The Evolution of the Payments Ecosystem: A Recap of the Panel “Payments Link: Rails, Platforms and Deals” at the 2021 Business Law Virtual Section Annual Meeting

Despite the existence of a global pandemic that we continue to navigate, the payments ecosystem is experiencing robust growth, amplifying certain trends such as shifting to omnichannel and contactless payments. We are seeing disruption across the payments ecosystem as new competitors enter the fray and scale up and new business models emerge. The pandemic has led to a surge in e-commerce, including transactions on “marketplaces”—online sites that match buyers and third-party sellers. Previously, it was primarily brick-and-mortar merchants who entered e-commerce through online platforms.

The development of new payment technologies, such as peer-to-peer payment technologies and contactless payment technologies, shows the payments ecosystem has evolved to provide an expanded set of point-of-sale payments options for consumers. The payments ecosystem is leveraging improvements in technology to adapt to consumer demand for speed and convenience, as well as for “touchless” aspects that make such technology desirable for consumers to use at point-of-sale during a pandemic.

The panel “Payments Link: Rails, Platforms, and Deals,” held virtually on September 22, 2021, as part of the 2021 Business Law Virtual Section Annual Meeting, shed light on the aforementioned issues by featuring a discussion on the current payments landscape and key considerations for merchants and consumers with respect to their preferred payment methods. The speakers on the panel were:

• Judy Mok, Partner at Ballard Spahr (moderator)
• Tracy Cheney, General Counsel of Early Warning Services
• Lisa Detig, Vice President & Associate General Counsel Americas at Match Group, LLC
• Ryan Richardson, Lead Global Partnerships Counsel at Stripe Inc.
• Ling Ling Ang, Associate Director at NERA Economic Consulting

This program is currently available as an ABA on-demand CLE on the ABA website.

In this panel, Ling Ling Ang highlighted recent (at the time) antitrust developments related to the payments ecosystem, such as the termination of Visa’s proposed acquisition of Plaid following a suit filed by the U.S. Department of Justice; Square, Inc.’s acquisition of Afterpay; and the filing of Camp Grounds Coffee, LLC et al. v. Visa, Inc. et al. Interest in antitrust in financial services at the federal level is demonstrated by the U.S. Department of Justice’s newly established Financial Services, Fintech, and Banking Section, along with the July 9, 2021, Executive Order on Promoting Competition in the American Economy. Antitrust considerations in payments include the effects of vertical mergers, the role of platforms, digitization, and consumer welfare. The panel discussed how the evolution of payments ecosystems appears to call for additional critical legal and economic analysis, likely applying novel models and techniques.

There was an in-depth discussion on Zelle, a peer-to-peer payment solution provider and how it works. Tracy Cheney provided basic statistics about Zelle in terms of volume and participants. Cheney discussed how the money movement flows with Zelle, its distribution channels, and integration with settlement rails such as Visa, Mastercard, ACH, and RTP. Cheney also highlighted some payment opportunities using Zelle, including:

• Person-to-Person Payments (P2P): paying a babysitter, a mom sending emergency money to a kid at college, or paying a friend back for purchasing concert tickets
• Consumer-to-Business Payments (C2B): paying for general services around the house, such as landscaping or cleaning; paying rent; paying a personal trainer or groomer
• Business-to-Consumer Payments (B2C): insurance companies disbursing insurance proceeds to a homeowner, an employer reimbursing employees for travel and expenses, a class action administrator disbursing a settlement pool

Cheney also discussed the Zelle Network’s governance structure.

Ryan Richardson discussed the flow of data and funds in the payment system, and Stripe’s role in the payment system. This role differs country to country: “Stripe is an acquirer in most of the European Union and the United Kingdom, Hong Kong, Singapore, and many parts of Asia, but in the United States and some other markets, [Stripe] is not a direct or a principal member of the payment system.” He also discussed other services Stripe provides to its customers, including business analytics services.

The panel also discussed the rise of other payment options, including card not present transactions and buy now, pay later (BNPL) programs (the latter of which may be offered in both online and in-store channels), which is consistent with payment methods having evolved to address pain points in the way customers shop and pay online. Judy Mok discussed how millennials make up a substantial portion of the customer base for BNPL programs because these types of programs tend to appeal to younger consumers who may be wary of credit cards. Traditional financial services players and Silicon Valley giants alike are trying to enter this line of business that fintechs have pioneered. Some recent examples include Comenity Bank’s acquisition of Bread and Apple Inc. and Goldman Sachs’s entry into the BNPL space, along with Square, Inc.’s acquisition of Afterpay.

The panel discussed how, for merchants to offer payment solutions that are attractive to consumers (whether on the acceptance or issuance side), merchants must enter into commercial agreements with payments solution providers (whether such a provider is a financial institution, a fintech partner or some other third-party provider) to provide such offerings to their customers. Lisa Detig spoke about procurement processes for and considerations of merchants in strategic payments arrangements. Considerations include information security and data privacy, the long-term nature of the partnerships, and potential evolution in the payments landscape.

Panelists shared legal contractual considerations for merchants looking to enter strategic partnership arrangements in the payments space. The panel also discussed allocation of risk in the payment world including liability for unauthorized transactions, misdirected payments, and scams.