Snippings

The FCA has now published further portfolio letters setting out its expectations to support firms in implementing the Consumer Duty.

What are the key focus areas for payments firms?

The FCA has provided a list of focus areas for payments firms to consider in order to deliver consistently good consumer outcomes under the Duty. These include topics such as:

Distribution chains: The FCA has emphasized the importance of checking that distribution strategies are being followed, sharing all necessary information with other firms in the distribution chain, and using data and management information to monitor whether products and services continue to meet the needs of customers and contribute to good consumer outcomes.
Strong customer authentication: The FCA touches on strong customer authentication, noting that it “expect[s] payment service providers to develop strong customer authentication solutions that work for all groups of consumers”, including those with protected characteristics (under the Equality Act 2010). The FCA indicates that payments firms may need to provide several different methods of authentication to their customers, including methods that don’t rely on mobile phones, to cater to customers who don’t have or want to use a mobile phone or need to make payments in areas without mobile phone reception. This is a pointed reminder for digitally led firms on the potentially wide-reaching impact of the Duty on servicing channels.
Proportionate fees and charges: The FCA highlights that, in considering price and value, firms should be giving thought to both regular and contingent charges and fees, as well as fees and charges levied by agents or distributors. The FCA has also identified the need to ensure proportionate e-money redemption fees, and to assess the impact of fee structures on vulnerable customers, as key issues to consider.
Customer protections and use of third parties in chains: The FCA has emphasized the need to signpost differences in customer protections for different products and services (e.g. funds held by PIs and EMIs are safeguarded rather than subject to FSCS protection), provide clarity on which products are regulated, and ensure communications make clear the role played by agents and distributors in the delivery of products and services.
Channels and account freezing practices: The FCA has highlighted mobile/online access problems as well as fraud as examples of issues that customers might encounter that could require the use of additional and alternative servicing channels (e.g. for digital-only firms). As noted in the Retail Banking portfolio letter, the FCA is also concerned about account freezing practices and has reminded firms of their obligations under Regulation 71 of the Payment Services Regulations 2017. In essence, the FCA wants firms to freeze customer accounts less frequently and for shorter periods of time, and for communications relating to account freezing to be clearer and provided with appropriate customer service support (e.g. where account freezing could give rise to financial difficulties).

From UK Consumer Duty: FCA publishes further portfolio letters to help firms with implementation – Hogan Lovells Engage:

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Consciousness is a liability and not an asset in an AI. It is distracting and dangerous. We want our AIs to just drive, and not get anxious. Many expensive AIs will be advertised as “consciousness-free.”

From Interview: Kevin Kelly, editor, author, and futurist:

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Gen. James Hecker, the commander of US Air Forces in Europe. Hecker told reporters at the Air and Space Forces Association symposium that Russia’s larger air force still has jets it could devote to the war, as does Ukraine — but there is an issue.

“The problem is both of the Russian, as well as the Ukrainian success in integrated air and missile defense, have made much of those aircraft worthless. They’re not doing a whole lot because they can’t go over and do close air support,” Hecker said.

From Lack of Close Air Support Over Ukraine Is Sign of Future for US Troops:

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Ultimately, then, the SVB crisis should make us ask: what is the point of banks? If providing safe storage of money for business depositors requires them to hold riskless assets with no effective duration, they may as well simply hold central bank reserves [so] what is gained by interposing private banks out to make profits on the intermediation?

From The Silicon Valley Bank fallout makes the case for digital currencies | Financial Times:

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As Matthew Klein so memorably puts it, banks are “speculative investment funds grafted on top of critical infrastructure.

From The Silicon Valley Bank fallout makes the case for digital currencies | Financial Times:

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Digital wallets are set for a meteoric rise this decade. While 40% of the world population used a digital wallet as of 2022, experts predict that nearly two-thirds — 65% — of global consumers will leverage them by 2030 for an annual growth rate of 8%. The United States is not far behind in growth at 7%, with digital wallet users expected to increase from 160 million to 260 million during that time.

