We informally called 2023 “The Year of the Regulator” here at Glenbrook. 2024 is shaping up to be much the same. Certainly, some Glenbrookers think so – ‘regulator’ or ‘regulation’ was said 56 times in our first Payments on Fire episode this year, ‘What Glenbrook is Watching in 2024’. We can’t help but double down on this theme in our first payments post in 2024. Cici Northup joins us this month to discuss a handful of new rules and regulatory scrutiny of Apple’s payments practices. Our usual editor Justin Pituch discusses how the U.S. payments regulatory landscape is shaping the growth ambitions of Elon Musk’s X and payment technology behemoth Fiserv. Let’s dive in.
There is a long and growing list of regulatory actions underway: just in the U.S. – there is the proposed CCCA legislation, the proposed debit interchange cap, the DOJ token pricing inquiry…the list goes on. State regulators have also been very active – just this month, two state representatives in Florida are sponsoring draft legislation that would require most businesses to accept cash and the New York governor is following New Mexico’s lead by introducing a BNPL licensing legislation. These actions are intended to shape market and stakeholder behavior and (depending on what legislation passes) could meaningfully impact the shape of merchant acquiring in the U.S.)
Apple has been one of the most visibly affected this month. Apple’s (and Google’s) app store business model has been under intense pressure from app developers arguing that existing behaviors are anti-competitive. Globally, legislators and regulators have responded to the debate at different rates. This month, after the U.S. Supreme Court refused to consider an appeal to one of the ongoing antitrust suits, Apple announced they will allow third-party apps in the U.S. to route in-app purchases to external websites for processing. Looking outside the U.S., in response to a European Commission antitrust investigation, Apple has also just announced they will allow third-party apps to access the iPhone’s NFC framework for mobile payment in the European Economic Area.
What will be the impact? Clearly these announcements, in response to regulator and legal pressures, will impact Apple’s strategy. But Apple is known to innovate and take advantage of its capabilities, even within evolving constraints. As our Partner Chris Uriarte recently said about the EU announcement, ‘Apple will always have a clear advantage as the Apple Wallet’s NFC payment capabilities are tightly integrated into the operating system.’ We imagine they will use this to their advantage.
Speaking of organizations trying to leverage a competitive advantage, Elon Musk is hoping to turn X into an “everything app” including payments. As a result, X is obtaining money transmitter licenses ( MTLs) on a state-by-state basis, adding Utah most recently in January. X already has MTLs in six other states. The MTL world is a strange one: Fintechs need to receive licensure in every state they intend to do business. For a company like X (and arguably all digital-first financial tools), this means all of them. The MTL process doesn’t end with licensure and requires regular updates from licensees to prove ongoing compliance. Again, this happens on a state-by-state basis. There are ongoing efforts to simplify the process for fintechs like X, but no immediate relief appears likely.
But if that sounds difficult, try becoming a bank. Despite the hurdles, Fiserv is attempting just that. Kind of. The fintech giant is seeking a special purpose bank charter in the U.S. state of Georgia which “would allow Fiserv to control the entire payment process, including authorizing, settling and clearing debit and credit card transactions,” according to American Banker. Normally, entities like Fiserv do this through a bank sponsorship arrangement. The Georgia special purpose charter isn’t new: It has existed since 2012. But Fiserv would be the first user if approved (another provider was granted a license under the charter but never used it). If others follow Fiserv’s lead, the established acquiring model could shift to favor acquirers over banks. We’ll be watching this closely as another example of how regulators shape the fintech environment.
Regulation is always a big part of the fintech world. New technology requires regulators to constantly reassess their approach to keeping consumers safe and maintaining a level playing field for competitors. Do you have questions about regulatory concerns or another payments question? Let us know. We’ll be back next month with another round up of headlines that got us talking.
