In our 2024 Wrap Up episode, we looked into our crystal ball to predict how different payments industry themes may evolve in the coming year; however, this industry delivers headlines at a rapid-fire pace (by the way, are you subscribed to Payments News?).

To help you read the tea leaves in the mountains of publications, Yvette Bohanan rounded up Chris Uriarte and Drew Edmond for this mid-year update on payments industry trends. Tune in to hear updates and perspectives on the following topics:

• Regulation, including the Durbin Amendment, CCCA, and Click-to-Cancel
• Stablecoins
• Agentic Commerce
• Tokenization
• Fraud and Risk, including passkeys and Visa’s VAMP

Chris and Drew will also be speaking about these topics at a variety of upcoming payments conferences, so be sure to connect with them if you are attending!

 

 

 

 

Yvette Bohanan: Hello, I’m Yvette Bohanan, a partner at Glenbrook, and your host for this episode of Payments on Fire.

It’s back to school season. Can you believe it? And education is for everyone, not just the kids. So before we get started, I wanted to let you know about our upcoming education opportunities. We have a Global Payments Advanced Workshop coming up on September 16th and 17th, which will be a live virtual session.

And we just also announced two in-person education events. Our two-day Payments Boot Camp, a perennial favorite, and a one-day Advanced Payments Workshop. Both of those are going to be in San Francisco the first week of December, so check those out on our website. We hope you can make one of them or both or all.

If you can’t, and you’re looking for some fast-paced and something flexible to fit your schedule and meet your needs, check out our On-demand courses. We have everything from a full Boot Camp to short courses on specific topics out there now. And they’re all available to you, easy to register and start right away at your own pace.

No matter how you go about getting your payments education, and brushing up on what’s going on, having a solid grasp of the fundamentals and innovations in the payment space comes in mighty handy when you’re trying to decipher the headlines, read the tea leaves on a mountain of publications, and sus out some of the BS, which leads us today’s Fanning the Flames.

Joining me for this episode are my colleagues, Chris Uriarte and Drew Edmond. Guys, time to grab a beer or beverage of your choice and talk shop.

Chris Uriarte: Hey, Yvette. Yeah, let’s talk shop. I love doing these updates.

Drew Edmond: I have a sparkling blackberry.

Yvette Bohanan: Fantastic. I have my, what I’m referring to as my Italian Arnold Palmer. It’s Italian Sparkling Lemonade soda, or lemon soda, I don’t know what it is. And then Smith Tea Maker Exceptional Iced Tea, blended 50/50.

Chris Uriarte: Wow, that’s very nice. I’ve just got ice water. Not that exciting.

Yvette Bohanan: When you’re in Florida, you can drink whatever keeps you hydrated.

Chris Uriarte: Stay hydrated. Exactly.

Yvette Bohanan: Stay hydrated. So, I am really glad we’re catching up no matter what we’re drinking here. Because you both are ready to hit the road pretty soon. It’s not only back to school season, it is conference season, planes, trains, and automobiles here.

So I wanted to kind of test drive some thoughts and maybe we start with the big picture, like macroeconomics of payments, which is code, right? It’s code for what’s happening on the regulatory front. So.

Chris Uriarte: Oh man, there’s a lot and we only have so much time today, but obviously I think it’s good for us to focus on the stuff that is really hitting the payments world at the heart at its core. And one thing that I want to bring up is actually pretty new, and this has to do with some of the interesting things we’re hearing lately around regulated debit interchange in the US.

So, to nobody’s shock, we’ve seen a lot happen on the regulatory front, but we have seen some really, really interesting things come out of the courts just in the last few weeks regarding the Durbin Amendment. And we love to talk about Durbin. We love to talk about the impact of Durbin on the industry over the course of the last decade. But what we actually saw was a court come down and essentially invalidate the rules from the US Federal Reserve that set the interchange rules, trying to comply with the Durbin Amendment. So it is a really interesting ruling that came down from the Circuit Court here in the US.

And let me give you a little bit of background as to sort of where we’ve been and what this ruling means. So, the Fed has already proposed a reduction in its current regulated debit interchange rate. That rate right now is 21 cents plus 5 bps plus about 1 cent allowed for this fraud prevention allowance. And the reduction that’s been proposed has been bringing that down to 14.4 cents and 4 bps and, interestingly enough, actually increasing the fraud prevention adjustment up to 1.3 cents.

Now that’s interesting. Keep that in mind in the second when I talk about what’s happened with this court case. While this has been proposed, it’s yet to be enacted, right? So as a benchmark example, we know that that is obviously going to bring down the average cost for the large institution issued debit cards in the future. And as a benchmark, we would say for $50 transaction, we would see the cost to merchant from an interchange perspective go from about 24.5 cents down to 17.7 cents in that example there. So if you’re a large retailer, that starts to add up over time, right? That does make a difference as well.

But as we’ve been waiting around for this reduction to be implemented from the Fed, just a few weeks ago, a federal court ruling came down that generated some really sensational headlines. The headlines we’ve heard is, Is Durbin Struck Down? No More Regulated Interchange. That sort of thing. But in reality, the ruling is a lot more nuanced than that. And there are a couple key findings that I really want to point out.

Number one, the judge ruled that the Fed had included some out of scope costs beyond what they refer to as the ACS costs, the authorization, clearing, and settlement costs, and the judge believes that that actually violated Congress’s intent when the Durbin amendment was actually passed.

