In this Newsletter:
For previous editions of the Global Payments Newsletter, please visit our Financial Services practice page.
Regulatory Developments
United Kingdom: FCA publishes final Consumer Duty rules and guidance
On 27 July 2022, the FCA published a policy statement PS22/9 containing its final rules on its new Consumer Duty for regulated firms including those in the payments and e-money sector. It also published its finalised non-Handbook guidance (FG22/5) on the Consumer Duty.
The final rules and guidance contain a number of changes to what was previously being proposed. Points of particular interest from a payments and e-money perspective include the following:
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The FCA has responded directly to comments from the e-money and payments industry that the application of the Consumer Duty would be disproportionate and there was limited risk of harm.
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The FCA states that it has identified several harms in the e-money and payment services sectors in which the Consumer Duty is expected to play a key part in raising standards, pointing in particular to availability of customer support.
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The FCA has provided guidance on the application of the concept of the “distribution chain” in the context of payments and e-money.
Firms will need to apply the Consumer Duty to new and existing products and services that are open to sale (or renewal) from 31 July 2023. The FCA has given firms longer, until 31 July 2024, to apply the Duty to products and services held in closed books. By the end of October 2022, implementation plans must have been approved by firms' boards with evidence of challenge and scrutiny to make sure the plans are sufficiently robust.
The FCA has also added a reference to the Consumer Duty to its How to apply for authorisation and Authorisation: what's involved webpages to make it clear that any firm or individual applying for authorisation (and those applying to vary their permissions) will have to demonstrate that they will be able to meet the requirements of the Consumer Duty, as those requirements relate to them, from now on.
For more on the FCA’s final Consumer Duty rules and guidance, take a look at this Engage article by members of Hogan Lovells' London office.
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Europe: European Commission adopts Delegated Regulation amending RTS on SCA and CSC under PSD2
On 3 August 2022, the European Commission adopted a Delegated Regulation (C(2022)5517) which amends the regulatory technical standards (RTS) contained in Commission Delegated Regulation (EU) 2018/389 on strong customer authentication (SCA) and common and secure open standards of communication (CSC) under PSD2 in relation to the 90-day exemption for account access.
The amended RTS will:
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Introduce a new mandatory exemption from the requirement to apply SCA that will require account providers not to apply SCA when customers use an account information service provider (AISP) to access their payment account information, provided certain conditions are met.
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Limit the scope of the voluntary exemption in Article 10 of the RTS to where the customer accesses the account information directly. Payment service providers (PSPs) that applied the Article 10 exemption before the date of application of the Delegated Regulation are allowed to continue applying that exemption up to 90 days from the last time SCA was applied.
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Extend the timeline for the renewal of SCA from every 90 days to every 180 days, both when the information is accessed through an AISP or directly by the customer.
The Council of the EU and the European Parliament will now scrutinise the Delegated Regulation. If neither objects, it will enter into force 20 days after its publication in the Official Journal of the European Union and apply seven months after the date of its entry into force.
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South East Asia: Central banks announce plans to create a common contactless QR payments zone
On 19 July 2022, it was reported that in a recent panel session on the sidelines of a G20 meeting in Bali, Bank Indonesia Governor Perry Warjiyo announced that the central banks of Indonesia, Malaysia, the Philippines, Singapore and Thailand are developing an interoperable cross-border payments system, with a deal to integrate their payment networks due to be signed by November 2022.
The system will reportedly use direct local currency settlements between the countries and will allow residents of each country to make QR code-based payments within their mobile banking apps when visiting other partnering territories. Such transactions won’t need to undergo exchange via an intermediary currency such as the U.S. dollar.
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Global: United Nation’s Conference on Trade and Development releases policy briefs on the dangers of cryptocurrency
On 12 August 2022, the United Nation’s Conference on Trade and Development (UNCTAD) published three policy briefs on the dangers of cryptocurrency in light of the rising use of digital assets in developing countries.
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The first brief discusses reasons for the rapid growth of crypto in developing countries, which are that digital assets allow users to leverage remittance and protect their assets from currency inflation.
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The second brief examines the financial stability and security risks posed by digital assets in an increasingly digital economy. Although governmentally-regulated digital assets may improve payment systems and allow for more stability, UNCTAD encourages authorities to maintain cash issuance due to the divide in digital capabilities in various countries.
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The final brief released by the trading body details how cryptocurrencies could “undermine domestic resource mobilisation in developing countries”. The brief explains that digital assets can enable fraud and tax evasion through illegal remittances, which could impact the capital controls that preserve stability and policy spaces for developing economies.
