Key developments of interest over the last month include: discussions over tightening crypto regulation in Europe and Asia; digital currency pilots in India and the U.S.; and UK Payment Systems Regulator looking into card fees including UK-EEA consumer cross-border interchange fees. This month’s Newsletter also contains an item on the recently published P20 report ‘Towards Borderless Payments: Best Practice Recommendations’, featuring an interview with Roger Tym, Partner at Hogan Lovells.

In this Newsletter:

For previous editions of the Global Payments Newsletter, please visit our Financial Services practice page.

Regulatory Developments

Global: P20 publishes report containing recommendations on moving towards borderless payments

On 15 November 2022, P20 published a report Towards Borderless Payments: Best Practice Recommendations’ setting out specific best practice actions to move towards borderless payments. However, the report points out that this can only be achieved through collaboration between governments, regulators and industry.

The report also contains a number of Q&A articles and links to video interviews with leading financial institutions, regulators, a central bank, a consulting firm and Roger Tym, Partner at Hogan Lovells.

The recommendations in the report include:

  • Overall: Collaboration between the private and public sectors is crucial to delivering real improvements to the cost, speed, transparency and accessibility of cross border payments.
  • Improving regulation and standards: Among the recommendations here is the adoption of ISO 20022 as the global messaging standard and the implementation of changes to business applications to take advantage of the ISO standard.
  • Combating financial crime: Recommendations include identifying, rooting out and preventing bad actors from using payment platforms and sharing that information across the industry, as well as accelerating the use of artificial intelligence to monitor for suspicious activity.
  • Improving efficiency of cross-border payments: One recommendation in this area is to ascertain and implement best practice on standards and achieving interoperability on a regional level before finding the best way to create continental harmonisation with the ultimate aim of linking continents.

European Union: European Commission adopts regulation on euro-denominated instant credit transfers

On 26 October 2022, the European Commission adopted a proposed Regulation to accelerate the rollout of instant credit transfers in euro. The Regulation would amend the Single Euro Payments Area Regulation ((EU) 260/2012) and the Cross-Border Payments Regulation ((EU) 2021/1230). The Commission explained in a press release that this aims to make instant payments in euros available to all citizens and businesses with a bank account in the EEA, giving them access to payments that go through within ten seconds at any time of day.

The four main aims of the Regulation are:

  • Making euro-denominated payments universally available. This includes obliging EU payment service providers (PSPs) that offer credit transfers in euros to also offer instant payments.
  • Making instant payments affordable. This includes obliging PSPs to not charge more for instant payments than for traditional euro-denominated credit transfers.
  • Increasing trust in instant payments. This requires imposing security features, such as obliging PSPs to verify that the recipient name and IBAN number match, and to have systems alerting payers of possible fraud.
  • Removing friction during processing, whilst maintaining screening. This requires PSPs to verify their clients daily against EU sanctions lists, but does not require screening every individual transaction.

The Commission has launched a public consultation inviting feedback on its proposal via its Have Your Say website. The closing date is 5 January 2023. The proposal contains phased implementation deadlines, modified for the different components of the initiative and to allow for euro area and non-euro area member states. It also provides that it will enter into force 20 days after publication in the Official Journal of the EU.

Further information can be found in our Engage Article.

United Kingdom: PSR publishes final terms of reference for card fees market reviews

On 27 October 2022, the Payment Systems Regulator (PSR) published its final terms of reference for its market reviews into card scheme and processing fees (MR22/1.2) and UK-EEA consumer cross-border interchange fees (MR22/2.2).

These reviews will focus on Mastercard and Visa, and were initiated due to concerns about increases in card processing and interchange fees.

In MR22/1.2, the PSR is seeking to understand whether the market for card schemes is working effectively, including considering barriers to entry and network effects, as well as the market position of Mastercard and Visa.

In MR 22/2.2, the PSR is seeking to understand why certain UK-EEA cross-border interchange fees have increased by five times since the UK left the EU. The PSR wants to

understand the rationale for this, and assess whether the increase in fees is indicative of a market not functioning as desired.

