Daily Dash: Mastercard Says No To Cannabis

July 28, 2023
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Mastercard has cracked down on cannabis retailers allowing payments across its network, nexo Standards and Berlin Group have announced that they are developing digital euro standards, and N26 makes a new hire following its compliance problems.

You Shall Not Pay, Mastercard Tells Cannabis Customers 

Mastercard has said payment companies must stop allowing US customers to buy legal marijuana in shops, known in the US as dispensaries, with its debit cards.

The ban means that consumers will likely need to resort to cash payments. 

Cannabis is illegal at the federal level, despite being legal for medical reasons and/or recreationally in 38 of the 50 US states. 

"As we were made aware of this matter, we quickly investigated it. In accordance with our policies, we instructed the financial institutions that offer payment services to cannabis merchants and connects them to Mastercard to terminate the activity," Mastercard said in a press statement. 

"The federal government considers cannabis sales illegal, so these purchases are not allowed on our systems," the statement continued.

Nexo And Berlin Group To Develop Digital Euro Standards 

Technical standards organisations nexo Standards and the Berlin Group have announced a collaboration to align their standards to support the implementation of a central bank digital currency (CBDC) payments ecosystem. 

“Through the proposed collaboration with the Berlin Group, nexo can provide the European Central Bank with specifications which ensure compatibility with current market practises and solutions, thanks to their broad existing deployment across Europe and beyond,” said Jean-Philippe Joliveau, chair of nexo standards’ board of directors. 

“Our standards are proven to be secure and future-proofed to meet evolving market needs.”

The organisations have said that together their standards would ensure full interoperability of digital euro payments, which is key to a successful rollout, as it will need to work across a range of acceptance devices, deployed by multiple private vendors. 

The aligned standards would also leverage the experience of the organisations in standardising other payment means, such as cards and instant payments. 

N26 Tries To Move On From AML Failings With New Hire

N26 has announced that it has hired Carina Kozole as its chief risk officer. 

Kozole, who spent two decades with UniCredit, joins off the back of regulatory compliance issues at the German neobank. 

Earlier this month, the German banking watchdog BaFin extended customer limit measures that were originally introduced in 2021.

Kozole has said that she is “excited” to join the company. “Having seen what the team at N26 has achieved over the years, I believe that the company is well placed to deliver customer innovation in a highly regulated space, delivering new solutions that can be best-in-class examples in our sector.”

“Carina has a proven track record in risk management and banking operations, which will be central in an industry backdrop of growing and evolving regulatory requirements,” said Marcus W. Mosen, board chair at N26. 

“Her leadership experience and expertise in digital topics also place her strongly to drive innovation and efficiency.”

Pix Overtakes Card Payments In Brazil For The First Time

Pix, Brazil’s instant payment service, accounted for 35 percent of all non-cash payments in the first quarter of 2023, taking over combined debit card and credit card payments for the first time.

The use of these cards together accounted for 34 percent of the transactions.

However, if prepaid cards are added to the mix, the share of cards rises to 41 percent.

According to central bank data, Pix processed 8.1bn payments to the value of BRL3.45trn ($730bn) in Q1 2023.

Last August, Roberto Campos Neto, president of the Brazilian Central Bank (BCB), made headlines with the bold statement that credit cards will cease to exist in Brazil as the central bank’s initiatives, such as Pix, open finance and a future central bank digital currency (CBDC), will take their place.

Spanish Banks Take On Fraud With New Joint Venture

Banco Santander, BBVA and CaixaBank — three of Spain’s largest retail banks — have announced that they are joining forces to fight fraud.

The banks have created FrauDfense, a company that will bring together anti-fraud initiatives from the banks. 

FrauDfense, which has been presented to the appropriate supervisory and regulatory authorities, will first develop a tool to share information on fraudulent practices and effective response measures.

Carlos Requena will be FrauDfense's CEO, and BBVA’s Natalie Ortega will serve as the first chair of the joint venture. 

The board of directors meanwhile will comprise two representatives of each bank.

Visa Sees 'Strong' Growth In Cross-Border Payment Volume

Visa has published its fiscal Q3 2023 earnings report, showing “relatively stable” growth in total transaction volume and “strong” growth in cross-border payment volume.

Total transactions hit 70bn, a 10 percent increase over the previous year, while total cross-border volume (excluding intra-Europe) increased by 22 percent on a constant-dollar basis.

“Cross-border volume continued to be a tailwind, fueled by travel growth from the ongoing recovery and summer tourism,” said Visa CEO Ryan McInerney.

“Consumer spending remained resilient, driving growth in payments volume and processed transactions.”

Visa’s international transaction revenue for the quarter climbed to almost $3bn, an increase of 14 percent over the prior year.

PayPal Must Comply With India’s AML Rules, Says Delhi High Court

A Delhi High Court judge has ruled that PayPal is a “payment system operator” and must comply with India’s Prevention of Money Laundering Act (PMLA), including its reporting requirements.

Section 12 of the PMLA requires that a “reporting entity” must maintain records of all transactions and all identities of its clients for a period of ten years.

PayPal had argued that as it is not considered a “payment system operator” or “reporting entity” under the Payment and Settlement System Act 2007, it is outside the scope of the PMLA. This argument was rejected.

The judgment states that PayPal’s technology enables the transfer of money between parties at different ends, and interacts with commercial banks and payment aggregators.

The case was brought due to an appeal by PayPal against a penalty of ₹9.6m ($117,123) from the Financial Intelligence Unit for not registering itself as a “reporting entity”.

UBS Fined $387.5m For Credit Suisse Misconduct

Switzerland’s UBS Group has agreed to pay a total of $387.5m in fines to regulators to settle claims related to the misconduct of Credit Suisse, which UBS acquired in June 2023.