To limit the expansion of cryptocurrencies, UNCTAD listed new policy actions that include restricting financial institutions from holding or offering cryptocurrencies, rolling out regulation for digital assets, crypto exchanges, digital wallet, and centralised finance, and banning crypto and high-risk asset advertising.
The trading body urged authorities to offer affordable and efficient public payment systems appropriate for the digital era, implement global tax coordination concerning crypto tax and regulation, and restructure capital controls to monitor all aspects of digital currencies.
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United Kingdom: FCA and PSR appoint Strategic Working Group Chair for Joint Regulatory Oversight Committee on the future of open banking
On 9 August 2022, the FCA and PSR as co-chairs of the Joint Regulatory Oversight Committee (JROC), announced the appointment of Bryan Zhang as chair of JROC’s Strategic Working Group (SWG).
JROC is a cross-authority taskforce that is responsible for – amongst other things – thinking about the future vision and governance of open banking. As part of its mandate it set up the SWG, which provides the principal mechanism for stakeholders to input into the vision and strategic roadmap for further developing open banking, as well as to respond to queries that JROC may have. The SWG will be independently chaired by Bryan Zhang and will operate from August 2022 until December 2022.
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United Kingdom: PSR responds to PSR Panel’s digital payments initiative report
On 21 July 2022, the Payment Systems Regulator (PSR) published its response to the PSR Panel’s digital payments initiative report (May 2022).
The PSR welcomed the report's recommendations and responded to them as follows:
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A key element of the PSR's five-year strategy and current work programme is unlocking the potential of interbank payment systems, including by considering the potential benefits of open banking. To address barriers that restrict retailer and consumer adoption of open banking for use cases such as account-to-account based retail transactions, the PSR has set four priority issues: (i) the system's functional capability; (ii) dispute processes; (iii) access and reliability; and (iv) a sustainable funding model.
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The new Joint Regulatory Oversight Committee will consider the vision and strategic roadmap for further developing open banking. The PSR wants to work closely with the industry and other key stakeholders through a Strategic Working Group (SWG). The Treasury is working with the PSR and the FCA on proposals for a permanent future regulatory framework for open banking, based on joint regulatory oversight by the FCA and PSR and backed by any necessary legislation.
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Tackling the causes of digital exclusion lies beyond the PSR's remit as the regulator of payment systems. The PSR will explore with consumer representatives what further actions card and other payment system operators could take in this regard. The PSR also monitors and publicises progress towards its outcome that everyone has access to payment services that meet their needs. This informs its priorities on digital payments and its engagement with organisations that can tackle the causes of digital exclusion.
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United Kingdom: Law Commission publishes consultation paper on digital assets
On 28 July 2022, the Law Commission of England and Wales published a consultation paper on digital assets. It examines how existing personal property law does — and should — apply to digital assets (including crypto-tokens and cryptoassets). As digital assets are not tangible, some digital assets have many different features from traditional physical assets and other intangible things that can attract property rights. Their unique qualities mean that many digital assets do not fit easily into traditionally recognised private property law categories or definitions.
The consultation paper argues that the law must therefore go further to acknowledge these unique features, which in turn would provide a strong legal foundation for the digital assets industry and for users. Through these reforms, the legal system would help to create an environment that is more conducive to digital assets and their markets.
The Law Commission’s proposals are designed to ensure that the law remains dynamic, highly competitive, and flexible, so that it can support transactions and other arrangements involving digital asset technology. The proposed reforms also aim to help to achieve the UK government’s stated goal of the jurisdiction of England and Wales becoming a global hub for digital assets, and in particular for crypto-tokens and crypto-token systems.
The Law Commission is inviting responses to the consultation until 4 November 2022.
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France: AMF and ARPP sign amendment to their partnership agreement to include cryptoassets
On 21 July 2022, the Autorité des Marchés Financiers (AMF) and the Autorité de Régulation Professionnelle de la Publicité (ARPP) published a press release announcing that they have signed an amendment to their partnership agreement on communication in the financial services sector, extending it to include the new field of cryptoassets.
The AMF and the ARPP have decided to complete and adapt their cooperation framework, based on an agreement signed in 2011, to the new challenges posed by changes in legislation and advertising methods. This amendment includes cryptoassets and services relating to cryptoassets, on which the AMF will be able to provide its expertise.
