Afterpay has been beta testing buy now, pay later integration into Cash App Card transactions, with the goal of bringing BNPL loans across the entire  peer-to-peer platform.

Block, formerly Square, has owned both companies since the 2021 acquisition of Afterpay. Launched in 2013, Cash App boasts a customer base of 57 million users, 40% of which use the Cash App Card. These users will soon be able to split their purchases using Afterpay’s pay-in-4 loans, a feature that’s been in-demand in its own right.

“BNPL continues to be a popular payment method among consumers, and vendors and issuers are all trying to grab a share of the spend,” said Ben Danner, Senior Credit and Commerical Analyst at Javelin Strategy & Research. “Afterpay is taking a play right out of the book of the major credit card issuers—offering an installment plan to a linked card. Several major issuers such as Chase have such programs which offer customers the ability to split payments into installments for a fixed monthly fee.” 

Against the Value Proposition

Similar to credit card companies, Afterpay will also charge a “small fee” for BNPL transactions on the Cash App Card, which could signal a trend.

“If BNPL vendors move towards card-linked financing where consumers are expected to pay fixed fees, that fails to align with the initial value proposition of BNPL—a payment method that prides itself on no fees and no interest,” Danner said.

Increasing Demand

BNPL has become so popular among consumers that some experts have raised concerns about the mounting debt from these loans. Some have called it “phantom debt” because BNPL providers like Afterpay and Klarna haven’t been required to report their transactions to the NY Federal Reserve.

These concerns prompted the Consumer Financial Protection Bureau to issue an interpretive rule mandating that BNPL services operate more like credit card companies. BNPL providers will now need to issue statements to both regulators and consumers, and disclose any fees. Many BNPL services have pushed back, asserting that they operate with full transparency and that delinquencies are infrequent.

Although BNPL is undoubtedly due for more regulation, consumer demand for the ability to split purchases at the point of sale continues to grow. This trend suggests that means more companies will follow Block’s lead and incorporate the service into their payments platforms, much like how Apple recently integrated Affirm’s BNPL products into Apple Pay.

“We’re really at the starting point of the execution of this product,” Nick Molnar, CEO and Co-Founder at Afterpay, told Modern Retail. “To provide a customer that’s already using the Cash App Card on a frequent basis the ability now to use that card to pay in four is an incredible opportunity.”

The post Cash App Explores BNPL Integration with Afterpay appeared first on PaymentsJournal.

The sun is out, school is out, and summer vacation season is in full swing. Whether you’re jet-setting to Paris for the 2024 Olympics or staycationing in Seattle, mobile payments can make your travels smoother and safer.

According to Visa, digital wallets have become an essential part of the travel experience for many, with 74% of U.S. travelers now using them on their trips.

Globetrotters traveling by air can scan their mobile boarding passes for most airlines at many U.S. and international airports. New Yorkers can now also use their mobile driver’s license for identity verification at JFK and LaGuardia Airports, and at 26 other airports where TSA has credential authentication technology units. Other states offering digital IDs include Arizona, California, Colorado, Georgia, Iowa, Louisiana, Maryland, and Utah.

Once travelers reach their destination, mobile payments make getting around via public transit easier and more convenient. In cities like Chicago, London, Lyon, New York, Singapore, Vancouver, and soon Boston, transit riders can simply tap their contactless credit or debit card, mobile wallet or smartwatch to pay for fares. Visitors to Paris can add their Navigo card to their Apple Wallet and Samsung Wallet to ride the metro, train, and bus as explore the French capital. Similarly, tourists and commuters in Seattle can now add their ORCA card to Google Wallet to travel around Puget Sound.