The other thing that was quite interesting here is the blanket fee structure that was created as part of the regulated interchange. So that is that fee structure that I’ve just been talking about, saying that every institution receives, every issuing institution receives, for example, 21 cents plus 5 cents today. That blended rate here was also something that violated the intent of Congress when Durbin was implemented.

So that is really a big implication because what the judge actually has said is, what he has implied is that, in the future, we might be seeing per issuer interchange rates being implemented. And the logic behind that is, Congress has said as part of the amendment that the costs must be in line with the actual cost to process a transaction. And the judge has said, Well, the costs vary widely to process transactions from institution to institution. So how could you have a single rate across the board?

So it’ll be very, very interesting to see what happens here. The most important thing to note is that this ruling has been stayed. It’s been put on pause, allowing for the Fed to appeal within the next six months. So we’ll see what the Fed does as a result of that. What do we think will happen as a result? Well, first of all, we think that regulated interchange rates, they’re going to fall below the proposed 14.4 plus 4 basis points new interchange rate, simply because the judge has said that there are cost components that are in that blended rate that shouldn’t have been considered.

And I think at the end of the day, this is going to turn into lower fees for merchants, reduce fees for banks from an interchange perspective, those Durbin regulated banks, of course. But if you’re an acquirer, if you’re a PSP that’s charging at a blended rate pricing model, this might actually mean higher margins for you on debit cards that are processed as well.

And it leads us to some interesting questions like what does this do to the value proposition of lower cost card alternatives that a lot of folks in the industry have been fighting for over the years? Things like pay by bank. We don’t have the answer to those things, but this is something we’re absolutely going to be keeping an eye on for sure.

Yvette Bohanan: Hmm. Interesting.

Chris Uriarte: Yeah. A few other things to note is we’re continuing to see some significant regulatory authority being exercised in different parts of the world, like in Australia, where the already active regulator down there recently announced its intention to ban all card surcharging practices, and they’ve also said that they’re going to reexamine the current regulated interchange rate potentially lowering acceptance fees for merchants.

So, we’re seeing a number of geographies, I’m just pulling out Australia because this is a big headline, but of course the European Central Bank and the UK regulators themselves are very, very active in a number of these different areas, particularly around consumer fees and such. So, regulators are getting very involved here.

The last thing that I want to talk about is, while of course we could probably spend the next 10 weeks just talking about the implications of global commerce related to the US’s very uncertain tariff policies, we should note that it’s having an impact on the payments world, particularly for global merchants and particularly for PSPs who serve them.

So a combination of the di minimis tariff waiver where anything under $800 previously was exempt from tariffs. Now that’s gone away, coupled with lots of unknowns related to broader tariff policy has already translated into lower cross-border payments volumes. And we’ve heard that from a number of different players in the industry such as Adyen in their last earnings report over the last couple weeks.

We’ve also seen things like a reduction in discretionary spending due to consumer economic pressure and consumer sentiment and lower spending areas like travel, which could potentially hit certain PSPs and acquirers very hard at the end of the day.

So lots of things going on in the regulatory world for sure.

Yvette Bohanan: And a lot of interesting attempts at trying to circumvent some of the issues here, right? And so you’re seeing different channels and pathways of entities processing and different jurisdictions trying to move volume from one country to another for their cross-border processing or offshore processing with the acquirers.

Very, very interesting trying to mitigate the negative impact of what’s going on.

Drew Edmond: I’m sure the card networks will be looking very closely at, these types of maneuvers and tactics, when it comes to protecting their cross-border revenue as it’s a major component.

Yvette Bohanan: Absolutely. And a lot of times you think, Well, anything that’s going to drive average ticket up, even tariffs, which would drive average ticket up is viewed as like a bluebird, kind of, in a way, a bump in revenue for a lot of the payment service providers, but when overall volume’s going down, it doesn’t, that’s the bigger problem.

Chris Uriarte: It’s not a good thing for sure.

Yvette Bohanan: Yeah. And so, do you have any, have you contemplated, with all this stuff going on with Durbin, this whole Credit Card Competition Act that’s been sort of, I want to say circling, but then I want to say festering. I don’t know which. Does that give that more scrutiny? Does that give that more possibility of moving forward?

Chris Uriarte: It’s interesting. What it might do is it might take some of the spotlight off of that, whatever steam was actually left with it. They did attempt to attach the CCCA to the Genius Act. That didn’t stick as well. So now we’re kind of into year, let’s say, two to three, something like that, with this CCCA.

You also have Dick Durbin, who is still championing this, saying that he’s no longer going to be working on Capitol Hill. He’s going to retire finally. Perhaps the steam has run out here and perhaps some of the folks that are advocates for consumers and for merchants will look at what’s being said by the courts here and say the result of that maybe is good enough in regard to the reduction that it’s going to bring on the debit card side.

So, we’ll see for sure.

Yvette Bohanan: And it also feels like there’s a lot of unintended consequences in this idea. Of per issuer interchange pricing on debit based on your operational costs.

Chris Uriarte: man. I can’t even wrap my head around what that would look like. So we’ll see if the Fed and the courts and everybody involved can come up with an elegant solution to that. But that just seems messy to me.

Drew Edmond: Government and elegant solution don’t always go hand in hand.

Yvette Bohanan: How efficient do you want your operations to be? If the cost it’s a, if it’s a revenue, suddenly your cost center is a revenue driver. drew, what is on your radar from a regulatory perspective?

