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Protocol | Fintech
The people, power and politics of fintech, every Tuesday and Friday.

For Visa, antitrust scrutiny is in the cards

​Visa's Foster City offices.

Hello and welcome to Protocol | Fintech! This Tuesday: Visa's new antitrust woes, a drop in home sales and a key Google executive's departure.

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The Big Story

The route to antitrust trouble

The Department of Justice's antitrust division is investigating how Visa is routing merchants' debit-card transactions, the WSJ reports. The key question: whether it is limiting the ability for merchants to send them over cheaper card networks.

A wrench in the money machine. Any major changes to interchange fees would reverberate throughout the payments world. Interchange fees, which merchants generally pay and build into the prices consumers pay for goods and services, power a number of financial startups' business models.

  • Merchants paid $53.6 billion in interchange fees in 2019, according to the Nilson Report.
  • Visa and Mastercard plans to increase interchange fees next month, which could cost merchants another $889 million a year.
  • The pandemic has fueled a move to digital wallets and away from cash, heightening the stakes, especially for smaller merchants. Cash dropped from 30.2% of point-of-sale-spending in 2019 to 20.5% in 2020, while mobile wallets increased to 25.7% from 21.5%, according to the FIS Global Payments Report.

Washington is watching. Some in Congress are also interested in card networks.

  • Sen. Dick Durbin, who got fees reduced in 2011 through his Durbin Amendment, criticized fee increases as "far in excess of any reasonable measure of cost" in a hearing last week.
  • Durbin last year pushed for the Federal Reserve to probe debit-card fees, arguing that they hurt merchants. The Durbin Amendment requires that merchants have at least two choices of debit card networks for transactions, and Durbin believes that issuers are not following that.
  • Debit transactions that don't use a PIN are typically routed to Visa or Mastercard, which charge higher fees. That's almost all ecommerce, including mobile wallet transactions. Durbin believes big networks should allow these transactions to go through other networks.
  • Visa and Mastercard recently said they would delay increases to card-not-present fees as part of the pandemic.

The regulatory environment is clearly changing. Visa is facing scrutiny on other fronts.

  • The DOJ filed suit against Visa's proposed $5.3 billion acquisition of financial data company Plaid. The two companies later dropped the deal.
  • The Biden administration's new appointments have sent a clear signal that the tech and finance worlds can expect stricter enforcement.

Most believe the pandemic-accelerated shift to ecommerce and touchless transactions is here to stay. That's been good for anyone who relies on interchange fees. But investors and startup founders might want to reexamine assumptions built on those fees only rising.

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Overheard

  • "They're extremely intelligent. Very level, very inquisitive about this huge range of subjects . . . and very funny, as well."Mark Carney, former Bank of England governor and now Stripe board member on the company's founders Patrick and John Collison.
  • "In this world of remote work, it feels like we have to be connected 24/7. All of us — your colleagues, your managers, our divisional leaders — we see that. We're here to provide support and guidance. This is not easy, and we're working hard to make it better." Goldman Sachs' David Solomon, vowing junior bankers would get at least one day off per week.
  • "It is not that demand is disappearing from the marketplace. It is really the lack of supply."Lawrence Yun, NAR's chief economist, on why existing home sales dropped 6.6% in February.

3 Questions With...

Jay Shah, president of Personal Capital

Personal Capital is an online wealth management company. This interview has been edited for clarity and brevity.

What do you think is the most exciting fintech trend?

I love that consumers are really, really finding sustained value in life hacking, from uses of technology and data to improve their outcomes. This is exciting to me because the reality is, if you look over the last decade or so, the majority of U.S. consumers don't have a big-picture game plan. We commissioned a big Harris poll that revealed that over half of American investors are planning to speak to a financial advisor this year. That's really a tectonic shift in that trend. And I think that's great progress.

What fintech trend is most troubling for you?

What I'm most troubled by is I do see an outcropping of fintechs that are popping up and they're hiding under the guise of the democratization of finance, right? I would say they're using a lot of the old-school tactics. They're just new wolves in sheep's clothing.

What has been your biggest professional blunder and what did you learn from it?

My first job was to sell credit cards. I was an intern, I didn't know anything. It was kind of the Wild West. So I was actually pretty good at selling the benefits and compelling people to take it on. I didn't realize the damage that was being created. These credit cards had no grace period. You were instantly incurring a really, really high APR and interest rate.

I thought I was doing something exciting and I thought it was successful, selling a product, something that I was instructed to do. But once I actually saw what I was creating, that's the kind of thing where you go home and you think really long and hard. I didn't unpack that for a while. This is 30-plus years ago for me, right, but it stuck with me.

Need to Know

  • Coinbase will pay a $6.5 million settlement. The crypto marketplace has agreed to settle a complaint filed by the Commodity Futures Trading Commission, which has been looking into claims that the company reported misleading information about its trading volumes. Coinbase has also pushed back its highly-anticipated direct listing to April.
  • Google's head of payments departs. Caesar Sengupta, head of Google's payments and Next Billion Users initiative, is leaving after 15 years with the company.
  • Revolut applied for a U.S. bank charter. The U.K.-based digital bank has submitted an application with the FDIC and the California Department of Financial Protection.
  • Side raises $150 million. The real estate startup now has a $1 billion valuation. Its technology helps agents run brokerages.
  • PayFit raises $107 million. The French payroll and HR startup's round was led by Eurazeo Growth and Bpifrance's Large Venture fund.
  • African challenger bank funded. Kuda, a Nigerian challenger bank, has raised $25 million in series A funding led by Valar Ventures.
  • The Winklevii make crypto moves. Cameron and Tyler Winklevoss' Gemini Exchange goes big on gaming, DeFi and NFT tokens.

Thanks for reading — see you Friday.

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