At Money20/20, Barrie VanBrackle, Manatt, Phelps & Phillips, shares with PaymentEye’s Senior Fintech Reporter, Sarah Gill, about her perspective on the major regulatory pain points within the payments industry.
Sarah Gill, Reporter: So, I'm joined by Barrie VanBrackle, who is a Partner at Manat, Phelps, and Phillips, where she is a payments specialist.
Are there any verticals in payments that you think are maybe over-hyped, or, you know, maybe overstated? You know, you think a lot of the startups coming in?
Barrie VanBrackle: I think the startups-- well, I think, again, you have to look at the spectrum. What is a startup offering? And you have to focus on, is it offering payments? Is it offering software? Is it offering technology, and if it's offering technology, what's the value add for the technology? And who is its audience, and who is it going to sell to?
Because then you have to start thinking, what's the regulation that the company has to follow? Because if I am going to utilize that company, I certainly don't want to put all my eggs in a basket with a startup or other entity that may disappear, because of underfunding or, potentially, it is not regulated, it doesn't have the appropriate regulation scheme in place, regulatory scheme in place.
Sarah Gill, Reporter: Yeah, I mean, looking at the regulatory side of things, where do you see the biggest kind of pain points? Where do you see the biggest kind of issues or barriers?
Barrie VanBrackle: You probably hear a lot about money service businesses. So, in a nutshell, FinCEN, which is Department of the Treasury, requires that money service businesses, which will include money transmitters, be licensed.
There are some exemptions, and not everybody is a money service business. Payment processors are an exemption under FinCEN's regulation as to whether or not you'd have to be registered.
But here is the fun part. We have 50 different states, and 48 of those states have a different law regarding how you are licensed as a money service business or money transmitter.
So, you have to know where your customers and where you're transacting business to figure out whether or not you have to be registered in the various states.
So, the money service business aspect of it, whether you touch the money, whether you're in the payments flow, whether you have discretion over sums, that is a regulatory pain point. We have always had, since I started practicing, we've always had Section 5 of the FTC Act, which prohibits unfair and deceptive acts and practices.
Since that time, we have the CFPB, Consumer Financial Protection Bureau, which now adds another little regulation called UDAP, which adds an A for abusive acts and practices. So, it prohibits unfair and deceptive and abusive acts and practices for any entity which has a consumer-facing financial product.
So, if you offer loans, for example, or if you offer, I don't know, the ability for a customer to pay bills online, that type of thing, you have to make sure that you are in compliance with that statute or regulation.
But that is not too far afield from what has already existed, bearing in mind, of course, that every state, in addition to having their money service business, also has what I call little FTC acts, which are their consumer protection acts.
So, you have-- and then, of course, if you're aligned with a bank, you have a series of Gramm-Leach-Bliley, and a whole host of other regulations that you might need to catch up with, and, here's the rub, when you enter into an agreement, depending on who you are as a company, a bank will say you need to comply with all the rules and regs that I'm subject to, which is going to be really tough for a startup.
Sarah Gill, Reporter: Right.
Barrie VanBrackle: So, again, it's a contracting process that you want to look at, you know, as to what you're agreeing to be bond to, but at the very least, the new market entrant needs to look at, in addition to just general corporate or other type of formation issues, the money issues, as well as the consumer protection issues.
Sarah Gill, Reporter: Okay. I mean, so is the state of regulation at the moment going to be even holding back innovation? Or the unnecessary (inaudible)--
Barrie VanBrackle: Okay. I've heard two theories on this. There is one theory that says, of course not, because we are very intent-- we, our regulator, is very intent on innovation and everything else that comes in its place. However, as a sideline, we are very intent on consumer protection.
So, if you are an innovative company, you can't say, I'm opposed to that. How can you say that, right?
You could say, if you're a company, and I heard during a session yesterday, Uber said that we try and get as close to the wire as we can, especially in a gray area, and I heard Microsoft say, well, there are-- you know, we follow the letter of the law, so, we don't toe the line.
So, I think I've seen a dichotomy which is, you know, maybe a newer company would say, I'm willing to sort of press the bar.
Sarah Gill, Reporter: Yeah.
Barrie VanBrackle: And a more established, larger company would say, I'm not interested in being regulated or scrutinized any more than I already am, so, I'm not going to do that.
Yeah, I don't think-- I would be hard-pressed to say that regulation stifles innovation, because if that were the case, this would become the Wild Wild West, and then when I put my credit card information online, other than, yes, there could be a hack, but I feel fairly confident that someone has had to have it secure-socket-layered, or encrypted or tokenized, or in a manner that protects me, which makes me feel comfortable. So, that means that commerce continues.
I have, in the past, before I saw the necessary emblems and protections, I would not put my credit card information online.
Sarah Gill, Reporter: Yeah, and there's a fairly huge amount of kind of fear around putting your credit card online, even today.
Barrie VanBrackle: I think that that's right. I think you've heard a lot, probably, about EMV.
Sarah Gill, Reporter: Right.
Barrie VanBrackle:Which is basically just-- here in the United States, it's going to be chip and signature, which means, of course, that there's going to be now a lot more, probably, online fraud, because if everybody is to believed, the hacksters, the fraudsters, are now unable to duplicate transactions because of the EMV standard for card-present sales, so, they're heading online.
So, now that you put your unprotected card online, because EMV does not protect a card-not-present transaction, yes, there is more likely to be fraud online, and I think everybody's anticipating that.
It doesn't mean, I don't think, that people are going to stop shopping online. I mean, I certainly don't, and I could mention at least five retailers, off the bat, who have my information secured in their, hopefully, encrypted vault.
But it's there, and I, personally, don't want the inconvenience of re-entering my information every single time I want a book from Amazon. Okay, there you have one, right? Or, you know, something else that you buy every single day online, whatever it is. Do you want to go through that? Do you want to pull out your credit card every single day and re-enter it?
I would rather take the risk that that information is going to be stolen, versus the inconvenience. And that's something that you have to go through every day.
Sarah Gill, Reporter: Yeah.
Barrie VanBrackle: And I mean, every day, when you walk outside of your house, do you, you know, take the Metro and potentially get stuck in the tunnel, or do you walk to work? One's a lot more convenient, and, yes, there's a problem, there's maybe an issue that something will happen.
That is commerce, and that is 2015. I don't think that's going to change.
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