Global payments newsletter - November 2015

Global Payments Newsletter November Issue – 2015 Hogan Lovells – Global Payments Newsletter 1 Key Developments Key developments of interest this month include:  Payment Services Directive strikes back: PSD2 published by Council of European Union.  No VAT please, we're European: European Court of Justice decides bitcoin is exempt from VAT.  A tale of two IPOs: Worldpay Group announces largest London Stock Exchange IPO of this year whilst First Data raises $2.6 billion in biggest American IPO of 2015. Welcome to the Hogan Lovells Global Payments Newsletter. In this monthly publication we provide an overview of the most recent Payments regulatory and market developments from major jurisdictions around the world as well as sharing interesting reports and surveys on issues affecting the market. For our latest news and commentary on payments innovation, follow us on Twitter @HLPayments. For more information on our Payments Services team please click the link here. For more Financial Institutions resources please click the link here. 2 Hogan Lovells – Global Payments Newsletter Europe United Kingdom: HM Treasury publishes response on UK implementation of Interchange Fee Regulation  On 8 October 2015, HM Treasury published a consultation response setting out its final approach to implementing the Regulation on interchange fees for card-based payment transactions (EU 2015/751 Interchange Fee Regulation (IFR) or MIF Regulation).  HM Treasury consulted on the implementation of the IFR in July 2015.  The response confirms that from 9 December 2015 the fees banks can charge will be capped at 0.30% for credit card transactions and an average of 0.20% for domestic debit card transactions.  It also sets out the government's approach to other national discretions under the IFR, including appointing the Payment Systems Regulator as the lead enforcer for the IFR. See the response here. United Kingdom: HM Treasury designation of PSR supercomplainants  On 28 September 2015, HM Treasury announced that it had written to the following consumer groups informing them of its intention to designate them as Payment Systems Regulator (PSR) super-complainants under the Financial Services (Banking Reform) Act 2013 (Banking Reform Act):  Consumers' Association (that is, Which?);  Citizens Advice Bureau;  Consumer Council for Northern Ireland;  Federation of Small Businesses.  A body must have confirmed to HM Treasury, by 12 October 2015, if it was not willing to be a PSR super-complainant.  HM Treasury has also published a letter to Age UK, inviting it to make an application to become a designated super-complainant.  The Banking Reform Act gives designated consumer bodies the right to make a supercomplaint to the PSR where that body considers that there are features of a market in the UK for payment systems (such as the market structure or the conduct of firms operating within it) that are, or which may be, significantly damaging to the interests of consumers. See the letters here. Channel Islands: Jersey government plans digital currency legislation for 2016  The Jersey government is planning legislation for 2016 that will establish rules for businesses on the island that work with bitcoin and other digital currencies.  The Chief Minister's Department released a policy document outlining how a proposed approach to digital currency regulation will focus Regulatory Developments Hogan Lovells – Global Payments Newsletter 3 on exchanges, ATMs and other services that connect digital currencies with traditional ones.  The government wants to avoid creating a full licensing regime like New York's BitLicence or charter as it feels that it may stifle growth and innovation in the sector. However, the Jersey government is keen to protect the island and the companies working with the technology from money laundering and terrorist financing. See the policy paper here. Italy: SEPA sanctions in Italy  The Single Euro Payments Area (SEPA) project is aimed at developing a common Europeanwide payment service and creating an internal market for credit transfers and direct debits with no distinction between national and cross-border payments.  In Italy, in September 2015, the Italian government introduced a number of penalties, via a Decree, with the aim of discouraging payment service providers and operators from violating the European regulations that are within the scope of the Decree.  Our Payments Team in the Rome office has a forthcoming article in the E-Finance & Payments Law & Journal which expands on these sanctions. This article can be accessed here, via a subscription. France: Ministry of Finance outlines the national strategy on means of payment  In October, the French Ministry of Finance published a report on the French national strategy on means of payment (the "Report"). This Report establishes an overview of the means of payment in the French sector and proposes a strategy based on three elements:  meeting the expectations of users;  improving the security means of payment; and  developing competitiveness and innovation in the French payment industry. See the Report, in French, here. Europe: Council of the European Union publish PSD2 text  On 16 October 2015, the Council of the EU published a document (PE-CONS 35/15) setting out the text of the proposed Directive (known as PSD2) repealing and replacing the Payment Services Directive (2007/64/EC) (PSD).  The text has been published in advance of the Council's formal adoption of PSD2.  