Payment Systems Developments and Fintech Payments

Transcription

1 Payment Systems Developments and Fintech Payments March 2017 NY MORRISON & FOERSTER LLP 2017 mofo.com

2 Payment Systems Challenges and Opportunities for Banks Digital Wallets that Can Store Funds and How the CFPB Prepaid Accounts Rule Could Affect Them Data Aggregators and CFPB RFI on Consumer Access to Financial Records Voice Recognition Technology Federal Reserve Faster Payments Task Force Bank P2P Funds Transmission Update 2

3 Digital Wallets that Can Store Funds and How the CFPB Prepaid Accounts Rule Could Affect Them 3

4 Digital Wallets that Can Store Funds and How the Prepaid Rule Could Affect Them The CFPB s final rule on prepaid accounts covers some digital wallets The rule s coverage includes apps such as Venmo, that are capable of person-to-person transfers and storing funds But not digital wallets such as Apple Pay, that just store payment credentials To compete with Venmo, Zelle is reportedly developing a P2P platform, but it is unclear whether it will have prepaid functionality The CFPB included digital wallets that are capable of storing funds in the rule because the agency the Bureau believes that: [D]igital wallets that can hold funds operate in large part in a similar manner to physical or online prepaid accounts [C]onsumers who transact using digital wallets deserve the same protections as consumers who use other prepaid accounts 4

5 The prepaid accounts rule will require companies to limit consumers losses when cards are lost or funds are stolen, investigate and resolve errors, and provide clear disclosures about fees and product features Digital wallet businesses will have to set aside the money to reimburse customers who are victims of fraud The CFPB prepaid accounts rule will have less of an effect on larger prepaid providers In general, larger providers already voluntarily provide their customers with many of the protections now mandated by the rule The rule could, however, have an adverse impact on smaller players and new entrants Such companies may not know the rule exists Much less that they could be covered And face multiple complex compliance obligations In addition, the rule could have an adverse effect on digital wallet innovation 5 Digital Wallets that Can Store Funds and How the Prepaid Rule Could Affect Them, cont d.

6 Data Aggregators and CFPB RFI on Consumer Access to Financial Records 6

7 RFI on Consumer Access to Financial Records On November 22, 2016, the CFPB published a Request for Information on access to consumer financial account data Specifically, the CFPB seeks information about consumers ability to access, control and share personal financial data relating to them in a usable electronic form Such access includes access by a third party authorized by the consumer in connection with a product or service offered by the third party (i.e., data aggregators ) Section 1033 of the Dodd-Frank Act requires that consumers be able to request information in the control or possession of [a] covered person concerning the consumer financial product or service that the consumer obtained from such covered person, including information relating to any transaction, series of transactions, or to the account including costs, charges and usage data Section 1033 further provides that this information shall be made available in an electronic form usable by consumers 7

8 The CFPB states that it plans to use responses to the RFI to determine whether the agency will issue guidance or engage in rulemaking with respect to data aggregation and consumer access to information Any such guidance or rulemaking would have to address complex issues related to data security and unauthorized account access The RFI contains 20 questions about current market practices and potential market developments regarding companies that offer products or services that utilize financial account data with the permission of the consumer Responses to the RFI were due February 21, 2017 On October 24, 2016, during a speech at Money 20/20, CFPB Director Richard Cordray strongly endorsed open financial data, saying the Bureau is gravely concerned that financial institutions are limiting or ending access to financial data, rather than exploring ways to make sure that such access... is safe and secure He added, Let me state the matter as clearly as I can here: We believe consumers should be able to access this information and give their permission for third-party companies to access this information as well 8 RFI on Consumer Access to Financial Records, cont d.

9 Data Aggregators Issues to Consider Some issues to consider with respect to data aggregators include: Treatment by financial institutions of aggregators as service providers vs. partners, and the implications for contractual requirements In particular, data security requirements, breach liability, and the challenge of passing through financial institution requirements to aggregator customers Attitudes toward data ownership (financial institutions vs. consumers), and the implications for who has the right to monetize the data Permissible scope of consumer data use by aggregators and aggregator customers In particular, the implications if an aggregator wants to re-purpose data or collect more than the minimum data needed for the product or service Potential trends in data sharing such as open sharing protocol/trusted third-party exchange vs. continued bilateral deals between big financial institutions and big aggregators 9

10 Voice Recognition Technology 10

11 Voice Recognition Technology Customer acceptance Growing adoption Reliability and implementation challenges Third-party assistants (i.e., Alexa, Siri) Less than ideal experience across devices and applications Need to carefully and thoughtfully roll out voice recognition technology 11

12 Federal Reserve Faster Payments Task Force 12

13 Faster Payments Task Force In July 2015, the Federal Reserve System established a Faster Payments Task Force to support the Federal Reserve s efforts to improve the speed, safety and efficiency of payments The Task Force was assembled to engage stakeholders and advance the work outlined in Federal Reserve s Strategies for Improving the U.S. Payment System, published in January 2015 The Federal Reserve also established a Secure Payments Task Force: Provides advice on payment security matters Will coordinate with the Faster Payments Task Force to identify solutions for any new or modified payments infrastructure so that it is both fast and secure Determines areas of focus and priorities for future action to advance payment system safety, security and resiliency 13

14 On February 2, 2016, the Faster Payments Task Force published a set of criteria by which the Task Force would assess proposals outlining potential approaches for a faster payments system The criteria included ubiquity, safety and security, efficiency and speed The Federal Reserve received 19 proposals from payments industry members of the Task Force The Task Force s final report is in two parts On January 26, 2017, the first section was released, describing the task force s history and background, the process undertaken to identify and assess faster payments solutions, gaps identified in the current payments landscape, opportunities for improvements, and outlining the benefits to the public of a faster payment system The second section of the final report, scheduled for release in mid-2017, will include a discussion and assessment of the proposals, will identify strategic issues deemed important to the successful development of faster payments in the U.S., and will recommend industry actions required to advance their implementation and adoption 14 Faster Payments Task Force, cont d.

15 Bank Partnerships: Funds Transmission 15

16 Bank Partnerships Money Transmission Partner/Investor Due Diligence Issues State governance of money transmission With the exception of Montana, money transmission requires licensing in all states and the District of Columbia Capital requirements Permissible Investment requirements / bonding requirements Customer protection requirements State examinations Federal governance of money services businesses Registration as a Money Services business AML Program Office of Foreign Assets Control Sanctions screening/reporting 16