This includes a $268.5m fine to the US Federal Reserve and a £87m penalty to the Bank of England’s Prudential Regulation Authority (PRA). The US and UK regulators have also coordinated with the Swiss Financial Market Supervisory Authority (FINMA), which did not issue a fine.

In 2021, Credit Suisse suffered $5.5bn in losses due to the collapse of investment fund Archegos, after the Swiss bank failed to manage the risk posed by Archegos despite repeated warnings.

“The failings were found to be symptomatic of an unsound risk culture within the business line that failed to balance considerations of risk against commercial reward appropriately,” said the PRA.

As part of the settlements, UBS will be required to implement a number of measures aimed at addressing long-standing misconduct at Credit Suisse. 

UBS completed the emergency takeover of Credit Suisse last month, paying CHF3bn ($3.25bn) in the biggest banking deal since the 2008-09 financial crisis.

French Banks Score Well On Access To Cash

Against a backdrop of dwindling access to cash in Europe, France has come out relatively well, according to the National Payment Methods Committee. 

At the end of 2022, there was an almost equivalent number of cash access points as at the end of 2021. 

In addition, the number of municipalities equipped with at least one ATM increased slightly from 6,548 to 6,563.

The committee said that sufficient access to cash is confirmed by the fact that more than 99 percent of the French population lives within ten minutes of a cash access point.

"French banks are evolving to meet the needs of their customers,” said Maya Atig, managing director of the French Banking Federation.

“Even if the use of cash is decreasing, they remain vigilant that all French people have access to it without difficulty, alongside the entire ecosystem.

"The development of the ATM network naturally follows that of society, and accessibility to cash remains, as was the case in previous years, at an excellent level."

US Instant Payments Surpass 500m Transactions

The Clearing House’s (TCH) RTP network surpassed the 500m payment milestone on Saturday (July 22), the TCH announced.

The private instant payment network claimed on its fifth anniversary last year that it had processed 45m transactions in Q3 2022, valued at $19.7bn in a quarter. 

Since then, the payments rail company says it has increased the number of business users by 50 percent, to 150,000 businesses, and more than 3m consumers are using RTP to make account-to-account (A2A) or Zelle payments.

Transactions on the RTP network during Q2 2023 totalled 58m for $29bn.

Although these numbers are dwarfed by similar services in many other leading markets, experts have argued these are important achievements considering the size and complexity of the US market.

Rusiru Gunasena, senior vice president of RTP product management, said surpassing 500m RTP payments “signifies the accelerating growth and demand on the RTP network".

The announcement came four days after the Federal Reserve launched its long-awaited instant payment system called FedNow.

Slow Progress On AMLA Negotiations Frustrates Lead MEP

EU member state negotiators are failing to make up their mind on where the new EU Anti-Money Laundering Authority (AMLA) should be, according to Eva Poptcheva, the member of European Parliament (MEP) tasked with representing the parliament in the trilogues.

“We deeply regret the halt of the negotiations on the AMLA seat,” she said in a statement on Twitter. “The Council’s inaction is delaying the call for applications by at least another two months.”

Poptcheva, a Spanish MEP from the centrist Renew faction, did however add that the negotiators managed to “make some progress in the substance of the AMLA regulation, paving the way for compromises in the fall”.

A number of cities are competing to host the AMLA. In Frankfurt, the German city recruited former Chancellor Angela Merkel to host a rally in support last year. Other cities include Vilnius in Lithuania, which is pushing an intense marketing campaign for AMLA on social media, and Brussels, which is home to many nearby EU institutions.

India Seals UPI Linkage With Sri Lanka Following Presidential Visit

India has signed a memorandum of understanding (MoU) with Sri Lanka for the acceptance of Unified Payments Interface (UPI) payments in the country.

The agreement was signed by Lanka Pay, Sri Lanka’s national payments operator, and the international arm of the National Payments Council of India (NPCI), and should go live in two to three months.

Shri Vinay Kwatra, foreign secretary of India, said the agreement is about more than just tourism and will feed into the two countries’ plans to use the Indian rupee for trade purposes.

“By its very nature, it is likely to take some time because the currency needs to get fully circulated, but the respective institutions have opened their bank accounts on both sides,” said Kwatra.

“The processes are all described and we would hope that this would pick up momentum very, very quickly.”

Washington Wins Commitments On Artificial Intelligence

The Biden administration has secured a voluntary agreement with US companies including Amazon, Google, Meta and Microsoft on the development of AI, the White House announced over the weekend. 

The companies have committed to internal and external security testing of their AI systems before their release, and to sharing information across the industry and with governments, civil society and academia on managing AI risks.

The firms, which also include OpenAI, have also committed to investing in cybersecurity and insider threat safeguards to protect proprietary and unreleased model weights, as well as facilitating third-party discovery and reporting of vulnerabilities in their AI systems.

The White House has indicated that it will continue to intensify efforts in this area, and is keen to work with allies, having consulted on voluntary commitments with countries such as the UK, Germany, and Singapore. 

South Korea 'Massively Expands' CBDC Project

The Bank of Korea (BOK) has increased resources for its Digital Won project this year, the central bank’s Payments and Settlement Annual Report has revealed.

The report says that the central bank has now “massively expanded” resources to meet growing demands for research into system designs and institutional issues surrounding a potential central bank digital currency (CBDC). 

This has included expanding the teams working on the project from one to four. The BOK says it now needs more in-depth research on a CBDC and more collaboration internationally with central banks and other organisations. 

The paper also discusses the CBDC experiments that BOK has carried out to date. This includes working with 14 banks on issues such as distributed ledger technology payments for digital assets and cross-border transactions.

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