The European Parliament announced that it had adopted PSD2 on 8 October 2015 and subsequently published the provisional version of the text of the Directive. See the document here. Europe: European Court of Justice rules bitcoin is exempt from VAT  Bitcoin transactions will be exempt from Value Added Tax (VAT), the European Court of Justice (ECJ) has ruled.  The ECJ said that bitcoin transactions "are exempt from VAT under the provision concerning transactions relating to currency, bank notes and coins used as legal tender."  This bitcoin judgment comes after an opinion published in July 2015 by Advocate General Juliane Kokott which urged the court to opt against applying a tax to bitcoin sales and purchases.  Various EU Member States have already released exemptions from VAT from bitcoin. Belgium's Federal Public Service Finance (FPS) released a statement last year noting that certain domestic digital currency transactions were exempt from VAT. Meanwhile, Switzerland confirmed bitcoin was exempt from 4 Hogan Lovells – Global Payments Newsletter VAT in the country. However, Estonia in December 2014 decided to apply VAT to the full amount of bitcoin trades, not just the commission or fee incurred by the transaction. See the judgment here. Americas USA: US Government to sell 44,341 bitcoins from Silk Road proceeds.  The US Marshals Service has announced it will sell 44,341 bitcoins, worth approximately $13.5 million, in an online auction on 5 November.  The auction is the final sale of bitcoins in connection with the forfeiture actions taken against Silk Road mastermind Ross Ulbricht.  In total, the US Marshals Service seized more than 144,000 bitcoins in 2013. The majority of the holdings have since been sold by the agency in two public auctions. See the article here. USA: Court to hear challenge to $5.7 billion Visa and Mastercard settlement  The 2nd U.S. Circuit Court of Appeals in New York is considering whether to uphold the approval of an estimated $5.7 billion antitrust settlement by Mastercard Inc. and Visa Inc. following the deal's approval in 2013.  Around 8,000 merchants had opted out of the original deal, and over 30 other lawsuits by those opt-outs are pending. The case is In Re: Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 2nd U.S. Circuit Court of Appeals, No. 12-4671. See the article here. Asia and Oceania Australia: Australian government to review bitcoin regulation powers  On 20 October 2015, the Australian government released its response to the Murray Review, otherwise known as the Financial System Inquiry, a wide ranging report published in November 2014 as part of an effort by the government to make changes to the country's financial system.  The government stated in its response that it would look at the regulatory capacities of both the Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC) in an effort to create a "graduated" rulemaking process for emerging payment systems, including bitcoin. See the government response here. Hogan Lovells – Global Payments Newsletter 5 United Kingdom: Worldpay Group joins London Stock Exchange in the largest UK flotation of 2015  Worldpay Group became the biggest UK flotation this year when it listed on the London Stock Exchange on 13 October 2015.  The share sale will raise £2.5 billion and values the company at £4.8 billion. See the article here. Global: Coinbase allows 'instant' buying of bitcoin in 26 countries  Coinbase has announced customers in 26 countries can buy bitcoin instantly from 1 October 2015.  Prior to this, customers could top up their accounts via bank transfer, however now the exchange supports 3D Secure credit and debit cards. See the article here. Global: Barclays signs two blockchain deals amongst eight other companies after fintech accelerator  Barclays and TechStars hosted a 13 week New York based fintech accelerator, signing two companies which will work with the bank on applications using blockchain technology.  One of these companies, Chainalysis will assist Barclays in providing services to bitcoin firms by allowing the necessary information to be obtained for its financial crime and transaction monitoring teams.  Barclays provides non-monetary support to the start-ups while start-up incubator TechStars takes 6% equity in each company. See the article here. Global: Adyen, the payments processor, valued at $2.3 billion after funding round  The Dutch payments processor has secured funding, valuing the firm at $2.3 billion.  Adyen accepts payments through more than 250 methods and in multiple currencies and has processed $25 billion in payment transactions in 2014 and achieved over 100% growth in revenue. See the article here. China and India: Alibaba raises its stake to 40% in Indian payments business Paytm  Alibaba and its subsidiary Ant Financial have increased their investment in Indian mobile commerce network Paytm.  Alibaba is reported to have spent $680 million for a 20% interest in Paytm with Ant Financial reducing their stake from 25% to 20% as a result.  Paytm has over 100 million mobile wallet users who carry out over 75 million transactions every month. Payment Market Developments 6 Hogan Lovells – Global Payments Newsletter See the article here. USA: Gemini, the bitcoin exchange, receives NYDFS charter  The New York State Department of Financial Services (NYDFS) granted a charter under New York Banking Law to Gemini Trust Company in early October.  Gemini is the bitcoin exchange based in New York and was founded by the Winklevoss twins, Cameron and Tyler.  The charter is one of two forms (with the BitLicence) of New York's regulatory framework which is aimed at protecting consumers and preventing illicit activity in the virtual currency space.  