Drew Edmond: I track the world of subscription merchants pretty closely. And so, the click to cancel rule from the FTC was something that I was keeping an eye on. A lot of the recurring and subscription merchants, many of them had been anticipating that this would pass and putting things into practice.

And remember that this was a rule that was written to improve the customer experience so that canceling subscriptions would be much more simple, not as hidden or obfuscated. You don’t have to go and talk to an agent or talk to somebody in the call center.

It reminds me of a Brooklyn 99 episode where the captain was asked to cancel a cable subscription on behalf of one of his employees and he thinks it’s going to be super easy and then it cuts to him sitting at his desk on the phone saying, I’ve been on the phone for six hours. I just want to cancel an account. Yes. You’ve mentioned the bundles and I don’t want home phone service. Don’t transfer me. Rodrigo! It’s a great scene. So yeah, everyone’s experienced something like that, right? Where it’s like, why is it so hard to cancel this subscription? This is crazy.

And the rule was set to take effect on July 14th, but an appeals court blocked it on July 8th due to a procedural challenge finding that the FTC failed to conduct a proper cost benefit analysis during the rule making process. So very like, in the weeds of how you’re supposed to create a rule as a government entity essentially.

So I would say that generally speaking, I don’t see this issue dying just given the consumer frustration with these things, and given that it was kind of a procedural issue and they didn’t, they weren’t going against it saying, Oh, you’ve overstepped your boundary, you can’t make this rule. It was like, no, you like filled out the paperwork wrong, basically. Right.

So I think we’re going to see this come up again, whether it’s resubmitting it, higher courts weighing in. In the meantime, we also have state level laws that are pushing for very similar easy cancellation.

California is leading the charge there. So between renewed FTC action, state regulations, card network standards, easier cancellation, I think, is the future, maybe to the chagrin of some subscription merchants and billers. But at the end of the day, it’ll be a little bit easier for folks to cancel subscriptions in the future.

Chris Uriarte: Drew, I did wake up this morning thinking about this because there was a New York Times headline that came across my phone showing that the FTC has launched a lawsuit against LA Fitness for making it exceedingly difficult to cancel your membership. And the example that they gave is that, if you wanted to cancel your membership, you need to fill out a paper form in triplicate or whether it was.

And if you wanted to request something online, if people wanted to reset their password to get into an old account or something like that, you needed to provide your email address, the key tag number that was given to you when you signed up, the five digits of the last five digits of the credit card number when you originally signed up, and all sorts of other things associated with it.

So it’s funny, but the point is it does look like the FTC is still interested in this. So I hope that’s an indicator that they’re going to continue to pursue this role here

Drew Edmond: Yeah, I tried to cancel a gym membership and I think I had to get it notarized by Santa Claus before I could do it.

Yvette Bohanan: Speaking of regulators and political, CBDC in the US is kind of politically dead. Have you minted your stablecoins? We didn’t talk about stablecoins in the 2024 episode recap episode at all. It was not even there, and now it’s everywhere. Right?

Chris Uriarte: Oh yeah.

Drew Edmond: Yeah, it’s kind of crazy to think that we weren’t even talking about it at that point, so I was like, Okay, what kicked this off? And the Stripe acquisition of Bridge was really the turning point here, right? That happened in February of this year, and I think that that really opened the floodgates, if you will, or the Pandora’s box or whatever it might be. Pandora’s stablecoin. I think when a payments company as large and influential and forward thinking as Stripe makes a billion dollar bet on a company that’s focused on stablecoin infrastructure, people are going to take notice. Right.

You take that, you lead into the Circle IPO, I think that raised the visibility even higher. They set their IPO price at $31 a share and then watched it skyrocket up to $289 per share at some point. So obviously the market was very hungry to say, Oh, there’s this brand new paradigm shift happening in the world of money movement. How do we take advantage of it and ride that wave?

And Circle itself, they’ve become quite an influential player. Not only do they issue USDC, one of the top two stablecoins in the world, but they’re also talking about the Circle payments network, they’ve launched recently their own blockchain called Arc. So they recognize that the revenue from being a stablecoin issuer isn’t going to be enough to support their kind of lofty valuation. They need to be an infrastructure player as well.

And so you’re continuing to see the infrastructure ecosystem develop at a pretty rapid pace. It seems like there’s a new company every day that’s out there doing something along the value chain in the world of stablecoins. You pair that, those two major events, with the regulatory environment that we have for crypto today, which has completely shifted with this new administration compared to the Biden administration, creating a much more positive environment for crypto companies.

It’s completely changed how even banks talk about crypto and blockchain where before, as you know, they wouldn’t touch it with a 10 foot pole, it was only for criminals and money launderers, which I guess are also criminals. But now you see the Bank of America CEO saying, Oh, we’re going to launch our own stablecoin, or, We’re interested in this. And now everyone’s talking about tokenized deposits and how do those fit in.

So I think the fact that you have this administration, obviously the Genius Act is a landmark US law that’s been enacted that really, really creates that comprehensive regulatory framework for payment stablecoins that will allow stablecoins to flourish, assuming they continue to kind of identify the product market fit where it makes sense. But even the Treasury Secretary Scott Bessent speculated that the stablecoin ecosystem could exceed $2 trillion, right. That’s a massive growth compared to where we’re at now if, let’s say we’re in the low hundreds of billions, maybe 200, 250, 300, right?