Travelers can also collect extra loyalty rewards when they use mobile payments while they’re on the road. Caffeine lovers can earn additional Starbucks Rewards Stars, Marriott Bonvoy points, and Delta Sky Miles when they link their loyalty accounts. Additionally, travelers can use their mobile phones as their room keys at some hotels. Guests staying at Strawberry’s Clarion Post Hotel in Sweden can add an NFC mobile hotel key to Google Wallet or Apple Wallet and tap to unlock their room. Once the guest checks out, the key is automatically deactivated. Hilton and other hotels offer mobile room keys using Bluetooth technology.

Contrary to popular belief, mobile payments are more secure than card payments. Mobile and digital wallets leverage tools, such as tokenization and biometrics to protect card account data and provide stronger authentication. If a traveler, unfortunately, loses their mobile phone or card while on vacation, they can immediately block their mobile wallet and request a replacement card.

Visa recently announced a new Digital Emergency Card Replacement service that promptly delivers a digital replacement card via text or email to the cardholder, who can authenticate and add the new card into a digital wallet upon receipt. “We’ve all felt that moment of panic while on vacation—the loss of a card and the feeling of being stranded,” said Kathleen Pierce-Gilmore, global head of Issuing Solutions at Visa in an article. Visa’s new service allows issuers to offer instant, secure access to funds for their customers when they travel.

Spend more time making memories with your family and friends this summer, and less time waiting in lines to pay for food, souvenirs, transportation, and other purchases. Digital payments improve your vacationing experience and peace of mind.

The post Make Vacationing Easier This Summer with Digital Payments appeared first on PaymentsJournal.

Online marketplace eBay announced it will no longer support American Express card payments due to their high transaction fees. eBay said its decision to end Amex payments was made in part because customers have so many alternatives.

The company has been adapting to the payments space, offering various methods like Apple Pay and PayPal, and more recently, buy now, pay later services through Klarna and Affirm. Believing its customers are savvy to the new payments landscape, eBay feels it’s no longer necessary to partner with American Express.

The move might signal a shift in sentiment on Amex customers, who have long been considered a reliable, strong-spending customer base. While eBay might save on interchange fees in the short-term, there could be ramifications from the decision.

“American Express is well-established with consumers who carry strong FICO Scores and have plenty of disposable cash,” said Brian Riley, Director of Credit and Co-Head of Payments at Javelin Strategy & Research. “Walking away from American Express for payment acceptance will likely cost eBay in the long run when you do the math.”

Unacceptably High

Merchants and credit card companies have had a long-running contention over interchange fees. The highly-publicized $30 billion settlement between Visa and Mastercard and merchants was considered a win for retailers. However, the settlement only reduced interchange fees by 0.04% in the end, making the victory more symbolic than substantive.

eBay’s leadership asserted American Express’s transaction fees, which are more than Visa’s and Mastercard’s, are “unacceptably high.” The online marketplace said Amex continues to keep its fees high despite improved technology, better fraud detection, and stronger customer protections.

Competing at the Point of Sale

eBay will stop accepting American Express payments in August, but users can still make purchases using Amex cards connected to their PayPal wallets. In a statement to TechRadar, American Express said it was disappointed by eBay’s move to limit customers’ payment choices.

“We find eBay’s decision to drop American Express as a payment choice for consumers to be inconsistent with their stated desire to increase competition at the point of sale,” American Express said. “Additionally, eBay represents less than 0.2% of our total network volume. American Express card members can continue to use their cards with millions of merchants around the world.”

The post eBay to End American Express Payments Over Interchange Fees appeared first on PaymentsJournal.

Although the adoption of real-time payments (RTP) continues to grow, most banks and credit unions still do not see real-time payments as a future profit center.  

According to a recent report from Cornerstone Advisors, fewer than 20% of American banks anticipate that commercial real-time payments will become a revenue generator for them in the next three years, and only 10% expect retail real-time payments to generate revenue. The number is even lower among credit unions, with just 7% expecting either commercial or retail RTP to become a profit center.

Nevertheless, these institutions plan to make more use of real-time payments. Half of the banks and credit unions surveyed expect to be up and running with RTP by the end of 2024.