The two authorities have also drawn up a joint work programme for 2022-2023. Some of the priority projects include the creation of an ARPP recommendation to its members on communications about cryptoassets and token offerings and the updating of its general recommendation on communications about financial or investment products and services, which will include the provisions of the AMF's policy on sustainable finance communications.
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Thailand: Central bank confirms it will launch its retail CBDC pilot in late 2022
On 5 August 2022, the Bank of Thailand (BOT) published a press release announcing that it expects to test its retail digital currency from late this year to the middle of 2023, as an alternative payment option.
During the testing, the retail central bank digital currency (CBDC) will be used to carry out cash-like transactions, such as paying for goods and services, within limited areas and among about 10,000 retail users. This retail CBDC pilot is part of the study and development of retail CBDC to assess the suitability of technology and CBDC design. At present, the BOT does not have plans to issue retail CBDC, as the issuance requires thorough consideration of benefits and associated risks for the financial system.
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Australia: Reserve Bank of Australia to begin CBDC project
On 9 August 2022, the Reserve Bank of Australia (RBA) published a press release announcing that it is set to start a year-long research project to explore use cases for Central Bank Digital Currency (CBDC).
The project will involve the development of a limited-scale CBDC pilot that will operate in a ring-fenced environment for a period of time.
Interested industry participants will be invited to develop specific use cases that demonstrate how a CBDC could be used to provide innovative and value-added payment and settlement services to households and businesses.
A paper will be published by the RBA in the next few months that will explain the objectives and approach of the project in more detail and how industry participants will be able to engage.
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United Kingdom: FCA allocates landing slots to TPR firms applying for full authorisation
On 12 August 2022, the FCA updated its webpage on considerations for firms leaving the Temporary Permissions Regime (TPR) to confirm that all firms expecting to apply for full authorisation in the UK should have received a formal direction confirming their landing slot.
The FCA explains that a firm may not have received a landing slot direction if it is not expecting the firm to apply for full authorisation in the UK. Firms that do intend to apply for full UK authorisation and will be solo-regulated by the FCA, but who have not received a landing slot direction, can still apply but any application must be received by the FCA before 31 December 2022. The FCA warns that applications from firms in the TPR that are submitted to the FCA after this date will be treated as invalid.
On a separate webpage regarding TPR firms that do not meet expectations, the FCA states that a firm that misses its landing slot or otherwise fails to apply by 31 December 2022 will have failed to meet its expectations. As a result, it would be expected to voluntarily apply to cancel its temporary permission and either enter supervised run-off to run-off its UK business (if eligible), or leave the UK perimeter. The FCA will take steps to cancel the temporary permission of any firm that does not take either of these steps promptly.
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Payment Market Developments
United Kingdom: VirginMoney launches new buy-now-pay-later service
On 26 July 2022, VirginMoney announced the launch of Virgin Money Slyce, a buy-now-pay-later service allowing customers to opt for 3, 6, 9, or 12-month repayment plans for any monthly spend over £30.
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Indonesia: Fasset partners with Mastercard for Indonesian expansion
On 14 July 2022, Fasset Technologies Limited, a global digital asset gateway, announced its partnership with Mastercard, allowing the expansion of its financial capabilities in Indonesia. Fasset is aiming to increase its product offering, alongside developing training and education platforms to foster wider financial inclusion.
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Global: Instagram launches in-chat payment feature for customers
On 18 July 2022, Instagram launched a new “payments in chat” feature, allowing users to purchase products from qualified small businesses via the in-app chat function.
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Global: Google launches Google Wallet in 39 countries
On 18 July 2022, Google began the rollout of Google Wallet in 39 countries, replacing its previous digital wallet, Google Pay. Google Wallet will be an app that can manage all digital cards, including identification and vaccination status.
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Europe: Nexi partners with Microsoft to support payments in Europe
On 29 July 2022, Nexi announced a partnership with Microsoft to embed Nexi payments solutions into Microsoft Cloud services and solutions. The partnership aims to drive the digitalisation of the European payment space and consolidate Nexi’s data centres across Europe.
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Brazil: Santander to launch crypto trading feature
On 29 July 2022, it was reported that Santander Brazil plans to offer crypto-related trading services to its customers in Brazil in the coming months. The company plans to provide further details in mid-October.
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Australia: Up Bank launches saving service Maybuy
On 1 August 2022, Up Bank announced its savings-based alternative to traditional buy-now-pay-later schemes. The saving service allows customers to create automated savings plans to encourage them to save for one-off purchases rather than relying on finance.