So far only three virtual currency firms have now received charters or licences from NYDFS including Gemini: itBit Trust Company received the first charter in May 2015; Circle received the first BitLicence in September 2015 and NYDFS report they are continuing to review and accept applications. See the press release here. USA: Chevron and Visa to offer mobile payments at Californian petrol stations  Chevron and Visa announced they are introducing a new mobile payments program that will allow drivers to pay for their purchases at more than 20 Chevron stations in California using just NFC-enabled devices.  This may be part of a wider national plan, but as system upgrades for contactless payments per gas station cost between $10,000-$100,000, those plans will take place in increments having tested consumer responses in California first. See the article here. USA: First Data raises $2.6 billion in largest American IPO of 2015  Payment processing giant, First Data, owned by KKR raised $2.56 billion in one of the largest IPOs of 2015.  First Data's shares were purchased by underwriters at $16 a share, but fell to $15.45 after lower than expected quarterly earnings.  First Data intends to use the net proceeds from the offering to redeem certain notes, to pay applicable premiums and related fees and expenses, and for general corporate purposes. See the press release here. USA: Starbucks replaces Square with J.P. Morgan as new payments processor  Chase Commerce Solutions, the processing division of J.P. Morgan Chase will immediately start processing some of Starbucks' non-mobile payments and help it introduce chip-enabled terminals.  The full transition is expected to be completed by Spring 2016. See the article here. USA: American banks unite to form digital payments network  The CEOs of Bank of America, BB&T, Capital One, J.P. Morgan Chase, U.S. Bank and Wells Fargo have issued a joint statement, regarding the combination of their collective, bank-owned digital payments network, clearXchange, with their fraud, risk and authentication assets, Early Warning.  As part of the transaction, Early Warning will acquire clearXchange, the largest bank-owned digital payments network in the US. The platform will be open to all banks and credit units of any size. Hogan Lovells – Global Payments Newsletter 7 See the article here. France: Orange launches Orange Cash  Orange's mobile wallet app Orange Cash was made available nationwide in France on 19 October 2015. Orange Cash has more than 30,000 retailers participating in the scheme including IKEA, Picard and Relay.  Customers can pay for their purchases with their mobile phones by contactless payment through near field communication (NFC). See the article here. France: BNP Paribas and the dynamic security code  BNP Paribas is running a trial using dynamic CVC numbers replacing the 3 digit static code on the back of the payment card with a dynamic security code displayed on a "screen" instead. This security code will change regularly and the regular updating of the security code will provide additional security for online payments. See the BNP Paribas press release, in French, here. Tunisia: Tunisia's post office trials cryptocurrency payments app  La Poste Tunisienne, the Tunisian post office, has been trialling a crypto-powered payments app for 600,000 of its customers.  Monetas and DigitUs have combined with La Poste to launch a multi-purpose app for a growing number of smartphone users in the North African nation. La Poste customers will be able to carry out instant money transfers, remittances and purchases in store and online via QR codes. Transaction fees will be low at around a third of a dinar (11p). See the article here. Nigeria: Mobile payments company Paga completes $13 million financing  Nigerian company Paga have completed a $13 million financing.  Paga was founded in 2009 and offers mobile payments and payment gateway services. See the article here. Thailand: VocaLink signs letter of intent with National ITMX  National ITMX, the operator of Thailand's interbank payments network has signed an exclusive letter of intent with VocaLink to explore the development of real-time mobile payments in the country. See the article here. Brazil: Visa goes for contactless gold at Rio Olympics  Visa have displayed a proof of concept NFC wristband in San Francisco which could be employed at the Rio Olympics next year. See the article here. China: Swatch launches contactless watch  Swatch has partnered with China UnionPay and Bank of Communications to introduce a contactless watch.  The first offering, the "Bellamy", is named after Edward Bellamy who in his 1888 novel "Looking Backward 2000-1887" imagined a world where cash was replaced by payment cards.  Partnerships are in place for forthcoming launches in Switzerland and the US. See the article here. 8 Hogan Lovells – Global Payments Newsletter Sweden: SumUp launches mobile point of sale (mPOS) service  European mPOS company SumUp has launched a mobile payment service in Sweden.  SumUp is now operating in 14 countries. See the article here. Georgia: VTB Bank collaborate with Visa for mobile payments  The Georgian VTB Bank has launched host card emulation (HCE) enabling customers to make payments by tapping their device against a contactless terminal accepting Visa PayWare.  The application allows for the uploading of an unlimited number of cards and the customer can easily choose which card to use during the payment process. See the article here. Canada: Scotiabank team up with EnStream  Scotiabank has become the 4th Canadian financial institution to use mobile payments hub EnStream to expand its mobile wallet.  