The CFPB slips mention of digital wallets and virtual currencies into its prepaid debit card report


Mobile Wallet

Money is going digital. Despite the many fits and stops, competing technologies and platforms, and omnipresent wrestling match for control over the future of payments, it seems to be inevitable that physical money (coins and cash), and likely plastic payment cards will eventually go the way of the dodo. How soon and under whose influence this transition will happen, however, remains to be seen.

But whether it’s Bitcoin, Apple Pay, Google Wallet, PayPal, CurrentC, or another yet unknown platform that ushers us into the future of payments, it looks like competition from industry peers is no longer the only obstacle impacting digital payment adoption. A new report from the Consumer Financial Protection Bureau (CFSB) yesterday sets the groundwork for new regulations that could impact the adoption of digital wallets.

The 870-page report deals mostly with prepaid debit cards and suggests that these accounts be limited in their ability to borrow money but receive protections against lost or stolen cards. But buried therein are regulations that mention “virtual wallets and virtual currency products.”

The CFPB says that it is in the process of reviewing whether these digital financial products would fall under prepaid debit card regulations. The answer to this question likely relies on the variations in ways that these service providers hold funds and process payments, such as whether, like Apple Pay and Google Wallet, these wallets provide a passthrough to traditional bank or credit card accounts, or whether, like PayPal or Coinbase, they allow consumers to fund a proprietary account. The CFPB writes:

In particular and as noted above, the Bureau is aware of an increasing number of mobile financial products, each with different features, capabilities, and consumer protections. Determining how this proposed rule might apply to those products may be difficult in light of the quick evolution of these products and their features. …

With respect to mobile financial products and services, the Bureau anticipates that this proposed rule would apply to certain mobile wallets. The Bureau also recognizes that the proposed rule may have potential application to virtual currency and related products and services. As a general matter, however, the Bureau’s analysis of mobile financial products and services, as well as and virtual currencies and related products and services, including the applicability of existing regulations and this proposed regulation to such products and services, is ongoing.

The CFSB previously issued an advisory warning against the risks of digital currencies in August and around the same time began soliciting consumer complaints pertaining to virtual currencies and digital wallets. It appears, based on this latest report, that the bureau’s inquiry into the risks presented by the digital payments ecosystem remains ongoing. For consumers, this preemptive evaluation is a good thing, but for entrepreneurs and investors the lingering uncertainty is a challenge.

Hopefully for all involved, the regulator environment will crystalize sooner rather than later. Then, the inevitable move to a fully-digital payments ecosystem can run its course. Until then, I, along with many others, will be waiting with bated breath.



Stripe’s big global moment won’t be currencies — it will be more countries



Yesterday, PayPal competitor Stripe announced it could now process payments in 139 currencies. That was a big leap for the startup, which previously could only handle four currencies–euros, US dollars, Canadian dollars, and British pounds. Per usual, most of the industry press covered the news excitedly, with headlines “Stripe steps up international expansion” “Stripe goes global” and Stripe launches currencies to “power global business.”

Certainly it was a big announcement for the company, following close on the heels of its recent $ 80 million funding round. It’s also an important benchmark, one that will make it more attractive to potential merchants. But what it shouldn’t be mistaken for is the scaling step that will dramatically change Stripe’s reach across the globe.

Stripe’s big global moment won’t be when it starts processing more currencies — it will be when it starts processing payments in more countries.

At the moment businesses that want to process their payments through Stripe can only do so if the business itself is in one of twelve countries listed here, support for eight of which is part of a private beta. The countries currently supported stretch from Canada to Belgium to Australia, but they  some things very clear in common. The only merchants that can use Stripe are in English speaking or Western European nations.

By adding 135 currencies, Stripe is allowing the businesses who already use it — only in those twelve countries — to accept payments from customers all across the world. If you live in the United Arab Emirates and love One Kings Lane products, you can now pay in dirhams for them (that doesn’t mean One Kings Lane will ship it to you there, but that’s a different issue).

For the businesses using Stripe, particularly the small ones, that’s impactful. They can expand their international customer base without having to manually set up a partnership with a foreign bank to do currency conversions. Stripe has developed relationships with foreign banks for you, and seamlessly worked the conversion into its API.

But while this expands the companies’ international reach, Stripe’s own international reach is unchanged. Stripe’s customers aren’t consumers — they’re the businesses that sell to consumers. Although accepting more currencies will increase the amount of payments processed annually through Stripe, it isn’t the huge global expansion of the business that media made it out to be.

The news of Stripe’s added currencies also isn’t that exciting for the startup’s B2B2C businesses that use it to facilitate a process for other merchants. For example, an online store creator like Shopify is limited in the merchants they themselves can help with Stripe. They can only use Stripe to process payments for companies based in the four countries, or twelve if they’re part of the private beta. If Shopify has a small-business merchant that wants to use Shopify’s product in China, for example, Shopify has to route them through another payments processing company instead.

As a result, Stripe loses out on a chunk of the B2B2C processing it could be doing, in addition to losing out on international merchants.

Since its inception Stripe has been tentative about its global expansion, hesitant to leap before looking. The company has expressed that it wants to get everything perfect so that the technology is as effortless to implement for its international customers as it is for its American ones. As a result, it has resisted expanding quickly abroad until it has its own partnerships and agreements with banks and regulators in each country. That way, international companies that implement Stripe don’t have to go through any special application or vetting process. They just add the API and it will meet their needs. As one might imagine, striking deals with foreign regulators and banks is slow going.

Stripe also does research in each new market before it enters it, so it’s prepared for cultural payment differences. For example, in Germany credit card use is far less frequent so Stripe wanted to make sure its technology could handle other payment options — like debit cards.

It dabbled in the foreign market by moving into Canada first in 2012, then England and Ireland in 2013 along with private betas in the other eight countries. But it hasn’t managed to expand to the rest of the world yet.

That slow and steady tactic can be seen in its approach to currencies too. One of Stripe’s biggest competitors, Braintree, has been processing payments in more than 130 currencies for some time now. That made Braintree an obvious choice for companies that needed to accept international payments. Stripe missed out on that business by taking its time.

Now that Stripe does allow multiple currencies, the difference between it and Braintree’s implementation is clear. Stripe’s is instantaneous. Its website tells merchants, “You don’t need to do anything to enable this in your account—you can simply start passing the currencies throughout the API.”

In contrast, on its support page Braintree cautions potential merchants that “Processing payments worldwide can be complicated” and that they’ll need to go through a “paperwork and setup” process with an account manager to enable currency conversion.

That said, there’s a lingering question: Will the time Stripe spent getting the product perfect irreversibly hurt the company? By waiting, it has allowed its competitors to snatch up businesses that needed international currency conversion. It has lost out on revenue in the process. Businesses that built a system on top of a competitor are unlikely to switch now just because Stripe has finally enabled other currencies.

Perhaps if Stripe was in a different industry, it wouldn’t matter if it lost initial business by moving slowly. It could make up for it down the line. But in the online payments space, the “winner” will take all — or most. Enterprises are more likely to trust bigger payments processing businesses that are guaranteed to be around for some time. If Stripe’s competitors get much bigger faster, and do the job well enough, then Stripe will have a lot of persuading to do to convince big companies that it’s the safer bet.