Regulators Consider Shutting Down Wells Fargo

Calls to Shutdown Wells Fargo in Wake of Scandal

Wells Fargo faces pressure from Congress and government regulators as allegations continue to surface about their business practices. The bank has admitted that they created millions of unauthorized accounts for existing customers. Senator Elizabeth Warren has called for the firing of Wells Fargo CEO Tim Sloan. Representative Maxine Waters has gone a step further and suggested that Wells Fargo be shut down entirely. How did a bank that was once considered too big to fail find itself in a position where the top Democrat on the Financial Services Committee is recommending that they lose their charter to operate?

In 2011, Wells Fargo employees began opening checking and savings accounts for millions of customers, without their knowledge. Many also received credit and debit cards for accounts they did not apply for. Customers began noticing this when they received statements that included fees for accounts and credit card processing. About 570,000 customers were forced into buying auto insurance that they did not need. Thousands of these people had their cars repossessed.

This practice continued for nearly five years, until regulators responded to complaints by customers. Then CEO, John Stumpf, was called before the Senate Banking Committee to explain what happened. Three weeks after a contentious appearance in Congress, Stumpf resigned as CEO and Sloan took over.

In the aftermath of that fall 2016 hearing, the Consumer Financial Protection Bureau fined Wells Fargo $185 million for misleading customers in ways that resulted in unnecessary account and credit card processing fees. A class action suit, brought by customers of the bank, was settled for $142 million. The bank fired over 5,000 people related to the scandal. They recently rehired more than 1,000 that they claim should not have been terminated during their internal investigation. Sloan also points to changes in practices in cross selling financial products and encouraging employees to speak up without fear of retaliation from management if they spot wrong doing.

It is unlikely that Wells Fargo will be shut down, having approximately 70 million customers and over 270,000 employees. The investigation continues into all aspects of their operations, including credit card processing. Wells Fargo could face more fines and even closer scrutiny from regulators as they continue to revise numbers on customers affected by the scandal.

Sonic Drive-In Hit With Major Data Security Breach

Protecting Yourself After the Sonic Drive-In Breach

Customers who have recently been to a Sonic Drive-In may want to keep an eye on their debit or credit cards. The company recently reported that there was a breach in their merchant services system that resulted in the theft of debit and credit card information for five million consumers. Sonic Drive-In joins a long line of retailers and restaurants who have experienced similar theft of customer’s personal financial information.

Data breaches of credit card processing systems are expected to continue as thieves seek access to financial information. It’s important that as a consumer you know what steps you can take to decrease your chances of being impacted by breaches of the merchant services systems in the future.

Use Your Credit Card
Start using your credit card rather than your debit card when making a purchase through a merchant services system. Laws limit your liability for fraudulent charges when using a credit card. In addition, it eliminates the risk that the thieves will have access to your bank account information which is possible if using a debit card and PIN number.

Sign for Transactions
Banks and financial institutions set consumers up with PIN numbers for debit cards and merchants have enabled their credit card processing systems to ask for PIN numbers by default. Your PIN number is stored along with your debit card information in the merchant services system. If a thief hacks into the system they could get your debit card information and your PIN, making it very easy for them to fraudulently make purchases or access the money in your bank account. Signatures eliminate the system from having your PIN information. In addition, Visa and MasterCard offer zero liability coverage on purchases made with signature transactions.

A Continuing Story
This isn’t the first breach to a payment processing system recently. Earlier this year Chipotle confirmed that hackers installed software in the point of sale system to steal customer information. Amazon and Whole Foods were also the target of a data breaches this year. As breaches become more common, stronger security measures will undoubtably be put in place in an effort to prevent hackers.

Shake Shack Goes Cashless

How and Why Shake Shack is Opening Cashless Burger Joints

Just when the world thought buzzers were the most cutting-edge ideas of the food industry, Shake Shack, a burger joint based in New York City, decided to try something different and innovative.

They will be opening a cashless Shake Shack New York City at Astor Place with the implementation of cashless kiosks, credit card machines that allow online ordering of food.

In today’s fast food restaurant chains, the companies of the fast food industry understand the importance of getting the job done right and getting paid for the services accurately and swiftly. Through careful payment processing set ups via carefully selected merchant services, credit and debit cards as well as cash have been the main methods of payment.

Fortunately, Shake Shack may have found the groundbreaking innovation that may revolutionize how they run their restaurants. The good news is they won’t have to look elsewhere for merchant services, as the payment processing won’t change at all.

Customers will be able to send their orders straight to the kitchen to eliminate ‘friction time,’ according to CEO Randy Garutti.

This is an innovative experiment for Shake Shack that makes the payment process much easier and quicker for both the customer and the cash handler. Shake Shack’s kiosks are based on the user experience already created for their mobile ordering app, available for iOS and Android. This also means customers won’t need the app to order food. They can simply access the on-site kiosk to make an order.

