Payments in Brief

BIS, SNB and SIX Explore Wholesale CBDCs

Wholesale Central Bank Digital Currencies (CBDC) are a less talked about element of the CBDC conversation, perceived as more operational than revolutionary. However, the Bank for International Settlements (BIS) has successfully concluded a proof-of-concept project with the Swiss National Bank (SNB) and SIX to explore the performance of the technology to integrate a tokenised digital asset and central bank money.

The project transferred digital assets by issuing a wholesale CBDC onto a distributed digital asset platform. It also linked the platform to the existing wholesale payment system.

Proof-of-concept work such as this is important to understand the practical complexities and policy implications of wholesale CBDCs. The project partners said that the work 'demonstrated the feasibility and legal robustness of both alternatives in a near-live setup'. They also said it would raise 'major policy and governance hurdles', and that more work is needed.

The SNB emphasised that the work 'should not be interpreted as an indication that the SNB is to issue wholesale CBDCs onto SIX Digital Exchange’s platform or to allow settlement of SDX transactions in the Swiss Interbank Clearing system'.

Visa Delays US Interchange Price Increases

Bloomberg reports that Visa had planned to increase its interchange fees for transactions on e-commerce transaction sites and reduce them for other retailers, for example retail estate or education.

The plan had been to increase fees on traditional cards on a $100 transaction carried out online or over the phone from $1.90 to $1.99. This increase will now start in April, although from October merchants can pay less if they choose to use a Visa EMV payment token. Visa sees EMV as an effective fraud management solution. These increases would have been the biggest for a decade.

The delay is said to be because Visa is concerned about downward retail sales pressure and an unsteady economy in the US.

UK’s Supreme Court Allows Class Action Lawsuit against MasterCard

The class action, on behalf of 46 million UK customers, argues that between 1992 and 2008 MasterCard inflated interchange fees, which credit and debit card companies levy on merchants' banks to cover the costs of card services, security and innovation.

The action was first launched in 2016 and in 2019 reached the Court of Appeal. It was dismissed by the Competition Appeals Tribunal (CAT), but the Supreme Court judged their decision to include five errors of law. It will now return to the CAT so that it can reconsider granting the necessary collective proceedings order for the case to proceed to trial. It had refused to certify the case in 2017 because of its complexity. A hearing is expected next year.

The size of the claim is £14 billion and, understandably, MasterCard says 'we fundamentally disagree with the claim'. 

Google Pay Becomes More Capable in the US

In the US Google Pay appears to be changing direction, moving from being a straightforward payment tool to having more of the functions of a financial management tool.

The payment function is being enhanced to allow P2P, contactless and e-commerce payments and users to see transaction history. The app can categorise spending to allow searches on key words for transactions such as 'gas' or 'restaurant'. The app has a function to allow expenses to be split with more than one person – dinner, rent etc. – and keep track of who paid what and when. There will also be a user interface that uses conversations to find relevant offers and loyalty information.

From early next year, American users can use the app to open digital bank accounts, known as Plex accounts, co-branded with one of 11 different partner lenders.

At the same time, Google Cloud has announced that it is working with Cynergy Bank, a small British bank that used to be a subsidiary of the Bank of Cyprus, and the information technology services provider Wipro to allow Cynergy Bank to offer a 'digital relationship bank'.

Richard Waters, an FT journalist, has made two comments about this move. Firstly, Google is not trying to own the customer, but perhaps the customer experience. Secondly, Google seems to be wanting to work with the banks rather than to compete with them.

If these comments are right, both Google Cloud and Google Pay are focused on being central to the customer experience. Google Pay does not want to be left behind by the other payment apps, and it is ambitious for its app to be more useful and core to its user’s payment experience.

Netherlands Seeks Big Tech Competitive Safeguards

The Netherlands is keen on competitive markets. The Dutch Finance Ministry asked the Authority for Consumers and Markets (ACM) to conduct a study into the ‘Big Tech’ companies, for example Apple, Facebook, Amazon and the Ant Group (Alibaba).

To promote competition, the platforms and devices of the Big Tech companies need to be usable by and open to different providers of payment services. Big Tech companies are a source of innovation in payments, but there needs to be a level playing field if further competition and innovation is to prosper and, importantly, for consumers to have real choice.

At the moment the European rules for open access to payment services (PSD2 directive) do not apply if the Big Tech company only facilitates payment services. The ACM noted that these companies are currently strengthening their market positions through acquisitions and collaborations, and it is concerned that if they built dominant positions now, future competition will be limited.

The ACM recommends amending this Directive, so that companies that only play a facilitating role must also comply with it. 'After all, in that facilitating role, these Big Tech companies are the gateway for payments, and they are able to restrict competition and the options for consumers', it noted.

The ACM also recommends a second amendment to the current competition rules to allow conditions to be imposed on dominant platforms in advance if required. 'By changing these rules, we can force companies with, for example, a dominant position on an online market to open up their platforms to other market participants, thereby ensuring a level playing field', it said.

The European Union is already considering requiring Apple to open up its NFC functionality on iOS devices to rival payment providers.