The Merchant Payments Digest is a regular update from Oliver Wyman to keep merchants apprised of developments in the rapidly shifting payments space.
Transformational payments solutions:
Square has now enabled its merchant customers to accept QR code payments linked to the Cash App. The offering, Cash App Pay, is a contactless payment method that can be used for both card-present and card-not-present transactions, using the merchant’s QR code at checkout. With this move, Square hopes to drive further synergies between its consumer and seller ecosystems by opening up its more than 70 MM annual active customer base to participating merchants that use Square for processing payments. The offering is available to Square merchants as a software update, without having to integrate any new hardware or technology.
Rules and standards:
With the view of promoting competition in routing of debit card transactions, the Federal Trade Commission (FTC) has urged the Fed to further clarify the Reg II mandate (aka the Durbin Amendment). Earlier this year, the proposed rulemaking by the Fed specified that the Reg II mandate for issuers to support at least two unaffiliated networks on their debit cards also applied to card-not-present purchases, so as to enable merchant routing choice for digital payments. The FTC endorsed this proposed rule and also commented that the Fed should adopt revisions to ensure that the rule is not circumvented by incentives offered by networks to issuers.
Customers’ evolving expectations:
According to a survey conducted by Credit Karma, while buy-now-pay-later (BNPL) has grown rapidly in the U.S., so have missed payments by consumers. Credit Karma notes that while 44% of U.S. consumers have used BNPL at least once over the course of the pandemic, about a third of them have missed one or more payments. 72% of those who missed a payment indicated that their credit score had declined as a result of falling behind on their payments. However, despite the potential negatives, 80% of survey respondents indicated that it was easier to make a purchase with BNPL, implying that the convenience of the payment type may continue to support its further growth.
The Consumer Financial Protection Bureau (CFPB) recently issued orders to eight technology firms - Amazon, Apple, Facebook, Google, PayPal, Square, Alipay and WeChat Pay to provide information on their payments systems. CFPB’s objective with issuing these orders is to ensure appropriate consumer protection by better understanding how these firms collect, use and manage payments data of consumers. The specific areas covered under the orders include data harvesting and monetization, access restrictions and user choice, and consumer protection offered under laws such as the Electronic Fund Transfer Act and the Gramm-Leach-Bliley Act.
Plaid, the FinTech firm focused on digital account access and tokenizing ACH transactions for financial institutions, has now launched a digital payments capability. The capability offers consumers to pay merchants directly from their bank accounts (i.e., account-to-account payments). Merchants that process with Square and Stripe, among others, will now be able to offer a ‘pay-by-bank’ option at checkout, as a substitute to cards and other payment methods. In January this year, Visa attempted to acquire Plaid for $5.3BN but pulled out of the deal due to opposition from the Department of Justice (DOJ).
Both Visa and Mastercard have recently announced card offerings linked to cryptocurrency. Visa has partnered with BlockFi to offer a credit card with bitcoin rewards to U.S. consumers. Evolve Bank is the card issuing partner, with Deserve offering technology and program management services. Cardholders earn 1.5% cash back on all purchases, that are automatically converted to bitcoin each month and placed into a BlockFi account. Similarly, Mastercard has partnered with Amber, Bitkub and CoinJar to offer cards for consumers and corporates in Thailand and Australia to pay using cryptocurrency. Rather than pushing merchants to accept cryptocurrency as tender, these cards are designed to be funded using cryptocurrency which would then be converted into traditional fiat currency at the point-of-sale.
Amazon is pushing back on Visa’s pricing practices by announcing that it will stop accepting Visa credit cards in the UK starting on January 19th, 2022. To enable customers to switch to a different form of payment, Amazon is offering a £20 incentive on their next purchase. The move follows changes by Amazon in Singapore and Australia where it started surcharging customers by 0.5% for all purchases made using a Visa credit card. Amazon has clarified that the restrictions and surcharge practices do not apply to Visa debit cards, or Mastercard and American Express credit cards.
Oliver Wyman is a global leader in management consulting with offices in 60 cities across 29 countries. Our Payments practice works with constituents across the payments value chain to deliver insights with real impact, combining deep industry expertise with powerful consulting capabilities.