When the food is ready, customers will receive a text.

Considering its level of innovation and the ease of payment processing, the new Shake Shack is said to have a starting pay of $15 an hour, as they are searching for the best talent. These workers will be called ‘Hospitality Champions’.

These kiosks are totally cashless. By putting emphasis on online ordering, credit and debit cards will become the main form of payment.

This is an amazing opportunity for merchant services, as their reliability in delivering the services they promised will be put to the test.

This new cashless location will be the playgrounds for testing new innovations before applying them universally.

Being cashless means all customers will not be able to use cash. Luckily, Shake Shack may be able to pull it off, as many customers and tourists have access to electronic forms of payment anyways.

Goldman Sachs Interested in Bitcoin Trading

Is Goldman Sachs About To Take The Plunge Into Bitcoin?

Something as flashy and relatively new to the scene as Bitcoin may not be the first thing you would imagine a company like Goldman Sachs getting themselves involved with. However, they may yet still have a few surprises up their sleeves. Recently, Goldman Sachs has hinted at the idea that they are looking to help their customers with Bitcoin. In other words, they are likely about to start trading in Bitcoin to some degree.

What This Means For Merchant Services

There are already many in the financial world questioning what it means for all the rest of us that Goldman Sachs has made such a bold announcement. Are we about to see them dive full boar into the world of accepting payments via Bitcoin? That much is still a little too far off to see, but we do know that this is yet another sign that merchant services are changing rapidly in today’s world.

Changing The Game

Many first heard the news of how Bitcoin was changing the game for merchant services when they read about how Starbucks would begin to accept payments via Bitcoin for their delicious caffeinated beverages.

Starbucks is a brand that when they make a move, people take notice. Obviously, credit card processing is still a larger part of the business that Starbucks and most other retailers do, but no one can honestly deny at this point that Bitcoin is creeping into the market.

Goldman Sachs Getting More Serious About Bitcoin

It seems like, nearly every day now, there is a technology that comes along that people think can will change the world. So many, in fact, that most people brush the new technology off until it catches momentum. It is therefore not stunning that Goldman Sachs and others did not initially take Bitcoin all that seriously. The idea that credit card processing could be upended by a currency that exists only in cyberspace sounded more like science fiction than reality. However, now the currency has changed the payments game forever, and Wall Street giants are starting to take notice.

Goldman Sachs is still the leader in looking at this currency as a serious contender for something that they want to be involved with, but it is likely that others will follow suit at some point. Goldman is so often ahead of competitors when it comes to identifying the next big thing. That is probably the case yet again with this currency.

UK Bans Surcharges for Credit Card Transactions

Yesterday the U.K.’s Treasury Ministry ruled to forbid surcharges on debit and credit purchases. The ban is to go into effect January of 2018.

In recent years merchants have been imposing surcharges to their customers for using credit or debit cards. They, in essence, were passing along the fees that the merchant would incur from the banks and credit card companies to the customer. The fees charged range from 10p and 20p per transaction and 0.60% for credit cards. Merchants feel that they are “taking a hit” from accepting card payments thus impose surcharge on the customer. The name given to these surcharges varies – “order processing fee”, “service charge”, “card handling fee”, “facility fee” and so on.

There are no regulations on the surcharges charged to customers. These arbitrary fees are created at will by the merchants sometimes in the form of a percentage markup normally ranging from 0.3%-2.4% or flat transaction fees ranging from 30p-£2.50. Though some markets are much, much higher. Airfare and travel surcharges can charge as much as 20% for purchases with debit and credit cards!

Merchants aren’t the only ones charging customers. Some government agencies are also applying surcharges. Hammersmith and Fulham council in London charge 1.25% while the Driver and Vehicle Licensing Agency (DVLA) currently adds a fee of £2.50 to vehicle tax payments using debit and credit cards just to name a couple. The U.K. government says the best estimate of surcharges incurred by consumers in 2010 on a whole was £473 million, at the time equivalent to $700 million USD.

Given that the charges to merchants will not end, chances are the fees will still be passed along to the consumer by ways of price increases of goods and services. That being said, it can be argued that including fees in product price will create a straight forward price competition between merchants and serve to keep the markups low. Yes, around a dozen U.S. states have passed legislation banning surcharges and several states have banned discounts for using cash. Though, upfront card surcharges for card payments are very rare in the U.S. and not part of the standard business model barring fuel sales that have historically had separate pricing for each form of payment.

Ironically this all comes about at the same time as Visa is waging a campaign against cash. They recently started a pilot program offering companies in the U.S. monetary gifts to help them move to a completely cashless business model. Last week Visa announced plans to introduce a similar program in the United Kingdom. “We’re focused on putting cash out of business,” Visa CEO Al Kelly said.