The PSR is intending to publish interim conclusions on card scheme and processing fees in Q4 2023 and a final report in Q4 2024; interim conclusions and the final report for interchange fees are planned for Q2/3 2023 and Q4 2023, respectively.

Further information can be found in our Engage Article.

Global: FSB letter to G20 leaders and central bank governors

On 11 November 2022, the Financial Stability Board (FSB) published a letter to G20 finance leaders and central bank governors ahead of the 15-16 November summit. Two points in the letter included:

  • The FSB is moving to the second phase in its roadmap for enhancing cross-border payments. This phase involves focussing on (i) improving payment system interoperability and extension of access to Real-Time Gross Settlement, (ii) promoting an effective and efficient legal, regulatory and supervisory framework, and (iii) facilitating cross-border data exchanges, as set out in a note published in October 2022.
  • The FSB notes that events in 2022 highlight how cryptoassets, including stablecoins, continue to suffer from structural vulnerabilities. The markets for these assets are highly volatile and require more effective oversight and regulation as the current approach is inadequate in comparison to the risks posed. The FSB proposed an international framework for regulating cryptoassets in October 2022.

Global: FSB publishes final report on implementation approach for cross-border payments targets

On 17 November 2022, the Financial Stability Board (FSB) published a final report on the approach for monitoring progress towards meeting the targets for the October 2020 G20 roadmap for enhancing cross-border payments. The FSB set out the quantitative targets for achieving cheaper, faster, more transparent and more accessible cross-border payments in an October 2021 report, and it has also committed to develop a framework for monitoring progress towards those targets using key performance indicators (KPIs) against which future progress would be measured.

The report provides an update on the FSB's progress, which it initially set out in a July 2022 interim report, as well as next steps. Among other things, substantial progress has been made towards establishing the monitoring framework. The FSB working group has made significant progress in evaluating and identifying the main data sources for each of the three-market segments (wholesale, retail and remittances) and in identifying the gaps that will remain. However, it believes that it will take several more months to develop reliable estimates of current performance of cross-border payments based on the KPIs and these will be published once available.

After its work to define the KPIs and identify the main data sources, the next stage will be to engage with the potential data providers to develop current estimates of the KPIs and establish the processes for ongoing monitoring.

European Union: EBA call for input on ESAs' joint 2017 guidelines to prevent money laundering and terrorist financing in fund transfers

On 21 October 2022, the EBA published a call for input on the European Supervisory Authorities' (the ESMA, EBA and EIOPA) joint guidelines on AML and terrorist financing (the 2017 Guidelines). The joint guidelines were published under Article 25 of the Wire Transfer Regulation ((EU) 2015/847) (WTR).

In June 2022, provisional agreement was reached on a proposed recast revised WTR that would bring this regulation in line with the Financial Action Task Force's standards by extending the obligation to include information about the originator and beneficiary to cryptoasset service providers (the “travel rule”). Under this agreement, the ESAs are mandated to issue guidelines to aid implementation of the recast legislation. The EBA intends to deliver this mandate by amending and extending the 2017 Guidelines. The purpose of the call for input, which closed on 15 November 2022, was to understand the practical issues that financial institutions have had in complying with the 2017 Guidelines. The responses will inform the EBA's review of the 2017 Guidelines.

United Kingdom: FCA publishes discussion paper on impact of Big Tech on competition in financial services markets

On 25 October 2022, the FCA published discussion paper DP22/5, seeking views on a proposed regulatory approach towards Big Tech companies in digital financial services markets. The paper discusses, and invites comment on, the impact Big Tech firms have had on competition in four markets – payments, deposit-taking, consumer credit and insurance.

The paper notes that there are potential benefits to consumers of Big Tech firms expanding into financial services, including increased efficiency driving down prices, and their human and financial resources enabling them to be more innovative than other market participants. However, the paper also discusses the potential for Big Tech firms to dominate financial services markets, with detrimental impacts on competition.

The deadline for responses is 15 January 2023.