Roughly half of respondents said they plan to offer real-time payment services through FedNow. In contrast, nearly a quarter of banks plan to offer payments through The Clearing House’s RTP rail, while 12% of credit unions said the same.

Seeking Profits

The study points out that many banks see real-time payments as a cost, potentially cannibalizing their profits from wire transfers. But businesses have been willing to pay extra for speed in these transactions. Cornerstone said that if $2.50 is a fair price for sending $1,000, then $100 should be reasonable for sending (or receiving) $100,000 much more quickly.

Banks and credit unions recognize that business-to-business (B2B) payments are likely the biggest reason to move towards RTP. B2B payments were the most commonly cited as the most important potential use case, followed by payroll payments.

Account-to-account (A2A) transfers are also a notable use case, and for credit unions, they remain No. 1.  For banks, A2A payments are tied with last-minute consumer payments as important real-time payments use cases.

Overall, increased interest in real-time payments has manifested in new attention toward payments hubs. The survey found that more financial institutions are planning to invest in a new payment hub or replace an existing one. In both 2022 and 2023, just 4% of banks and credit unions mentioned a new or replacement payments hub.

The post Why Banks and Credit Unions Are Moving Slowly to Real-Time Payments appeared first on PaymentsJournal.

As part of the Biden administration’s efforts to improve relations with Cuba, businesses from Cuba will now be able to use U.S. online payment systems to facilitate money transfers between the two nations. The new rules also allow Cuban nationals to open U.S. bank accounts and reauthorize so-called “U-turn” transactions.

The policy change is intended to help private sector entrepreneurs in Cuba  import food, equipment, and other goods from the U.S., as well as to make it easier for Americans to send money to Cuba. The rule is “limited to private cooperatives, small private businesses, and sole proprietorships located in Cuba of up to 100 employees.” The Office of Foreign Assets Control now refers to these groups as “independent private sector entrepreneurs” rather than the previous term “self-employed individual,” reflecting the growth of small business in Cuba.

According to the OFAC, U.S. banks can now open accounts for Cuban nationals located in Cuba to receive payments in the U.S. or send payments back to Cuba, including through online payment platforms. For example, a Cuban author could open an account with a U.S. bank to receive payments for book sales.

The OFAC emphasized that this authorization can’t be used for the benefit of Cuban government officials or members of the Cuban Communist Party.

A U-turn on U-turns

The agency also reauthorized U-turn transactions, which are funds transfers that originate and terminate outside the U.S. and involve parties not subject to U.S. jurisdiction. These transactions had been banned in September 2019. 

Under the new rule, U.S banks can process U-turn transfers involving Cuba or Cuban nationals,  even if neither the originator nor the beneficiary is subject to U.S. jurisdiction. Any U-turn funds transfers that had been blocked prior to this rule are now authorized to be reinstated.

Payments to Cuban nationals have been severely restricted for some time. Before the new rule, remittances were limited to categories such as close relatives, religious organizations, and humanitarian projects dedicated to helping the Cuban people. Americans were also allowed to financially assist individuals emigrating from Cuba.

The post U.S. Eases Rules, Allowing Businesses in Cuba Access to Online Payment Systems appeared first on PaymentsJournal.

The Hong Kong Monetary Authority (HKMA) and the People’s Bank of China (PBoC) have announced that residents in Hong Kong will now be able to use the digital yuan, also known as e-CNY, for cross-border transactions. This marks the first application of the central bank digital currency (CBDC) outside of mainland China.

Users will be able to set up their digital wallets with just a phone number and immediately use them for cross-border payments without needing to open a bank account.

Though it’s a significant step for the digital currency, many had hoped the  launch would include P2P payments, which it currently does not. However, users will be able to visit physical banks in the region and fund their wallets using the country’s Faster Payments System (FPS).