Visa Goes to War Against Cash

It looks like Visa wants to kill cash transactions. The credit card company announced last week that they are spending $500,000 to get restaurants to move completely cashless. They say they will give $10k to each of 50 “qualifying restaurants, eateries, cafes, and food trucks” as an incentive to make the transition.

The gift of $10k, according to Visa, is to pay for technology upgrades so that the merchant will be able to accept transactions in every possible form… except cash.

“At Visa, we believe you can be everywhere you want to be, and that it should be easy to pay and be paid in more ways than ever – whether it’s a phone, card, wearable or other device,” Jack Forestell, Visa’s head of global merchant solutions, said in a statement. “We have an incredible opportunity to educate merchants and consumers alike on the effectiveness of going cashless.”

It makes sense that Visa wants to do away with cash transactions. They make money on every transaction using one of their cards. The company claims to have discovered, through market research, that cities that make better use of digital payments can both make and save a lot more money. How you might ask? Efficiency and Labor. Visa claims that in New York City businesses could generate an $6.8 billion more dollars in revenue and save more than 186 million hours of labor by making greater use of digital payments.

Now, converting 50 restaurants to be completely cashless isn’t going to change the whole market. Not even close. This is a test from Visa to see how realistic cashless businesses can be. They want to be able to show other businesses that it’s a good business move to stop accepting cash. I’m sure that we will be seeing reports and statistics coming from Visa’s marketing department if this experiment is successful. The question is, what will Visa do next if they can prove it is worth it to bribe businesses to go cashless?

As conglomerate payment processors grow larger will it hurt merchants?

As Amazon.com’s market share grows, retailers are feeling the pressure. They aren’t the only ones. Vantiv’s acquisition of Worldpay is putting the squeeze on payment processing companies in much the same way.

On Wednesday Vantiv agreed to pay 7.7 billion pounds ($9.9 billion USD) for Worldpay Group PLC, both payment processing companies. This move will greatly increase Vantiv’s presence in the e-commerce, online retail market.

Vantiv is the largest merchant acquirer in the U.S. and usually focus’ on large chains. In fact, over 50% of Vantiv’s revenue comes from the big guys. This move is different. The acquisition of Worldpay Group brings many smaller online retailers into the mix. A strategic move as Vantiv has struggled in the past to gain footing in the e-commerce marketplace. So, who is Vantiv’s biggest competitor when it comes to e-commerce? JPMorgan, who processes payments for… you guessed it- Amazon.com. Worldpay was an obvious move. In fact, JPMorgan had also considered acquiring Worldpay but to beat out the low margin offer Vantiv made would have cost JPMorgan too much.

The payment processing marketplace is continually shrinking in with large processing companies combining. A couple months ago CardConnect Corp was purchased by First Data, both payment processing companies. Last year Global Payment Systems Inc acquired Heartland Payment Systems Inc and Total Payment System Services offered to buy out TransFirst.

We live in a world of conglomerates and tightening markets. Though this seems bad smaller companies there may be a silver lining. Interestingly, it seems that when payment processing companies grow big they cherry pick and fight for larger customers and get away with higher prices and reduced customer service for the rest. They won’t fight for the small-mid size companies because they’re too focused on the larger fruit of the proverbial sales tree. This is the saving grace for the lesser sized payment processing companies and retailers alike. Small-mid size processing (merchant services) companies can focus on smaller business’, getting competitive delivering a price and a level of customer service that none of the conglomerates can offer. So, what is the benefit of going with a huge processing company? Probably nothing unless you are big enough for them to care about you.

Trump to Repeal the Durbin Amendment

President Trump may be gunning to reform the Dodd-Frank Act, in particular one of the most contentious policies of the act: the Durbin Amendment.

The Durbin Amendment—passed as a stipulation of the Dodd-Frank Act—allows the government to set price caps on fees for card transactions. Before 2009, interchange rates were set by banks and merchants involved in the transaction process.

The passing of the Durbin Amendment resulted in the stagnation of free services offered to consumers: before 2009, 76% of banks offered free checking accounts. After Dodd-Frank and Durbin, that number dropped to 45% in 2011, 39% in 2012, and 37% in 2015. This decline has forced some Americans to avoid banking entirely.

The goal of The Durbin Amendment was to pass savings to consumers by giving merchants fee breaks on interchange rates. Instead, 77% of merchants’ prices have stayed the same, while 22% have increased.

What would happen if President Trump and congress overhauled Dodd-Frank and repealed Durbin in its entirety?

A return to the pre-2009 era of interchange rates would result in retailers negotiating the cost of card transactions. This could lead to larger businesses paying less per transaction, while smaller businesses could take a more significant hit.

There is something to be said for retailers’ motivations: the largest proponents of keeping Durbin in the Dodd-Frank Act are massive outlets like Walmart, Walgreen’s, etc.