Singapore: MAS proposes banning crypto firms from offering credit

On 26 October 2022, the Monetary Authority of Singapore (MAS) published two consultation papers with proposals to improve crypto regulation in the aftermath of a crypto hedge fund’s bankruptcy.

A key proposal concerns prohibiting digital payment token service providers (DPSTPs) from offering "any credit facility" to consumers, with the intention of protecting consumers from losses that exceed their investment. This includes credit offered in fiat currency or cryptocurrency.

MAS also suggested that DPSTPs should consider implementing tests for retail consumers to assess their knowledge of the risks associated with crypto investment so they can tailor services accordingly.

Hong Kong: Policy statement on developing a virtual asset regulatory regime

On 31 October 2022, the Financial Services and the Treasury Bureau published a policy statement with detail on the Hong Kong Government's plans for developing a regime for regulating virtual assets. This follows the introduction of the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill in June 2022, which required any person who provides (or holds out as providing) a virtual asset service in Hong Kong, including those based outside of Hong Kong who market to the Hong Kong public, to be licensed by the Securities and Futures Commission.

The policy statement indicates that the Hong Kong Government may be looking to allow a retail market to emerge, initially trading Bitcoin and Ether-related exchange traded funds. However, this emergence would be gradual as the initial proposal restricts the customers for such products to the category of 'professional investors', who are defined as individuals with portfolios exceeding HK$8 million (US$ 1 million).

Additionally, the government indicated that it might launch a review into property rights for tokenised assets, and the legality of smart contracts.

Further information can be found in our Engage Article.

European Union: European Parliament to consider proposed Regulations on crypto markets

On 14 November 2022, the European Parliament updated its procedure files on the proposed Regulation on markets in cryptoassets (MiCA) and the proposed Regulation on information accompanying transfers of funds and certain cryptoassets. (recast revised Wire Transfer Regulation). These indicate that the European Parliament will consider the proposed Regulations during a session running from 13 to 16 February 2023. The Parliament and the Council reached political agreement on the proposed Regulations in June 2022, and the agreed text of both Regulations was published in October 2022 (as reported in our October 2022 Newsletter).

European Union: EPC revises SEPA scheme rulebooks

On 28 October 2022, the European Payments Council (EPC) published a press release announcing a new entry-into-force time for the Single Euro Payments Area (SEPA) Instant Credit Transfer rulebook. This is to enable a changeover to the 2019 ISO 20022 standard, which will take immediate effect from its implementation at 03:30 CET on 19 November 2023.

Prior to the implementation, there will be a 30-minute downtime period, starting at 03:00 CET. During the downtime period, no instruction, transaction or message of any kind will be possible.

The EPC has also published the following revisions to the rulebook, replacing previous versions:

  • 2023 SEPA Instant Credit Transfer Scheme Rulebook version 1.1 (EPC004-16)
  • SEPA Instant Credit Transfer Inter-PSP Implementation Guidelines 2023 version 1.1 (EPC122-16)
  • SEPA Instant Credit Transfer Customer-to-PSP Implementation Guidelines 2023 version 1.1 (EPC121-16)
  • 2021 SEPA Instant Credit Transfer rulebook version 1.2 (EPC004-16) – this includes an updated version of the Payment Scheme Management Rules, and comes into force on 25 April 2023 and remains in force until 19 November 2023 03:00 CET.

United Kingdom: APP scams - LSB publishes review of firms' compliance with CRM Code and LSB/PSR enter into memorandum of understanding

On 2 November 2022, the Lending Standards Board (LSB) published the ninth edition of the LSBulletin. A key feature of this is a review of adherence to the contingent reimbursement model (CRM) Code by the nine signatory firms as concerns authorised push payment (APP) scams during 2022.

In overview, the LSB saw progress as firms have made plans to address issues raised in previous reviews. However, improvements can be made in the following areas:

  • Warnings communicated through non-digital channels;
  • Oversight;
  • Reimbursement decision rationale;
  • Perception of customer responsibility; and
  • Dealing with vulnerable customers.