Eddie Yue, Chief Executive of the HKMA, noted: “By expanding the e-CNY pilot in Hong Kong and leveraging the 24/7 operating hours and real-time transfer advantages of the FPS, users may now top up their e-CNY wallets anytime, anywhere without having to open a mainland bank account, thereby facilitating merchant payments in the mainland by Hong Kong residents.”

A Digital Explosion

Digital yuan transactions have surged in recent years, and China recently reported that its citizens paid 1.8 trillion yuan ($249.27 billion) in CBDC to retailers as of June 2023. China estimates there are 120 million digital wallets in use in the country.

Hong Kong users will now be able to pay the 10 million merchants across China with the same ease mainlanders enjoy. However, there will be transaction limits  set at 2,000 yuan for single transactions and 5,000 yuan per day.

Expanding Acceptance

China is at the forefront of the mobile payments revolution, with many retailers in the country not accepting any other form of payment. Expanding the digital yuan’s use is a critical step to keep Hong Kong residents connected.

“We will continue to work closely with the PBoC to gradually expand the applications of e-CNY, enrich the range of functionalities of the e-CNY wallet available to Hong Kong residents and step up efforts in promoting the acceptance of e-CNY by more retail merchants in the two places,” Yue said.

The post Hong Kong Pilots Digital Yuan for Cross-Border Payments appeared first on PaymentsJournal.

Klarna is continuing to incorporate artificial intelligence into various aspects of its business, with recent reports indicating that a majority of its employees are utilizing the technology to enhance productivity, aiming to extend these benefits to its customers.

According to Klarna, 90% of its employees use generative AI on a daily basis, including ChatGPT and the company’s internal virtual assistant, Kiki. In fact, 85% of employees regularly interact with Kiki, asking the virtual assistant 2,000 queries per day.

The high level of adaptive internal communication has boosted productivity, and the company is optimistic about transferring this performance to its customers. Just one month after the January launch of its customer-facing AI Assistant, Klarna reported handling 2.3 million, or about 66%, of the company’s customer service chats.

Personal Financial Assistant

Klarna hopes to leverage AI Assistant to keep BNPL customers on track. The company envisions the app as a “personal financial assistant” capable of providing users with real-time data on their payment schedules and outstanding balances.

While one of the immediate use cases for AI Assistant will be to prevent customers from missing their payments, the app will also be able to settle disputes, issue refunds, and perform invoice reconciliation.

Informed and Steady Stewardship

The company estimates that its virtual assistants can do the work of 700 full-time agents, which may raise concerns regarding AI’s impact on the workforce. Like many tech companies, Klarna laid of 10% of its employees in 2022.

In conjunction with an optimized workforce, Klarna estimates that its AI immersion will save it $40 million this year. It also attributes its switch to profitability in late 2023 to technology. While the fintech has formed notable recent partnerships to keep it at the forefront of the financial industry, Klarna is still betting on AI to be a gamechanger.

Sebastian Siemiatkowski, Co-Founder and CEO of Klarna said in February: “We are incredibly excited about this launch, but it also underscores the profound impact on society that AI will have. We want to reemphasize and encourage society and politicians to consider this carefully and believe a considerate, informed and steady stewardship will be critical to navigate through this transformation of our societies.”

The post Klarna’s AI Immersion Boosts BNPL User Tracking, Employee Productivity appeared first on PaymentsJournal.

The Consumer Financial Protection Bureau (CFPB) has taken action against online payments processor Chime for failing to return funds to customers promptly after account closure.

Although Chime is not a bank itself, the San Francisco-based company partners with banks to offer financial products like checking accounts and credit cards. Chime’s policy dictates that customers should receive refunds by check within 14 days after closing their accounts.

However, upon investigation, the CFPB found that refunds were frequently delayed beyond the 14-day period. There were thousands of instances where Chime took over 90 days to refund its users.

“Chime’s customers had to wait weeks or months for access to their own money and were forced to use alternative funds to cover their essential expenses,” said CFPB Director Rohit Chopra in a prepared statement. “Fast-growing financial firms must treat their customers fairly and understand that federal law is not a suggestion.”

