Big Moves in Payments

Lawmakers passed the GENIUS Act during “Crypto Week,” marking the first-ever U.S. regulatory framework for stablecoins. Meanwhile, Brazil’s popular Pix payment system is under scrutiny after the U.S. launched an investigation into potential bias against legacy card networks. PayPal debuted PayPal World, a cross-border wallet initiative connecting global digital wallets like Mercado Pago and Tenpay. And the phaseout of the penny could bring billions in rounding profits to U.S. retailers.

Welcome to Today in Payments, I’m your host, Patti Murphy, here with your weekly dose of payments notes.

GENIUS Act is Now Law

Lawmakers made good on their promise to pass crypto-oriented legislation during Crypto Week, July 14-17 in legislative working days, by passing the GENIUS Act. Genius stands for Guiding and Establishing National Innovation in U.S. Stablecoins. The legislation was signed into law on July 18.

The new law establishes the first-ever set of rules governing the U.S. stablecoin market. Stablecoins are digital assets pegged to instruments with fixed monetary value, such as the U.S. dollar.

Legislation that establishes specific regulatory assignments – the Clarity Act – is still pending.

Here’s what the GENIUS Act does: 

• Establishes concrete procedures for institutions seeking licenses to issue stablecoins.
• Sets reserve requirements.
• Establishes supervisory, examination and enforcement regimes for issuers.
• Sets up regulatory frameworks that rely on existing regulators to oversee depository institutions and nonbanks that issue more than $10 billion of stablecoins. The Federal Reserve has been tapped to create a regulatory framework for depository institutions that meet this threshold, while the Office of the Comptroller of the Currency’s framework will apply to nonbanks.
• Allows for state regulation of issuers with less than $10 billion in market capitalization, and a waiver process for issuers exceeding the threshold to remain state-regulated.

“The passing of the GENIUS Act is a defining moment for the stablecoin ecosystem – not because it signals that regulation is coming, but because it finally begins to clarify how stablecoins will be treated as part of the financial system,” said Yi Luo, founder and CEO of Eunice, which has been building a stablecoin compliance platform.

It’s also a step in the direction of making the U.S. the crypto capital of the world – a goal established by President Trump.

AmEx CEO Steve Squeri told investors during an earnings call said he sees stablecoins replacing rails like the ACH and wires, but not necessarily card payments.

Do Card Brands Want Brazil to Nix Pix?

One of the world’s biggest financial technology success stories is Brazil’s instant payment system Pix.

Launched by Brazil’s central bank in 2020 as an alternative to slower interbank transfers that charged consumers a fee, Pix caught on quickly. It now accounts for nearly half of Brazil’s financial transactions by volume and is used by about 76% of the population, rich and poor alike, according to the central bank. And it accounts for about half of Brazil’s financial transactions by volume.

Pix is universally loved by Brazilians for offering instant, easy payments, primarily via mobile phones.

Merchants love it for the low charges – typically about 22 bps, compared to 1% for debit cards and 2% for credit cards. And it’s free to consumers. The payment tool, has more than 70 million Brazilians into the financial system for the first time, according to reporting by the Financial Times

The Pix success story has not been a success story for everyone, however. And that has led President Donald Trump to order a probe into whether the network discriminates against legacy payment networks, like Visa and Mastercard. 

And that has the card brands worried. A study by Brazilian payments firm Ebanx last September predicted Pix could surpass credit cards as the main payment system for ecommerce, the Financial Times reports.

Now the Office of the United States Trade Representative has initiated an investigation into whether the Brazilian government is tipping the scales against Visa and Mastercard, among other things. The USTR, in a July 15 statement suggested Brazil may be undermining “the competitiveness of U.S. companies.” While Visa and Mastercard are not mentioned specifically, reading between lines it seems pretty obvious.

News of the investigation was met with ire, with some Brazilian politicians asserting the probe was motivated due to lobbying by Visa and Mastercard.

PayPal Unveils Global Wallet

PayPal has taken the wraps off a series of new partnerships that will connect many of the largest payment systems and digital wallets worldwide on a single platform. Ie: cross-border payments platform.

Not surprisingly, first up is interoperability with PayPal and Venmo. Others on the list are in Asia and Latin America. Eg: Mercado Pago (Latin America) and Tenpay Global (China).

International shopping and money transfers can be a real headache. While digital wallets and payments have become a preferred payment method in many markets domestically, consumers still need an international payment method when they shop with overseas merchants. Enter PayPal World.

With no additional integration, PayPal World will connect millions of businesses to digital payment systems and wallet users worldwide, starting with PayPal and Venmo, with others to come. For example, Mercado Pago

It will leverage open commerce APIs, to solve the complexity of cross border commerce with a cloud native, multi-region deployment architecture to ensure low latency and high availability worldwide.

Getting Rid of Pennies Will be a Boon to Retailers

Most listeners, I suspect, have heard that the U.S. Treasury will soon stop the production of pennies. And for good reason. The cost to mint and distribute a single penny is 3.69 cents, according to Treasury calculations.

But here’s the thing: as pennies are removed businesses can be expected to round cash transactions to the nearest 5 cents, resulting in what researchers at the Richmond Federal Reserve  have dubbed a “rounding tax” of about $6 billion a year. That’s money that will flow directly into retailers’ coffers.

That’s all for Today in Payments. Stay tuned for your weekly dose of payments notes.