The next actions the LSB has said it wants to take are to:

  • Produce a formalised measure of success for the CRM Code;
  • Review the balance of responsibility between payment sending and payment receiving firms under the CRM Code; and
  • Revise its guidance in light of evidence gathered from the CRM Code reviews and engagement with the Payment Systems Regulator (PSR).

On 14 November 2022, the LSB published a memorandum of understanding (dated 28 October 2022) between it and the PSR on their respective roles relating to APP scams.

United Kingdom: FSM Bill passes through House of Commons committee stage

On 3 November 2022, the Financial Services and Markets Bill 2022-23 (the FSM Bill) completed the committee stage of the House of Commons. Parliament has published a revised version of the Bill, as amended in committee. The FSM Bill will return to the floor of the House of Commons for the report stage, where the committee-amended version of the Bill can be debated, and further amendments can be proposed. The House has not yet scheduled a date for this.

Payment Market Developments

India: Central bank launches digital currency pilot

On 1 November 2022, the Reserve Bank of India launched a pilot central bank digital currency, the Digital Rupee. The pilot will assess the operation of the Digital Rupee in secondary market transactions for government securities.

Nine private and state-owned banks have been enlisted for this pilot, which the Reserve Bank intends to be the first of several. The Reserve Bank has emphasised that this is not a cryptocurrency, it is a centralised digital currency, and part of the reason for the interest in such a currency is the perceived threat to India's financial stability posed by cryptocurrencies.

United States: U.S. banks launch digital currency pilot

On 15 November 2022, members of the U.S. banking community including Mastercard, HSBC and Wells Fargo announced the launch of a 12-week digital currency pilot, working alongside the Federal Reserve Bank of New York. The pilot will operate in U.S. dollars, using simulated digital tokens that represent the deposits of the participating banks and a simulated central bank reserve.

The pilot will also test the existing regulatory framework for deposit-based payments processing by having the digital money platform conform with current requirements.

Following the pilot, the group of banks will publish the results, with the aim being to contribute to the literature on digital currencies. None of the participants have committed to any future activities on the basis of the pilot.

Bahamas: First digital currency 'Tourist Wallet' launched

On 9 November 2022, it was reported that Island Pay has launched the world's first digital Tourist Wallet App for use in the Bahamas. This will allow foreign visitors to avoid the need for cash in the Bahamas by enabling them to purchase Sand Dollars, the Bahamas central bank digital currency. To facilitate these transactions from the vendor side, Island Pay has also launched a Small Merchant App, giving business owners the capacity to accept Sand Dollars. This has the capacity to greatly improve the efficiency of tourist trade in the Bahamas as the country currently has a low rate of credit card acceptance among small businesses.

United Kingdom and European Union: Cardstream partners with Nuapay

On 20 October 2022, Cardstream announced it will partner with Nuapay to provide Open Banking capabilities to its Open Payment Network of White Label Partners in the UK and EU. It also enables Cardstream's merchant base to use Pay Now and Pay In Instalments via Nuapay's Account2Account service, combining the benefits of Open Banking and direct debits.

Africa: Cellulant partners with Mastercard to facilitate e-commerce payments

On 25 October 2022, Cellulant announced a partnership with Mastercard which will enable it to offer e-commerce payment capabilities to customers wherever Mastercard is accepted, through mobile money, local cards, international cards, and from their bank.

Cellulant currently operates in 35 African countries and is seeking to take advantage of the increase in smartphone usage on the continent, particularly amongst those without a bank account. This is part of Cellulant's aim of processing two thirds of payments made in Africa.

Thailand: Stripe enters Thai market

On 26 October 2022, Stripe announced it had entered the Thai payments market. Stripe will offer local businesses the ability to accept payments made through Mastercard, Visa and local service PayPromptly, as well as other major cards.

Other services made available to Thai merchants include StripeConnect, billing for subscriptions and recurring payments, invoicing for automated payment collected and reconciliation, and 'Radar' fraud detection and prevention.