So, I think there’s still outstanding questions regarding use cases, where it fits in next to tokenized deposits, where does speed and cost actually improve using stablecoins compared to current corridors and methods. There’s certainly fit out there. We’re talking to people that are finding those opportunities.

But still have some areas to explore to make sure that this is where the world’s going to go.

Yvette Bohanan: Yeah. We knew this day would come. We just didn’t know when it would come, right. The first episode of Payments on Fire was about Bitcoin.

We’ve been watching this train show up, like we’ve been waiting at the station and it’s been in the distance going really slow. But you had to kind of wonder, and I think that the jury’s still out on a lot of this, like what’s the impact to commercial banks? Because it was a one two kind of thing.

It was like, no CBDC, and by the way, here’s what’s going on in crypto and stablecoins. And we also have always sort of asserted that regulation in this space would be good in the sense that it would clarify things for the banks, for the commercial banks, it would clarify things for the participants.

Chris Uriarte: Mm-hmm.

Yvette Bohanan: Who is responsible for what, if you’re an infrastructure provider, if you’re minting, if you’re, a custodian, like what’s going on here? Right? What regulations apply to you? How does this supposed to work? And this was trying to attempt to sort of clear that up and let the train kind of get on with its journey. But I just don’t know. Like how many, everyone just suddenly started saying they’re going to mint stablecoins. How many stablecoins does the world need?

Drew Edmond: Yeah, you could probably write a Master’s thesis about this particular question, but the reality is we have dozens today, right? There’s a lot out there today, but only two with USDC and Tether, really, those two alone make up around 90% of the market cap of stablecoin today.

So I think the question is, will that remain the case? Will USDC and Tether themselves maintain their market lead? The fact that the majority of stablecoins are pegged to the US dollar, is that going to remain the same or will we start to see things like Euro pegged, stablecoins become more popular. They exist today, but will we see them being used for international settlement and things like that?

From a monetary philosophy angle, we know folks like the Bank for International Settlements, they have concern that stablecoins themselves will undermine this concept of the singleness of money, where all forms of money within an economy should be treated as equivalent and interchangeable at a one-to-one ratio.

We want a dollar to mean a dollar regardless of what it’s form is, where it’s held, how it’s moving around the world. So I think the concern that some folks have is that we’ve already seen USDC and USDT Tether deviate from their dollar pegs before. And so if we, if there’s any concern that these stablecoins don’t actually hold the value that they’re meant to hold, and we’re moving at a breakneck pace to change the global financial system to rely on these methods of money, what kind of risks are we introducing into the global financial system that maybe our fragmented regulatory frameworks aren’t anticipating or protecting us against?

And so, that’s not a trivial concern. That is the fundamental underpinning of how the globe works on a money basis. So I think regulation is good. I think that the right regulation is better than just some regulation, and I think that there are differing opinions on whether or not we have the right framework in place, if it needs to evolve over time.

It’s obviously good to have, something is better than nothing. But again, I think there’s, some concern that maybe we haven’t gone far enough.

Yvette Bohanan: Well, if we can start clarifying Durbin 2025-

Chris Uriarte: That’s a good start.

Yvette Bohanan: I can expect that Genius Act will get some clarification down the road.

Drew Edmond: Yeah.

Yvette Bohanan: Yeah, absolutely. And maybe it hasn’t gone far, but you can’t, yeah. Regulation always kind of trails.

Drew Edmond: Yeah. Innovation.

Yvette Bohanan: Are people asking us to, to chime in on this? Are you going to be talking about this?

Chris Uriarte: Yeah, I’m talking a little bit about this at the Merchant Risk Council, MRC conference, the fall conference in San Diego in September. And I won’t give the full punchline yet. But what’s really driving this is, the folks that we deal with on the merchant side and the provider side, payment processors, PSPs saying, Well, what does stablecoins really mean to me?

Is this actually ever going to be a form of retail payment? Is there something that we need to think about here? And that is a complex question. It’s a simple question with a very complex answer is what it is. So we’ll be talking a little bit more about that at the conference.

Yvette Bohanan: Yeah, got to break that down. So along those lines, I’m going to start feeling like I’m playing buzzword bingo here, but I remember we had someone in a workshop years ago, several years ago. And we were going around, it was a public workshop, people were introducing themselves. And this guy said, I’m working on self-driving money. You know, I think at the time he meant programmable, stablecoin kind of stuff. But the other thing is sort of self-driving commerce and agentic payments that’s kind of at the forefront of everyone’s mind too.

Chris Uriarte: Oh yeah.

Drew Edmond: Yeah.

Yvette Bohanan: Yeah. I think Episode 267, you and Russ were on, Drew, talking about agentic and trying to sus out the hype.

Where are we on the hype curve on this thing and what does this really mean? And you know, maybe I’m just jaded, but I look back and I think of Web 3.0 and everyone’s going to be spending money on Roblox with their visors on. And then there was the voice commerce thing before that, and everyone’s going to be talking to their agent, telling them what to pay and queuing bills and all of that.

And is this a nothing sandwich? Is this the next big thing? Where are you guys falling on agentic payments this week?

Drew Edmond: It’s funny, I’ve had a Alexa roommate in my room for years and I think I’m still using it in the same way that I was the first time around. Checking the weather, playing some music. Setting an alarm.