For the individual consumer, this could mean a change in the price of goods, depending on where they shop. It could also mean an increase in the number of free services that many banking institutions provide to incentivize the clientele that they’ve lost since 2009 to return, now that the burden of card processing fees are no longer shifted onto the consumer.

Either way, these changes are not likely to take place any time soon: Height Securities analyst Edwin Groshans theorizes that these regulation changes may not take place for at least another year. Ultimately, the ability to amend or repeal Dodd-Frank lies with the regulators in charge of these sanctions, not just with the President or congress, and any changes made will be hard-fought, given that the act was initially considered to prevent the irresponsible banking practices that lead to the 2008 market crash.

Pretentious Amex Branding Does Not Entice Millennials

Membership may have its privileges, but American Express is finding out that members of the Millennial Generation do not consider feeling snooty as a privilege.

As a credit card and as a symbol of refinement by means of wealth, American Express has long been associated with the moneyed class and the jet set, and this association can be explained by the company’s marketing and branding efforts over the last few decades. Unfortunately, this marketing image seems to have backfired in relation to appealing to millennials.

A recent article in The New York Times illustrated the woes currently experienced by the legendary credit card company, which is trying its best to attract millennials, particularly those that have made their fortunes at an early age and would be eager to travel the world and spend at their leisure. It so happens that young and wealthy are more likely to leave home without Amex cards because they fear that they may be labeled as snobs.

The New York Times article explains that a competing credit card issuer held a focus group by inviting millennial professionals to dinner at an expensive restaurant. These are the kind of cardholders that Amex would drool over; however, there was a surprise at the end of the meal when the focus group participants were casually asked which credit they would use to pay for the meal. Right off the bat, a diner explained that flashing an American Express card was out of the question because it would seem as a blusterous act of braggadocio.

The other millennials in attendance at the dinner agreed that using Amex for payment would send an unwanted message, one that screams “look at me: I’m rich!” To drive the dagger even deeper and twist it, one of the dinner guests said that he would prefer to pay with a Chase Sapphire Reserve card, clearly a better choice among millennial cardholders.

What Chase has accomplished with its Sapphire Reserve product is exactly what Amex would like: capture the attention of young cardholders. The problem is that Amex is no longer considered cool; young consumers are not particularly interested in being lumped with the “one percent.” The Chase Sapphire, on the other hand, is heavily marketed on social media and offers benefits that speak to the Millennial Generation. In other words, Amex will likely need to change its image for the purpose of becoming cool again.

New FDA Regulations Affect Online Vape Credit Card Processing

It seems that the U.S. Food and Drug Administration (FDA) is finally beginning to crack down on the growing vape and e-cig industry, after it announced last year that all e-cigarettes and other vaping products will now be regulated in the same way as cigarettes are under the 2007 Family Smoking Prevention & Tobacco Control Act. The law now applies to all electronic nicotine delivery systems (ENDS) and other vapor-producing products, meaning that all retailers and manufacturers of these products must now meet certain regulations in order to sell their products.

By extending its authority over e-cigs and vape products, the FDA is forcing both retail and online merchants to incur many additional expenses related to bringing their business in line with the new regulations. As these regulations cover the manufacturing, labeling, marketing and advertising of any e-cig related products, the expenses tend to pile up quite quickly.

Unfortunately, the new FDA regulations have also led to MasterCard changing its policy concerning online merchants. Previously, all companies who sold tobacco and tobacco-related products were required to prove their legal compliance and pay a $500 yearly registration fee in order to accept credit cards. However, the revised policy means that all vape merchants who wish to accept MasterCard payments are required to pay this yearly fee. Worse still, it seems certain that Visa and American Express will soon follow suit.

What the New Regulations Mean for Your Vape Business

One of the biggest problems associated with the FDA regulations is that they will make it much harder for merchants to continue to accept Visa and MasterCard payments. While $1,000 in total yearly registration fees will definitely have a negative impact on your company’s bottom line, there are many hoops you’ll first need to jump through before you can even get to the registration process.

In order for a merchant to register with one of the credit card companies, they’ll need to make sure that all transactions are properly age-verified. This means restricting sales to anyone under the age of 18, and, for online merchants, ensuring that all products require a signature from a legal adult upon delivery. As well, merchants also need to obtain a letter from an attorney legally verifying that the business is in compliance with all state and federal regulations.

The problem is that even paying the registration fee doesn’t actually entitle you to accept credit card payments, as you’ll then need to find a credit card processor that’s willing to underwrite your business. Despite the work you’ve put in to become complaint, the credit card processor is the one who has the burden to prove it.

Unfortunately, many credit card processors are currently unwilling to take the risk that goes along with it, meaning many online retailers may be left without a way to accept online credit card payments or will be forced to pay much higher fees in order to do so. For this reason, the FDA regulations seem certain to have a major impact on the industry, both in the short and long term.