U.S. and Canada: Elavon and Phos partner to enable merchants to use mobile devices as contactless payment terminals

On 3 November 2022, it was reported that point of sale software developer Phos and global acquirer Elavon have partnered to launch a product aimed at small businesses, enabling them to use mobile devices as terminals for taking contactless payments. This will make it easier for small merchants to offer contactless payment options by eliminating the need for chip and pin machines, which are unaffordable for many of the 64 million U.S. merchants who Phos estimate currently do not accept card payments.

United States: American Express and Square to launch credit card

On 16 November 2022, American Express announced a partnership with payments platform Square to launch a new credit card designed for Square users. This is the first credit card offered by Square and integrates with Square's other offerings, enabling sellers to manage their cash flow and finances using the same platform that they run their business on.

Central America: Paysend to launch Paysend Libre

On 14 November 2022, Paysend announced that Paysend Libre, a payment solution to enable people in Northern Central America to access a Paysend virtual Mastercard, would be launched in December 2022. Through this they can receive remittances from the U.S. without a bank account.

Paysend Libre will initially be made available in Guatemala, before being rolled out in Honduras and El Salvador in 2023.

Hong Kong: Ant Bank partners with Alipay to enter BNPL market

On 8 November 2022, it was reported that Ant Bank has launched its buy-now pay-later product PayLater, which is available to AlipayHK users. This allows purchases worth at least US$ 12.87 to be spread across a three-month instalment plan. Ant Bank is currently waiving handling fees, although this may change in the future. The bank may be using Hong Kong as a testing space before rolling out a similar service in mainland China.

Europe: Nexi launches Planet Care service

On 9 November 2022, Nexi announced the launch of its Planet Care service, which provides Nexi cardholders with information on the impact their payments have on the environment through a carbon calculator integrated into the payment app. This enables the app to estimate the amount of carbon dioxide emitted by particular products and inform the consumer. Nexi plans to add a feature enabling customers to offset the emissions cost of their purchases at a later date.

Surveys and Reports

Nordic Countries: Mobile payments overtake cash as payment preference

On 31 October 2022, Nets released the Nordic Payment Report 2022, which investigates the preferred payment methods for customers in Denmark, Norway, Sweden and Finland.

The report found that 80% of Nordics prefer using debit or credit cards when making in-person payments, but that for the first time, more people reported a preference for making mobile payments (10%) than cash (5%). Swedes demonstrated a particularly strong aversion to using cash, with 27% stating that they do not use cash at all. Danes are the biggest users of contactless payment methods, with 91% of all card payments being contactless at the end of 2021.

United States: Americans report positivity towards cryptocurrency

On 1 November 2022, The Harris Poll conducted a survey of over 2,000 American adults on behalf of Greyscale Investments, looking into how Americans view cryptocurrency and the broader economy.

The results showed optimism towards cryptocurrencies:

  • 53% agreed with the statement "cryptocurrencies are the future of finance";
  • 44% stated they plan to have cryptocurrency as part of their investment portfolio in the future;
  • 33% of those under 45 years old already own cryptocurrency; and
  • 49% are familiar with cryptocurrency – this increases to 70% of those aged 18-34 and 62% of Hispanic Americans.

They also indicated support for better regulation from across the political divide:

  • 81% agree that there should be clearer cryptocurrency regulation, including 88% of Democrats and 77% of Republicans;
  • 39% consider the U.S. as being behind other countries in creating an effective regulatory environment for consumers to engage with cryptocurrency; and
  • 37% consider a candidate's position on crypto when deciding who to vote for.

India: Cash transactions continue to rise despite demonetisation

On 8 November 2022, LocalCircles published its annual survey to understand cash use in India. The survey received 32,000 responses.

Despite digital transactions having risen in the six years since demonetisation, cash transactions have also increased by 44%. Cash was most commonly used for purchasing food, with 76% of respondents using cash for this purpose. Additionally, 44% of those who reported buying a property in the last 7 years said cash was part of the transaction, which is high, despite being a decrease from the 70% who reported using cash in real estate transactions in the 2021 survey.