be possible under EU legislation. Read more

Circle of Trust: How Digital Identities Can Secure the Gig Economy Against Fraud

PYMNTS.com

Fraudsters, like consumers, love a good deal.

And the gig economy, estimated to be worth half a trillion dollars in 2023 and employing 38% of the U.S. workforce, is becoming their latest target — with more than a third of U.S. consumers report being victims of fraud on gig platforms, a rate 10 times higher than any other fraud circumstance.

“The challenge is that anyone can join these platforms … therefore, the bad folks do as well,” Rodger Desai, CEO at Prove Identity, told PYMNTS’ CEO Karen Webster, explaining that the open nature of platforms like DoorDash and Uber — as well as their fundamental utility — make them attractive targets for bad actors.

Many gig economy platforms allow users to operate under pseudonyms or remain anonymous. While this can provide privacy for legitimate users, it also opens the door for fraudsters to create multiple fake accounts or impersonate others without fear of immediate detection. This anonymity makes it challenging to track and hold scammers accountable.

The challenge in fighting fraud within the gig economy, Desai said, lies in balancing security with the need for rapid onboarding and user convenience.

Establishing a Trust Network
As the gig economy grows, so do the techniques used by fraudsters. From phishing scams and account takeovers to synthetic identity fraud and fake reviews, the evolving nature of fraud in the gig economy requires constant vigilance. Fraudsters often stay ahead of security measures, exploiting new technologies and vulnerabilities as they arise. Read more

Fed Governor Waller Cool on Interlinking Fast Payment Systems

FinExtra Editorial Team

Federal Reserve governor Christopher Waller has cautioned against the clamour to interlink national fast payment systems, insisting that the US is focused on building up its FedNow network domestically.

The interlinking of fast payment systems is a plank of the G20 roadmap for boosting cross-border payments. Several countries have put bilateral agreements in place while many more are experimenting, including via BIS projects. However, in a speech at an event in India, Waller warned about the drive for ever faster cross-border payments.

“Not all frictions that slow payments down are bad. Certain frictions are purposely built into the global payment system for compliance and risk-management reasons. Slowing down the speed at which payments are cleared and settled helps banks prevent money laundering and counter the financing of terrorism, detect fraud, and recover fraudulent or misdirected cross-border payments,” he told his audience.

Not only this, but buyers often have an incentive to wait as long as they can to pay for something they have purchased. Says Waller: “So, I am still left with the larger question of whether we should be incentivising faster cross-border payments.”

The governor also highlighted the practical complications of linking systems, noting that Brazil, India and the US all have very different models. Waller warns that “achieving interoperability is not simple,” and that “technology is probably the easiest part,” compared to the legal, compliance, settlement, and governance challenges. Read more

Visa Debuts a New Product Designed to Protect Consumers Making Bank Transfers

Ryan Browne, CNBC

Key Points

Visa said it plans to launch a dedicated service for account-to-account (A2A) payments, skipping the traditional — and often inflexible — direct debit process.
Visa said consumers will be able to monitor these payments more easily and raise any issues by clicking a button in their banking app.
The product will initially launch in the U.K. in early 2025, with subsequent releases in the Nordic region and elsewhere in Europe later in 2025.

Visa said it plans to launch a dedicated service for bank transfers, skipping credit cards and the traditional direct debit process. Visa, which alongside Mastercard is one of the world’s largest card networks, said Thursday it plans to launch a dedicated service for account-to-account (A2A) payments in Europe next year.

Users will be able set up direct debits — transactions that take funds directly from your bank account — on merchants’ e-commerce stores with just a few clicks.

Visa said consumers will be able to monitor these payments more easily and raise any issues by clicking a button in their banking app, giving them a similar level of protection to when they use their cards.

The service should help people deal with problems like unauthorized auto-renewals of subscriptions, by making it easier for people to reverse direct debit transactions and get their money back, Visa said. It won’t initially apply its A2A service to things like TV streaming services, gym memberships and food boxes, Visa added, but this is planned for the future. Read more

Aug. 29, 2024: Technology & Payments Articles

OPINION: Are Digital Wallets Safe? New Research Says ‘No’

Masha Borak, Biometric Update

Digital payment wallets have exploded in recent years and are expected to reach 5.2 billion users globally by 2026. But despite the popularity of quick payments offered by ApplePay, GPay, and PayPal, a new study is questioning their security and warning that changes in authentication methods are necessary to avoid identity theft and fraud.

Researchers from the University of Massachusetts Amherst and Pennsylvania State University analyzed the security of financial transactions through digital wallets, focusing on authentication, authorization, and access control security functions.

One of the issues identified is a weakness in how authentication methods are determined. Banks usually delegate the choice of user authentication method to the wallet. Generally, two types of authentication methods are used: knowledge-based authentication (KBA) and multi-factor authentication (MFA). When it comes to cardholder verification methods (CVMs) on smartphones the choices fall to either a passcode, pattern or the biometric authentication native to the device.

But while delegating authority for authentication is efficient and scalable, this compromises security, the researchers argue.