EnStream was set up by three mobile network operators, Bell, Rogers and Telus to develop a mobile payments solution for the Canadian market. See the article here. India: Ultracash harnesses the power of sound for payments  Ultracash, the Indian technology and payments company, has launched a mobile payments app which uses ultra-high frequency encrypted sound-based technology.  The service only requires a bank account and a mobile phone. There is no need to preload money onto the phone, use any internet data or possess any NFC chips or hardware.  500 merchants have already signed up with 20,000 transactions taking place in the first few months. See the article here. Hogan Lovells – Global Payments Newsletter 9 United Kingdom: VocaLink publishes Moving Money 2025 Report  The paper comprises a collection of articles on a wide range of payments topics from the advance of push payment technology; simplifying payments for consumers; the future of retail payments and the consumer views of current accounts and payments. There are also a number of predictions and aspirational innovations proposed that could provide benefits by 2025.  A consumer survey of 2,000 has shown that there is a gender imbalance in the use of mobile and contactless technology: 17% of people have paid using a mobile phone and this is higher amongst males (21%) than females (12%). Similarly for contactless technology, 50% of the females surveyed had never used contactless whilst 41% of the males surveyed had never used contactless. See the report here. Ireland: Visa Europe reveal contactless in full force in Ireland  There are now over two million contactless transactions with Visa debit cards every month according to Visa Europe.  Contactless continues to grow with more than one billion transactions in Europe alone in the last 12 months. See the article here. Global: Singapore and the Fintech community flourishing  Our team in Hogan Lovells Lee & Lee in Singapore have written an article on the disruptive successes that fintech has brought to South East Asia.  Some of the key highlights include Temasek Holdings' $150 million capital raising by UK based peer-to-peer lender Funding Circle in April and in July, the Monetary Authority in Singapore committed S$225 million to grow the FinTech start-up community in Singapore.  For more detail on the opportunities and regulatory environment of South East Asia's technological terrain, see the full article here. Surveys and Reports 10 Hogan Lovells – Global Payments Newsletter Hogan Lovells’ global payments practice is made up of financial services and technology lawyers working closely together as a single team from our network of offices, including offices in all the major financial centres. The practice covers traditional payment services as well as technology driven innovations that affect products, business structures, services and markets. Our Clients The team provides strategic advice to all market participants including:  lenders  card issuers (including banks and e-money institutions)  acquirers  money remitters  payment schemes  mobile operators  retailers  payments platform or technology providers  payments processors  networks and settlement services How we can help In addition to advising on payment specific regulation, the team:  advises on all related regulation such as money laundering, data and privacy, technology law and IP, e-commerce and consumer protection  negotiates commercial contracts  leads or supports on mergers and acquisitions in the payments sector  engages with Government on new regulation and implementing new legislation  advises on multi-party arrangements to develop new payment services or networks and on related loyalty and incentive programmes  negotiates outsourcing of payments processing and settlement  drafts related customer and commercial documentation The global payments practice is part of Hogan Lovells market leading Financial Institutions Group, one of the largest practices of its kind with approximately 200 lawyers worldwide. Our Global Payments Team Hogan Lovells – Global Payments Newsletter 11 Local Contacts Primary Contacts Europe Americas Asia Roger Tym London T +44 20 7296 2470 [email protected] Veronica McGregor Silicon Valley T +1 415 374 2308 [email protected] Andrew McGinty Shanghai T +8621 6122 3866 [email protected] Europe Emily Reid London T +44 20 7296 5362 [email protected] London Roger Tym Julie Patient Emily Reid Jonathan Chertkow Amsterdam Victor de Vlaam Frankfurt Richard Reimer Nils Rauer Tim Brandi Madrid Joaquin Ruiz Echauri Miguel Garcia Stuyck Warsaw Beata Balas-Noszczyk Anna Tarasiuk-Flodrawska Moscow Alexander Rymko Paris Sébastien Gros Rome Jeffrey Greenbaum Johannesburg Leishen Pillay Singapore Stephanie Keen Brazil Claudette Christian Wylie Levone Hong Kong Mark Parsons Shanghai Andrew McGinty Beijing Roy Zou San Francisco/Silicon Valley Veronica McGregor Washington Timothy Tobin Christopher Wolf Mark Brennan Caracas Gonzalo Rodriguez-Matos Miami Jose Valdivia Gaston Fernandez Mexico City Federico De Noriega Olea Juan Fransisco Torres Landa Ruffo www.hoganlovells.com Hogan Lovells has offices in: Alicante Amsterdam Baltimore Beijing Brussels Budapest* Caracas Colorado Springs Denver Dubai Dusseldorf Frankfurt Hamburg Hanoi Ho Chi Minh City Hong Kong Houston Jakarta* Jeddah* Johannesburg London Los Angeles Luxembourg Madrid Mexico City Miami Milan Monterrey Moscow Munich New York Northern Virginia Paris Perth Philadelphia Rio de Janeiro Riyadh* Rome San Francisco São Paulo Shanghai Silicon Valley Singapore Sydney Tokyo Ulaanbaatar Warsaw Washington DC Zagreb* "Hogan Lovells" or the "firm" is an international legal practice that includes Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses. 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