A breakdown of the latest payments industry developments, from interchange-reward connections and Square’s new loan product to stablecoin legislation and MoonPay’s latest acquisition.
Welcome to Today in Payments. I’m your host, Patti Murphy, bringing you your daily dose of payments insights.
Fed Data Reveals Link Between Credit Card Rewards and Interchange
New research from the Federal Reserve Bank of New York highlights the strong correlation between credit card rewards and interchange fees.
The report examines the scale of rewards programs and their direct connection to interchange income, stating, “Rewards expenses are covered by banks’ interchange income.” The research analyzed 330 million credit card accounts from the 20 largest banks, representing 90% of U.S. credit card lending. In 2023, rewards from the six largest issuers totaled a massive $67.9 billion, with most of that amount recouped through interchange.
On average, interchange income accounts for 1.82% of purchase volume, while reward costs stand at 1.57%. Researchers found that banks pass on 86% of interchange income as rewards to cardholders.
This data is timely, as a bipartisan group of lawmakers, led by Senator Dick Durbin, is preparing to reintroduce the Credit Card Competition Act. This bill, which previously failed to pass, aims to lower interchange costs by allowing merchants to choose the networks for processing transactions.
Square’s Cash App Expands into Consumer Lending
Block, the parent company of Square and Square Financial Services, has received approval from the FDIC to launch a consumer loan product called Cash App Borrow.
As the name suggests, this loan product will be available to Cash App users, offering a lower-cost alternative to payday loans and overdraft fees. Square Financial Services already provides business loans and interest-bearing savings accounts, with the average business loan amounting to $10,000, repaid through daily sales percentages, similar to a merchant cash advance.
Now, the company is expanding into consumer loans. Cash App Borrow is designed to help consumers manage short-term cash flow needs. Block has already been offering short-term credit through an external bank partner, originating nearly $9 billion in loans in 2024, with an average loan size of under $100 and a one-month repayment period.
Senate Advances Stablecoin Regulation with the GENIUS Act
The U.S. Senate Banking Committee has approved a bill to regulate stablecoins, a type of cryptocurrency pegged to stable assets like the U.S. dollar.
Named the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, the bill was introduced by Senator Tim Scott, a South Carolina Republican who chairs the Banking Committee. While it still requires full Senate approval, similar legislation is pending in the U.S. House.
Merchant groups, including the Merchants Payments Coalition and the Payment Choice Coalition, have voiced support for the GENIUS Act, citing its potential to create a more competitive payments landscape.
MoonPay Acquires Iron to Expand Stablecoin Infrastructure
MoonPay, a leading crypto payments company, has acquired Iron, a startup specializing in API-driven stablecoin infrastructure.
According to CNBC, this acquisition will enhance MoonPay’s ability to offer businesses fast, cost-effective, borderless stablecoin transactions. MoonPay already facilitates crypto transactions through traditional payment methods like debit cards, bank accounts, PayPal, Venmo, Apple Pay, and Google Pay. With the integration of Iron, businesses will now be able to accept stablecoin payments more efficiently.
Final Thoughts
That’s it for Today in Payments! Stay tuned every weekday for the latest updates on payments trends, regulations, and innovations.
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