“We identify that a foolproof and uniform authentication policy enforcement by the bank is missing for all wallets,” the study says. “Such delegation of authentication is flawed in that an attacker can dictate the bank to accept a weak authentication procedure which gives birth to a number of security vulnerabilities.”

The paper, titled “In Wallet We Trust: Bypassing the Digital Wallets Payment Security for Free Shopping,” warns that some attacks could lead to serious consequences, including thieves making purchases with stolen bank cards despite banks blocking them. As digital wallets require sensitive personal and financial information, security issues may lead to identity theft and financial fraud. Read more

Aeropay Targets Pay-By-Bank Evolution in U.S.

Lynne Marek, Banking Dive

The Chicago fintech has moved from servicing small merchants to handling cannabis payments, and now it’s catering to gaming clients.

Aeropay CEO Daniel Muller has big dreams for ushering in the next era of payments in the U.S., but that doesn’t mean it’s going to happen anytime soon. Muller, 37, founded Aeropay in 2017 and has been slowly expanding the company’s pay-by-bank brand of payments one vertical at a time.

Pay-by-bank is part of a broader account-to-account, or bank-to-bank, payment method that relies on the ACH Network. It has been gaining ground in the U.S. for years, mainly because it’s a lower-cost means of sending payments, but ACH transfers are often slow, unless a user pays up for same-day service.

Last year’s launch of FedNow, the Federal Reserve’s instant payments system, has the potential to speed up bank-to-bank money movement, and that could increase the allure of such payments. However, that requires the uptake of FedNow by more banks.

“There is a lot of interest around this concept of pay-by-bank, being able to use your bank account essentially as the way that you would use cash,” said Peter Tapling, a payments industry consultant based in the Chicago area.

Nonetheless, merchants and consumers aren’t that familiar with the concept at this point. “Pay-by-bank is evolving — everybody doesn’t understand how it works yet,” Tapling said. “So, one of the things that Aeropay offers is portions of that ecosystem that help the merchants and the consumers understand how it works.” Read more

Apple Set to Open Up Access to NFC Tech to Third-Party App Developers

Cameron Emanuel-Burns, FinTech Futures

Apple has announced it will soon grant third-party app developers in a number of locations access to its near-field communication (NFC) contactless payment technology.

The company says that starting with iOS 18.1, developers in the US, Australia, Brazil, Canada, Japan, New Zealand, and the UK will be able to offer in-app contactless transactions “from within their own apps on iPhone, separate from Apple Pay and Apple Wallet”, by leveraging its NFC technology and the Secure Element (SE) chip, which safely stores sensitive information on the device.

Following the release of the iOS 18.1 update, supported transactions will include in-store payments, closed-loop transit, corporate badges, car keys, event tickets, home and hotel keys, student IDs, and merchant loyalty and rewards cards. Apple also announced that support for government IDs is planned for the future.

The move comes after the European Commission earlier this year accepted commitments by Apple to open up access to tap-and-go technology on iPhones to several European nations for the next 10 years to settle an antitrust investigation by the commission.

Apple, which recently declared it was discontinuing its BNPL service in the US, adds that to offer NFC transactions, developers will need to enter into a “commercial agreement” with the firm and “pay the associated fees”. The tech giant explains the fees will ensure only “authorised developers” who meet specific industry and regulatory requirements and adhere to Apple’s “ongoing security and privacy standards” can access the company’s technology.

Fast-Growing Immigrant-Focused Neobank Comun Has Secured $21.5M In New Funding Just Months After Its Last Raise

Mary Ann Azevedo, Tech Crunch

Comun, a digital bank focused on serving immigrants in the United States, has raised $21.5 million in a Series A funding round less than nine months after announcing a $4.5 million raise, TechCrunch is the first to report.

This is a crowded space, filled with a number of startups, including Tanda, Bloom Money, Majority, Welcome Tech, Maza and Pillar. So the fact that Comun was able to raise capital in back-to-back rounds in such a short amount of time is notable. PitchBook estimated its previous valuation, after its last raise, to be $62 million. CEO and co-founder Andres Santos said PitchBook’s valuation was “inaccurate” and that the company’s current valuation “has increased by more than 50%.”

The New York-based startup’s traction is what drew investors to double down. Comun grew monthly revenue by “50x” in the first six months of 2024, according to Santos. While that growth implies that its initial revenue was low, it does show a fast rate of adoption. He also said the company has grown in users and increased revenue per user by about 4x since the start of the year after launching new products.

Santos and his co-founder Abiel Gutierrez started Comun in late 2021 after facing financial exclusion in the U.S. when they migrated from Mexico. They set out to offer digital banking services, including instant payments and cash withdrawal at numerous locations, check deposits and early paychecks, to Latino immigrants.

For instance, they provide native Spanish-speaking reps seven days a week, and allow customers to apply for an account using 100 ID types from Latin America, including foreign country passports. Most traditional banks require customers to have a U.S. Social Security card or proof of address, for example a mortgage or utility bill. Read more