Chris Uriarte: Alexa: I’m not sure…

Drew Edmond: Oh, did I just activate?

Chris Uriarte: Yeah, my Alexa just spoke up.

Drew Edmond: Alright, well at least the microphone is still working. At the end of the day, and maybe that’s a good example, but like, natural language processing is still really hard. That’s one element of this, even if you use AI to maybe for your meeting note takers or whatever it might be. I think we still are running into like, Oh, they just completely didn’t understand what I was trying to say there, or whoever was being recorded.

From a voice commerce perspective, using your voice to shop, is still not a great experience, frankly. It’s like, if you’re using that to go off and send an agent out to go buy things for you, whether it’s a pizza or a flight or a hotel or something like that, you don’t want to order the wrong thing. Ordering the wrong thing sucks. It means you have to do some sort of refund or take a package back or deal with the outcome of that. And I don’t think that’s very fun.

When it comes to reinvigorating the internet of things or voice commerce, is it going to do it? I think it’s possible. I think it just requires more and better hardware, better natural language processing. It certainly doesn’t exist today. Is it going to be different in 5, 10, 50 years? Very possibly. But like today, I’m not seeing it.

Yvette Bohanan: I’m trying to figure out exactly what, if any, implications there are to top of wallet. People are always worried about your card having top of wallet presence, right? That slowed down the digital economy quite a bit, right, with mobile wallets and vying for this.

Drew Edmond: Sure.

Yvette Bohanan: Where’s my brand going to be in this thing? Will people recognize that they’re using my card? Will they have choice? There was a whole sort of quagmire going on that was sort of the subtext of a lot of that for years. Now, are you top of agent? How do you think about that? Could it unlock non card payments? That’s another opportunity maybe.

Drew Edmond: I think the challenge I have with talking about some of these things is we still don’t really know what the user experience is when we’re talking about agentic commerce that much. Are we going to be doing it through Chat GPT, is it going to be through a Perplexity owned browser, because they’re trying to buy Chrome, right? Is it going to be voice? What is the actual consumer experience and what is your interaction with the agent?

And how do you manage your agent when it comes to your finances? Is it that you have a kind of agnostic agent wallet that has multiple methods of payment in it and that depending on your preferences, it knows to choose the debit card over here or your stablecoin wallet over here, or your Bitcoin over here, or your credit card on this channel. I think it’s still so, so cloudy when it comes to what that actual user experience is going to look like.

When I’m thinking about what payment method even is best to use, it kind of differs depending on what some of those experiences are and how much you are in the loop as a human, right. There’s the agentic commerce where it’s autonomous and you’re not involved and these things are happening and you hope it’s right.

And then you have the human in the loop agentic commerce, where it’s like, the agent’s doing it, but they’re going to come back and they’re going to check with you before it happens. Those are very different when it comes to like maybe what payment methods could proliferate there because if it’s autonomous, I don’t know if I trust an agent to just have access to all my funds and pay out of a wallet and it’s real money leaving, like, I kind of want that to be maybe credit instead of my money, to maybe be able to have some opportunity to say I didn’t do that.

Versus maybe something where I am in the loop and okay, maybe stablecoins will make sense for this in the future. Or maybe I’m okay with it being a debit account or something like that. So I think we have to answer some questions about how this actually works before we can choose the optimal funding source to complete that payment.

Yvette Bohanan: Doubling down on the word optimal here for a moment. There’s also payments optimization. There’s a whole slew of providers out there right now that have been super focused on just auth rate approval and routing and optimization in every way you can imagine, right, to increase revenue for merchants and reduce friction for consumers.

How does this sort of play into all of their efforts?

Drew Edmond: There could be benefits in that if there’s multiple funding sources that an agent has control over, might there be opportunity to cascade around to make sure that a transaction that you want to go through does go through? So could we say, Oh, non-sufficient funds, oh, we’re only using this one particular debit account.

But if that agent says, Oh, I can actually access this stablecoin wallet and convert that to fiat and do this over, maybe there’s some crazy stuff that can happen on the backend if we start moving towards some more like multiple funding source world. At the end of the day, it’s going to have an impact on our ability to recapture transactions in some cases.

Yvette Bohanan: I got to imagine with all the focus you have on this in your practice area, people are asking you to come and talk about this.

Drew Edmond: Yeah. So I’ll be in Mexico City in September at the EBANX Payment Summit. So we’ll be on the stage there with folks from EBANX and Stripe talking about agentic commerce. So very excited to dig into it with folks that are building in that space for both the kind of the merchant and the buyer side there.

Yvette Bohanan: Hmm. That would be really interesting. I wish I could join you for that one. The card networks too have been doing some agentic investment as well. Anything caught your attention, Chris?

Chris Uriarte: So they’ve been talking a lot about agentic commerce and they obviously see themselves as being sort of key players, key enablers of this technology here. Of course, at the end of everything that the agent does for you, everything that the bot, if you will, does for you, in listening to your instructions, hopefully following them, finding your goods and services, et cetera, you ultimately have to make a payment still at the end of the day, right?

So what we’ve seen is the card networks, Mastercard, Visa, notably roll out two very big frameworks for agentic commerce, which are really serving as the foundation for agentic payment activity across the ecosystem. So for Mastercard, they’ve introduced this Agent Pay framework and that builds upon sort of a collection of different technologies and frameworks that already exist.