A Configuration Error

Chime attributed the delayed refunds to a configuration error with a third-party vendor it partnered with in 2020 and 2021. That issue was resolved with the vendor, and refunds were issued at the time, according to Chime’s leadership.

The CFPB ordered Chime to return at least $1.3 million to customers affected by delayed refunds. Those customers will receive at least $150 if they still had a minimum unrefunded balance of $10 after 14 days from account closure.

The Bureau also imposed a $3.25 million fine against Chime, which will contribute to the CFPB’s victim relief fund. In addition, Chime will need to comply with regulations and ensure timely refunds going forward.

Adhere to the Same Rules

Chime handles most customer communications and administers consumers’ accounts. The platform has seven million users who collectively perform roughly $8 billion in transactions each month.

The rise of nonbank platforms has spurred the CFPB to take larger steps against fintechs who control financial data. The Bureau has singled out large nonbank companies that handle over five million transactions per year. The CFPB expressly stated it wants those companies to adhere to the same rules as banks, credit unions, and other financial institutions.

The post CFPB Levies $3.25 Million Penalty Against Chime for Delayed Refunds appeared first on PaymentsJournal.

Federal authorities are investigating significant compliance allegations against one of the world’s largest fintech companies. A former Block employee claims the company processed cryptocurrency transactions for terrorist groups, and that Square performed thousands of unreported transactions in countries under U.S. government sanctions.

Roughly 100 pages of documents were provided to back the former employee’s assertions. The whistleblower alleges Block has a far-reaching and longstanding history of compliance negligence. This culture of noncompliance is attributed directly to poor leadership and extends to both of Block’s brands, Square and Cash App.

“From the ground up, everything in the compliance section was flawed,” the former employee told NBC News. “It is led by people who should not be in charge of a regulated compliance program.” 

Ignored Alerts

The foreign transactions included credit card transactions, dollar transfers, and bitcoin exchanges that were not reported to the government. These transactions, often in small amounts, were processed in countries like Russia, Iran, and Cuba, where they are prohibited by law.

The claims allege that Block’s leadership was made aware of these transfers but took no action. Even after the company received alerts flagging users in sanctioned countries, these users were allowed to operate unimpeded.

The nature of the Cash App platform was cited as an issue. Users typically don’t store money on the platform, and by the time Block employees were alerted to questionable transactions, the funds had already been transferred.

The limitations of the platform were fully transparent to the company’s leadership, according to the former employee. An outside consultant’s recent compliance analysis of Block was included in the documentation provided by the whistleblower. The survey identified over 50 deficiencies.

A Need for Regulation

The U.S. sanctions exist because of the prevalence of bad actors, including terrorist groups, in the identified countries. The allegations emerge at a time when regulatory agencies are already scrutinizing the operations of payment platforms

Block, launched by Twitter co-founder Jack Dorsey, has become a popular payments option. More than 75% of Americans reportedly have used peer-to-peer payments platforms PayPal, Venmo, and Cash App. After news of the federal investigation, Block shares dropped by over 9%.

The post Block Faces Scrutiny Over Compliance Lapses at Cash App, Square appeared first on PaymentsJournal.

The evolution of digital card management has given financial institutions new opportunities to cultivate enduring customer relationships. By making consumers’ lives more convenient and complimenting physical cards, so consumers have the options that work for their lives at a particular time, issuers can foster ease of use and brand loyalty, leading to decades-long relationships.  

In a recent PaymentsJournal podcast, Wesley Suter, Senior Director of Product Solutions at Fiserv, spoke with Elisa Tavilla, Director of Debit Advisory Services for Javelin Strategy & Research, about the future of digital cards. They discussed what strategies can make cardholders develop loyalty to their issuer—or lead them to end the relationship.

