This week in payments saw the SEC weigh in on artificial intelligence (AI), the long-awaited debut of the FedNow instant payments rail to mixed reviews, and payment processor Block taking on major credit card issuers over fees.
On the AI front, in a Monday (July 17) speech to the National Press Club, Securities and Exchange Commission (SEC) Chair Gary Gensler said, “We at the SEC are technology neutral. Just like with the treatment of calculus — we focus on the outcomes, rather than the tool itself. Securities laws, though, may be implicated depending upon how AI technology is used.” Gensler’s comments came on the same day that the Consumer Financial Protection Bureau (CFPB) and the European Commission (EC) opened an “informal dialogue” about the digitalization of the financial services sector, including the use of AI to automate decision-making.
The use of AI to authenticate consumers is a trend emerging as a key innovation within financial services and payments. It is attractive for customers as it provides additional security while making access to account services and features much simpler with its “frictionless capabilities.” But consumer protections are needed, and the SEC has ideas about that.
Yet, with the fast-paced innovation also comes potential conflicts with investors. Gensler expressed his concern, saying, “Make no mistake, though, under securities laws, fraud is fraud. The SEC is focused on identifying and prosecuting any form of fraud that might threaten investors, capital formation, or the markets more broadly.” Generative AI, a form of AI with the ability to clone and generate voice altogether, can be incredibly effective and gives scammers “an easy and effective way of building confidence with their targets,” according to Doriel Abrahams, head of risk in the U.S. at Forter.
To ensure the protection of investor interest, Gensler has asked the SEC staff to make recommendations for rule proposals related to addressing AI-related conflicts.
Visa and Mastercard are facing a new antitrust lawsuit filed by Block Inc., accusing the companies of conspiring to inflate fees and increase retail prices paid by consumers. The lawsuit alleges that Visa and Mastercard charged inflated “interchange” fees, also known as swipe fees, to the Square payment platform and other merchants every time a customer uses a credit or debit card. Block Inc. argues that these fees are complex and difficult to calculate, resulting in higher retail prices for consumers. This is not the first time Visa and Mastercard have faced such accusations, as they are already involved in a massive antitrust case related to interchange fees.
On Thursday, July 20, the Federal Reserve Bank took the long-awaited step of launching FedNow, its real-time payments (RTP) network, creating a U.S. duopoly with rival system The Clearing House’s RTP® real-time platform.
“It’s been a long time coming,” Drew Edwards, CEO at Ingo Money, told PYMNTS’ Karen Webster. “What’s exciting is that there’s at last competition for RTP volume and the potential for new use cases that can now be served with real-time payments infrastructure.”
Real-time payments are made on rails that can push money to a bank account instantaneously, revolutionizing payments for consumers and merchants alike. However, the challenge now lies in getting to a critical mass before any further progress on the interoperability front (letting different systems speak with each other) can be made.
“TCH with RTP hasn’t yet achieved the critical mass needed to ignite its payments platform, although there are hopeful signs coming from banks’ and Fiserv’s launch of an RTP-based business bill pay system,” Webster noted.
Edwards said getting to that critical mass will require some convincing, as most people outside the banking and payment industries still may not know what RTP or FedNow are. The fact that the transfer of funds from customers’ bank accounts already exists can make matters harder.
“Convincing corporates to add other real-time payment rails may take some education,” Edwards said, adding that “interoperability is not simply a matter of linking FedNow and RTP but of helping stakeholders operate across the same alias no matter if it’s ACH, RTP or FedNow in the mix.”
Hence, providing a variety of payment options and solutions is key in pushing for real-time payments and making all its use cases universal. “The more choices, the better, and that opens up opportunities for the FinTech enablers to make it all work for the marketplace,” he said.