So things like tokenization, which of course we’ll talk about in a little bit more depth in a second, a lot of their sort of rules side of things, franchise rules, merchant rules, et cetera, some fraud tools, cybersecurity solutions, et cetera, all packaged together into this framework that’s called Agent Pay.

And they’ve also partnered with the likes of Microsoft and OpenAI to help enable some of these agentic commerce solutions. And also, very importantly, they’ve picked those names because they want to try to build trust in the community. They want people to know that somebody like a Microsoft, who perhaps you trust, is in on this or providing technologies or providing solutions for this brand new paradigm that none of us are really familiar with.

Visa, of course, was right behind them, maybe a step ahead of them, and introduced their own framework, which is called the Intelligent Commerce Framework. And this looks remarkably similar, no surprise here, to what Mastercard has introduced. And they’ve also talked about partnerships with the likes of OpenAI, Perplexity, Microsoft, Stripe are just a few of their names as well. And they’ve stated that as of August 1st, they’ve got more than 30 different partners right now that are testing in their sandbox.

I’ll go back to what Drew said earlier, I’m not quite sure what that means. What are they testing? What are these products? What are these services? What are these experiences that they’re trying to pull together? I guess we’ll see, I guess we’ll see soon. So there are still a lot of big questions. How is it actually going to work from a merchant and consumer perspective?

And then we start thinking about things like fraud and risk and criminal behavior. How are merchants going to detect potential agentic commerce bots that are not legitimate? How do you distinguish between the good bots and the bad bots. And then we’re also looking at things like, what does the economic structure look like in these types of payments? Because we’re seeing some of these companies introduce some, I’ll say, kind of interesting models where they become the merchant of record and perhaps play a little bit of arbitrage on interchange and the payment type that they accept from the consumer and the ultimate payment type that they utilize on the backend to make a purchase with the merchant.

That’s probably worth the whole podcast in and of itself. But let’s hold on that until we see what actually happens. And this is another one that I’ll be speaking about at the MRC conference in September as well.

Yvette Bohanan: And MRC is all over a lot of these topics.

Chris Uriarte: Yeah.

Yvette Bohanan: Right. I’ll just say it. There you go again. Tokenization, you had to bring it up.

Chris Uriarte: I have to bring it up. Of course, we know our slogan here at Glenbrook. We just can’t stop talking about tokenization. Still think it’s our top or one of our top podcasts ever listened to the podcast of that title. People still refer back to that podcast today. We’ve had people tell us that they listened to that three, four times just to remind themselves how all this works and how important tokenization is in the ecosystem.

Yvette Bohanan: It’s foundational to agentic commerce.

Chris Uriarte: Absolutely foundational to agentic commerce. So it’s no surprise that we see both networks using tokenization as this fundamental technology for agentic commerce. And network tokenization in itself just continues to be important part of the plumbing used to process transactions for all different use cases, not, of course, just agentic commerce.

So Visa, Mastercard, love to talk about network tokenization during their earnings calls and their last calls gave us some important insights into how tokenization continues to grow across the ecosystem. So visa says they’ve now issued more than 15 billion tokens. And we’ve seen this billion B growth sort of from quarter to quarter or more for Visa over the course of the last several years.

But I think what’s kind of interesting now is this statistic that we’re starting to hear about the percentage of transactions that are being tokenized. So Visa now for the first time, has come out and said that 50% of all e-commerce transactions worldwide are now tokenized and they’ve actually broken this down a little bit more and they’ve said that they’ve issued over a billion tokens in LATAM, for example.

I think they also quoted some high numbers in Eastern Europe, the Middle East, Africa, et cetera, which are areas that they’ve had some challenges in getting issuers and service providers to comply with a lot of the technologies required to support tokenization. They are not shy in saying that the ultimate goal is to have 100% penetration for all e-commerce transactions throughout the world.

And we’ve seen similar growth with Mastercard. Mastercard says that 35% of transactions on their network as a whole are already tokenized, right? And they continue to double down on their plan to phase out manual card entry online by 2030. We’ve talked a little bit about this on this podcast before, they don’t want consumers in 2030 manually typing in card numbers, and they think that things like digital wallets, Click To Pay, technologies along those lines are really going to be the way the future that consumers actually make the purchase at checkout and tokenization is going to be the underlying credential that really helps enable all of those.

So of course, I’ll stress again that tokenization is really the backbone for agentic commerce and agents, they’re going to have to go through a sort of a vetting and registration process upfront the way that the card networks have talked about it. So they have to register and they have to essentially become trusted agents that obtain trusted tokens in order to transact using these different types of agentic commerce frameworks that we talked about. So tokenization ain’t going anywhere soon. It’s up and to the right from a growth perspective and the number of use cases just continues to increase.

Yvette Bohanan: And you kind of want that, right? Like, this is a good thing. We joke about like, we can’t stop talking about it. It’s complex. There’s all these different use cases being discovered, just talked about browser token support recently. But we kind of focus on Visa and Mastercard in these conversations because they’re kind of leading the charge. Not every card network in the world has adopted this or is that far along if they have adopted it. There’s a very uneven playing field out there right now and that could play into how well they fare when things do go agentic, if things go this direction, right?

Chris Uriarte: Absolutely. You don’t really hear American Express talking much about agentic commerce right now. And maybe that’s fine for American Express. Maybe American Express is happy sort of taking the Apple approach, which is, you don’t have to be first at this. You have to be best at this or maybe just a little better.