The Advantages of Digital Cards

Digital card management addresses two issues: Making it easier to do business with a financial institution and making consumers’ lives more convenient. The goal is to ensure that customers are more willing to use your card over a competing card in their wallet.

To understand where we are today, it helps to take a step back. During the COVID-19 era, many merchants amplified their touchless point-of-sale capabilities, and thus digital wallets such as Apple Pay and Google Pay became even more attractive.

“COVID accelerated consumers’ preferences toward the digital channel,” Tavilla said. “Our Javelin research has shown that consumers are using both credit and debit cards in digital and mobile wallets. And the expectations that consumers have, whether it’s in commerce or in online mobile banking, have trended more toward digital capabilities.”

In this digital environment, cardholders can handle most service issues more easily than calling into a call center or discussing their card relationship by going into an in-person branch.

Consider how information is more readily available with a tap of a finger: When you use Uber or Lyft, you can track the precise location of a vehicle. And when you order packages online, you can track every movement of the shipment—from the order confirmation to when the packages leave the warehouse to when they arrive on your doorstep—solely through your phone.

“I don’t necessarily walk out of the out of the house or out of the room with my wallet, but I always have my phone on me,” Suter said. “As we can drive more of that phone experience into the digital banking platforms that many financial institutions leverage, that’s going to create the adoption and loyalty that many issuers are looking for.”

Said Tavilla: “Just a few days ago, I left my house without my wallet, and it was an hour or two later that I realized I didn’t have it. If I had left my phone, I’d have realized that in two seconds. But I had my credit card and debit card loaded into a digital wallet, so I was able to make it through the rest of my evening without needing my physical wallet. I find that to be very convenient and a positive customer experience, and I’m sure I’m not the only customer who feels that way.”

Building Relationships

When it comes to digital card management, banks do not differentiate themselves based on the ability to activate a card or set a PIN. The focus should be on acquiring new relationships or leveraging newly onboarded customers for cross-selling opportunities at a later stage in the relationship.

“CardHub, the digital card management solution from Fiserv, handles all the other stuff while our issuers are really focused on that acquisition of new relationships,” Suter said. “We’re focused on deploying CardHub in a manner that makes it easy and convenient for a consumer but also drives that necessary relationship into all of those subscriptions, recurring payments, card-on-file merchants.”

“Let’s say Elisa opens up a Hulu account and puts her preferred payment to that relationship,” he said. “The likelihood for her to swap that out with a competing card is very, very low. How do we generate more of that type of card-on-file connectivity in relationships so that our card issuers are winning that default card position? That leads to customer loyalty and bringing the ideal customer experience through their entire journey.”

If FIs can get to a position where they can educate cardholders that a digital card is more secure and a more convenient checkout experience, they’re going to attract Apple Pay and Google Pay wallet experiences as a default.

Another factor involves the proprietary apps that every merchant built after the pandemic. How do you drive those interconnected relationships with in-app payment experiences? If FIs provide solutions to those with their own card portfolios, they’re going to win in the long term across debit and credit payments.

Helping Customers Solve Their Problems

If consumers lose their physical card, they can call and ask for a replacement that could be sent traditionally through the mail. But it’s not instant. With digital issuance, FIs can replace that card and have it in the customer’s phone or hand in minutes. That ensures a continuous, seamless experience that allows the customer to keep using the card as top of wallet. That’s important because lag time could cause customers to use a different mode of payment.

The most sensitive chapters in the relationship between a cardholder and the card issuer are those disruption events when the customer has to replace the card or get a new PIN. That’s a vulnerable position for the consumer because if a replacement card isn’t received quickly, they’re likely to move on to a different form of payment—perhaps a competitive card in their wallet.

“If I’m a debit card holder, I’m doing 25 transactions on average per month,” Suter said. “So you do not want to miss that gap where there is a disruption.”

The post FIs Are Building Long-Lasting Relationships Through Digital Card Programs appeared first on PaymentsJournal.