From Millennials Are Demanding Real-Time Payments | PYMNTS.com:

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The Centre for Economic Policy Research (CEPR) published a 2022 report in their Future of Banking series on “Technology and Finance” in which they said that a crucial factor in the evolution of stablecoins may be whether fintechs are granted access to central bank settlement accounts. As they pointed out, non-bank entities issuing fiat stablecoins (such as a digital dollar) must guarantee the one-for-one convertibility with central back money. The lack of legal eligibility for non-bank payment providers to access to central bank accounts and liquidity facility services complicates such a guarantee, which threatens to jeopardise the stability of new digital payments as was indeed observed when Circle’s USDC dollar peg was broken after the collapse of Silicon Valley Bank (SVB) because a proportion of the dollars backing USDC were commercial deposits in SVB.

 

There is an alternative. The idea of another kind of federal charter that would allow regulated institutions access to payment systems, but would not allow them to provide credit, seems much more appealing for not only stablecoin issuers but almost all other fintechs as well. Such a charter would separate the systemically risky provision of credit from the less risky provision of payment services, a very different concept to the SPNB charter. The economist George Selgin, Senior Fellow and Director of the Cato Institute’s Center for Monetary and Financial Alternatives, recently posted a similar point on Twitter, arguing for the Federal Reserve to give fintechs direct access to payment systems (instead of having to go through banks). This was the approach taken in the UK when the Bank of England decided to give settlement accounts to fintechs, where examples of fintechs who took advantage of this opportunity to deliver a better and cheaper service to customers range from the $5 billion+ Transferwise money transfer business to the open banking startup Modulr (which just recieved a $9 million investment from PayPal Ventures). Interestingly, Singapore has just announced that it will go this way as well, so that non-banks that are licenced as payment institutions will be allowed access to the instant payment infrastructure from February 2021.

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There is already a bit of drama surrounding the launch. Caitlin Long, founder and CEO of Custodia Bank, tweeted about why Adyen, a public European fintech company, was able to get on the list of participants offering FedNow, when, in her words, “isn’t the Fed keeping #fintechs out???”

In a statement, Adyen confirmed that it had obtained a U.S. banking branch license in 2021 and was “among the first to complete testing and receive certification to utilize the FedNow(R) Service.”

From FedNow is finally live in the US | TechCrunch.

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It still remains relatively rare for non-banks to be given direct access to a central bank’s real-time gross settlement (RTGS) system.

Data from the Payments Benchmarks 2022 shows some central banks allow several hundred institutions to access the core settlement system. But most users did not permit any non-banks to access it directly, and of those that did, typically only a handful of non-banks had such privileges.

From Non-bank access to RTGS systems still rare – Central Banking:

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The Bank of England did this back in 2017, allowing announcing today that a new generation of non-bank Payment Service Providers is now eligible to apply for a settlement account in the Bank’s RTGS system.

Holding their own settlement account at the Bank enables these non-bank PSPs to apply, for the first time, for direct access to the UK’s sterling payment systems that settle in sterling central bank money, including Faster Payments, Bacs, CHAPS, LINK, Visa, and, once live, the new digital cheque imaging system.

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And that’s no good if you’re a new company with an innovative yet compliant business model needing to make Faster Payments or access the payment schemes. Without a reliance on a commercial bank’s policies, there are fewer parties to rely upon.

A smaller tech chain reduces IT failure

With fewer tech players in the chain, there is a reduced likelihood of IT failure, as our own technology stack is less dependent on others. This means we’re now able to divert resources to focusing on our own platform rather than maintaining our technological connection to other parties.

From What direct access to the Bank of England means | Modulr:

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Customer relationship management (CRM) platform Salesforce said Wednesday it’s expanding its client services to include management of non-fungible token (NFT) loyalty programs.
According to its website, its suite of products that make up Salesforce Web3 will help companies build, manage and integrate NFTs into their businesses. The new platform will also include support for Web3 technologies through its customer service product Customer360.
In addition, Salesforce Web3 is rolling out Web3 Connect, an API integration that provides insight into the customer experience across Web2 and Web3 as they tap into these new technologies. Salesforce is also releasing NFT Management, a platform that allows companies to create and monitor the success of their NFT collections and blockchain data through the Salesforce interface.

From Salesforce Taps Into NFTs Through Suite of New Web3 Products:

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As Brian Armstrong, the CEO of Coinbase, told Bloomberg in a recent podcast, “the average person doesn’t really know what a private key is. They don’t want to install a Chrome extension to understand something. It needs to be just simpler for the average person.”