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United States: American Express launches a new digital payment solution
On 2 August 2022, American Express announced American Express Global Pay which is a new digital solution that enables U.S. businesses to make domestic and international business-to-business payments securely.
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Asia Pacific: Visa launches Visa Eco Benefits solution
On 3 August 2022, Visa launched an eco-friendly payment solution in Asia Pacific. With Eco Benefits, cardholders can calculate their carbon footprint generated by their Visa transactions, and access options for carbon offsetting or charitable donations from their bank’s website or app.
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United States: BlackRock and Coinbase partner to offer crypto trading services
On 4 August 2022, Coinbase announced its partnership with BlackRock to provide BlackRock institutional clients with direct access to crypto through Coinbase Prime. Coinbase Prime will provide crypto trading, custody, prime brokerage, and reporting capabilities to BlackRock investors.
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United States: Wise and Plaid launch a new open finance solution
On 10 August 2022, Wise and Plaid announced an open finance agreement to provide customers with a seamless way to move money across different financial institutions. The new partnership will allow Wise’s 13 million customers to connect and make payments through their favourite apps.
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United States: BitPay launches cash back rewards for the BitPay card
On 10 August 2022, BitPay announced a new reward programme for its prepaid crypto-card, allowing customers to earn up to 15% cashback.
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Surveys and Reports
United Kingdom: One in ten consumers are victims of payments fraud
On 27 July 2022, ACI Worldwide published a report which showed more than one in ten people in the UK (12.1%) have fallen victim to payments fraud in the last four years. The report highlighted the increasing sophistication of methods used against British consumers, including digital account hacking, social engineering, and identity theft.
Online fraud and digital wallet hacks account for 19.8% of UK fraud cases, and victims of confidence tricks have increased to 12.7% of all fraud cases.
The report noted similar trends across Europe and globally. In France, 13% of the population reported being a victim of fraud in the last four years, whereas in Italy, 11.7% of the population had fallen victim to fraud.
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Global: Use of contactless NFC technology now widespread
On 28 July 2022, the NFC Forum published the results from a survey highlighting the significant growth in Near-Field Communication (NFC) technology use globally. A survey of consumers in nine countries showed more than eight in ten consumers (80%) have used a NFC contactless card or mobile payment wallet, and usage of contactless payment cards has increased by 30% over the past two years.
The survey also showed that consumers have diversified their use of NFC technology. Respondents demonstrated high levels of NFC contactless technology usage when purchasing products (95%), paying for public transport (48%), and interaction with consumer products (38%).
The report highlighted that the increasing capability of NFC contactless technology, concerns around the COVID-19 pandemic, and the continued growth in wearables, smartwatch and mobile phone users were major causes of the boom in contactless technology usage.
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United Kingdom: UK Finance Payment Markets Report 2022 finds contactless makes up a third of all payments and cash use fell again in 2021
On 17 August 2022, UK Finance published its latest Payment Markets Report on payment trends during 2021. The report also forecasts what UK Finance expects to happen by 2031.
UK Finance summarised the key findings as follows:
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40.4 billion payments were made in 2021, a return to pre-pandemic levels.
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Debit cards were the most used payment method, accounting for 48% of all payments.
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The number of cash payments fell by 1.7% in 2021, although it remained the second most commonly used payment method, used for 15% of all payments in the UK.
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Faster Payments overtook Bacs Direct Credit as the payment method most frequently used by businesses.
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57% of UK adults used mobile banking in 2021.
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Almost a third of all payments in the UK were made using contactless methods in 2021.
A summary of the report can be accessed here.
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United Kingdom: 24% of UK consumers require a better understanding of buy-now pay-later schemes and 46% do not understand cryptocurrency
On 31 July 2022, ECOMMPAY published a survey which revealed that 24% of UK consumers require a better understanding of buy-now pay-later (BNPL) schemes and 46% do not understand cryptocurrencies.
Additionally, the study highlighted that more than half of business leaders (54%) still experience several challenges in supporting online financial education for their customers and partners. ECOMMPAY research also disclosed that 64% of consumers feel financially literate concerning open banking and understanding its payment option implications.
Almost 50% of business leaders surveyed felt that it was the responsibility of banks to educate consumers about online financial education, followed by governments (41%) and payment providers (40%).
The survey demonstrated that consumers are broadly confident in their financial literacy; however, more education and support is still required to ensure new payment options such as BNPL schemes can be used responsibly.
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Authored by Virginia Montgomery and Grace Wyatt
Hogan Lovells (Luxembourg) LLP is registered with the Luxembourg bar.