We’re so early in this right now that the conversation a year from now that we’ll be having on a future episode of Payments on Fire will probably look very, very different from what we’re talking about today.

Yvette Bohanan: Yeah. So anyone asking you to chime in on tokenization still, are you guys covering this topic anywhere coming up?

Chris Uriarte: I’ll also be talking a little bit about this in person at MRC in San Diego. Drew, I think we’ve got you wrapped into the virtual summit as well for MRC, right?

Drew Edmond: Yeah, Reimagining Payments, in September.

With tokenization, it, like you said, it kind of underpins a lot of the things that we talk about anyways. There’s enough where it’s a standalone topics sometimes on its own, but when we talk about other elements of the payments ecosystem, tokenization is kind of infused within that.

Chris Uriarte: Yeah. Optimization, cost management, churn, things along those lines. Tokenization is always part of that conversation.

Drew Edmond: Yeah. Authentication. Yeah.

Yvette Bohanan: Thinking about the on off switch here with these tokens, right? Because if you have agents out there doing your bidding and one of them, you maybe don’t want it to do your bidding anymore, it’s a lot easier to turn a token off that you’ve given that agent than to try to unwind more than that, right?

Chris Uriarte: Yeah, for sure.

Drew Edmond: Yeah.

Yvette Bohanan: Totally. And the other interesting thing is, the card networks didn’t have to have a lock on tokenization, on network or issuer tokenization, EMVCo tokenization, whatever you want to call it. Like, you can tokenize a lot of things. You can develop a standard and tokenize.

And aliases. We see aliases in use, but we don’t see a lot of other payment networks diving into the tokenization.

Chris Uriarte: No, you don’t. Nope.

Yvette Bohanan: And they may want to in this new way of working.

Chris Uriarte: Absolutely. Absolutely.

Yvette Bohanan: Very interesting. So can’t talk about payments without talking about risk management, right?

Chris Uriarte: Yeah, risk management and fraud. Lots of things to talk about in this area, but the thing that I think I want to headline is probably one of the biggest talking points in the fraud prevention space since the beginning of the year, which is Visa’s new VAMP program. This is the Visa Acquiring Monitoring Program, as it’s called. So lots of chat about this.

If you’re not familiar with VAMP, if you don’t follow the fraud side or if you’ve been living under a rock over the course of the last couple months, it’s a program that replaces the former fraud and dispute monitoring programs in the Visa world. It’s laser focused on the things that are really concerning Visa right now.

Of course, chargebacks are always the top concern, but what you’re seeing now is sort of the elevation of the concerns around disputes, right? That we’re starting to look at disputes in the same way that we look at chargebacks in this VAMP program. But Visa is also highlighting its concerns related to card testing, bin attacks, and bot activity.

And we have talked about this on this podcast. We’ve talked about this on a couple other things that we do like Mastercard Fraudwatch that bot attacks, BIN attacks, card testing, et cetera, have continued to become significantly more aggressive over the course of the years as criminals have better tools that are fueled by AI at their disposal as well.

So, listen, we don’t want to turn today into a educational session on VAMP because that itself, again, is probably a whole podcast. Surprised we haven’t done that yet, maybe at the end of the year. But we know that both merchants and acquirers are a bit nervous about how this is being implemented, and there’s been a long journey to get to this point right now with several major changes to the program structure occurring really just in the past couple months as well.

But let’s cut to the chase. What we’re really left with here is a scenario where merchants are monitored on a combination of disputes and chargebacks, which can potentially be reduced by the use of Visa’s Verify services like RDR and CDRN. But we’ll also call out that merchants have to be much more vigilant at monitoring activity related to bin attacks or, as Visa calls them, enumeration attacks.

A merchant could also be fined if they’re letting high numbers of these attacks, these attempts actually reach the Visa network. So it’s about controlling behavior, ensuring that merchants have a good grasp on controlling behavior of the consumers that they’re working with, ensuring that they’re offering good services, good customer service, good refund policies, et cetera, to reduce those overall dispute numbers, not just chargebacks, not just fraud, as well as managing the behavior of some of these incoming requests that are coming from bots and that are coming from criminals as well.

And a lot of the conversation, a lot of the focus has been put on the data that’s contained in Visa’s TC 40 and TC 15 reports. And this has been causing some challenges for a lot of merchants in that many merchants were previously just not looking at these reports, and many of them today as they realize how important the data is in those reports are actually struggling to get them from their acquirers and PSPs.

So there’s a lot of catch up going on right now, and the program has just kicked into its initial phase, but Visa’s going to begin enforcement of the program towards the end of the year. And I’ll just say that there’s a lot of complexity to this for time’s sake. Today, I’m really grossly oversimplifying the complexities of the program and the potential impact on merchants and acquirers.

But we’re going to continue to stress how important it is for merchants to be tracking their VAMP rates now, to obtain their TC 40 and TC 15 reports, and to have conversations with their PSPs and acquirers about where they stand today and are they really going to be at some type of risk once Visa starts enforcing some of these rates in the program, which initially there’s a little bit more leeway in some of the thresholds, the VAMP ratio as they call it, but that starts to get a lot tighter as we look toward, the first and second quarters in next year. So merchants have to stay on their toes here.

Yvette Bohanan: A lot of merchants don’t know the TC 15, TC 40, or any that they even exist. They weren’t provided by a lot of the acquirers or PSPs for years.

Chris Uriarte: Yeah, that’s right.

Yvette Bohanan: Or the PSPs were, with the best of intentions, rationalizing a lot of this stuff into a file and file format that was sort of a redux and a rationalization of the different codes coming from the different networks to make it more consumable for the merchant.

But it diluted a lot of the information that now is really critical to the operations to be able to fine tune things down to the level that they’re going to need to do in order to manage to these tighter and tighter ratios.

Chris Uriarte: You’re right, Yvette. We’ve heard stories of merchants saying not only are they having challenges getting the files, but in some cases, as you’ve pointed out, some of the PSPs have provided reports that kind of are based on the TC 40 and TC 15, but merchants are having difficulty reconciling them with, either in the right timeframe, the right month, reconciling back to the transaction, things along those lines.

So there are some operational struggles here no doubt. So just understanding the program is one thing, but then trying to operationalize compliance is a whole other.

Yvette Bohanan: Yeah, absolutely. Drew, is there anything else besides VAMP that we can talk about?

Drew Edmond: Yeah, I think, the concept of the passkey is definitely something that’s growing in importance in the industry. I like to say, well, it’s not true yet, but passwords are dead. Long live the passkey. Because the future that we’re working towards.

They’re happening, passkeys are happening. Passwords are not great, and we’re, as much as possible, we’re going to move away from them. Being able to authenticate yourself biometrically tied to a device, that’s just better. It’s just better from an authentication standpoint.

When it comes to online payments, payments is identity, right? When it comes to risk management, your fingerprint, your face, that’s your identity at the end of the day. So, hard to change either of those, despite some attempts.

We’ve got the Fido Alliance out there, which is a consortium of technology and financial firms that have launched a new payments working group this year in April, which is co-chaired by representatives from Visa and Mastercard. That group is joined by representatives from American Express, Cartes Bancaires in France, PayPal, just to name a few. There’s others that are a part of it as well.

And when these companies come together, it’s a pretty big deal, right? It usually leads to some global standards. And in this case it’s the standards that we’re talking about are for how passkeys are going to be used for payments use cases.

Many of us might experience them for logging into certain services that we’re using today, Google, whatever it might be. But for payments use cases specifically, and we really expect passkeys to underpin the authentication mechanism for the Click To Pay wallet, for secure remote commerce.

Really, it’s going to be, I think, a foundational element of digital commerce security going forward. And I think we can kind of anticipate that this mechanism will kind of proliferate across the ecosystem in the coming years.

Yvette Bohanan: It’ll be interesting to watch. Everyone has been trying to use these for login, but the idea of how should it work? Maybe when they get together, they’ll touch on the agentic commerce stuff too. Who knows what’ll go on.

Drew Edmond: Wouldn’t be surprised.

Yvette Bohanan: They’re smart too, right? The worst thing you can do in payments is create confusion. You can’t trust something that confuses you. This is a really important gathering. I’m glad you brought it up.

Chris Uriarte: I hope they make some progress with it. I think, passkey is a great technology. I try to use them as extensively as possible. But at the same time, we know that passkey has a little bit of a, sort of a consumer perception issue, and most many consumers have no clue what they are.

Those that do know what they are, maybe don’t know how to use them. And there is a little bit of technical overhead that maybe goes beyond just the common consumer. So there’s a little bit of work to be done on that front. Hopefully we could be making progress with this over the years.

Drew Edmond: I still get confused sometimes because I’ll be trying to log in to something with my phone and it’ll say, Oh, use your passkey, and I’ll click, use my passkey. It says, scan this QR code. I’m like, but I’m holding my phone.

Chris Uriarte: Right.

Drew Edmond: What do you mean?

Yvette Bohanan: it can get a little circular or weird. And I think that’s when there’s confusion, right? And, and we understand it and we’re still getting confused by the experience. And, it’s makes you doubt. And then once you doubt, you know-

Drew Edmond: You got me in the bathroom holding my phone up to the mirror, trying to, trying to scan it. I haven’t really done that by the way, but it’s a funny picture in my mind.

Yvette Bohanan: So the other thing coming up here that I don’t know if we’ve really touched on is Money 20/20. Are either of you going to Money 20/20? Both of you?

Drew Edmond: We’ll both be there.

Chris Uriarte: We’ll both be there. Yes, for the third year in a row. I’ll be hosting with my friends at Mastercard in the Money Pot right in the middle of the show floor. We’ll be doing a live session there, which gets recorded as a podcast. So, if you’re at Money 20/20, be sure to drop by and say hi to the Money Pot. You can’t miss it.

Drew Edmond: You can put the headphones on and listen in live.

Yvette Bohanan: Very cool. Very cool. Well, safe travels. We could go on, but I think we all need to go refresh our drinks and get ready for what seems to be a very busy autumn coming up here. So guys, thank you so much for another lively and geeky conversation. I always like to sort of get your point of view on things. And I hope that some of you who are listening will be attending some of these events and catch up with everyone in person. We don’t do that enough anymore, get together in person.

Drew Edmond: Yeah. Come say hi.

Chris Uriarte: True. Come say hi. Yeah, thanks, Yvette.

Yvette Bohanan: Thank you. Okay, everybody hit the books, go to your conferences, brush up on your education. It’s going to pay dividends. And stay curious. There’s a lot of questions to be asked and answered out there as you can tell. And until next time, keep up the good work. Bye for now.