Debit Rails Go Green

This week’s Today in Payments covers Fiserv opening its debit network to cannabis shops, state AGs pressing payments firms on deepfake porn, slowing credit card growth as debit and BNPL rise, and small businesses embracing embedded payments.

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

Fiserv Says Yes to Pot Shops

The big news this week comes from Fiserv. The Milwaukee-based fintech and leading acquirer has opened its Accel debit card network for purchases at cannabis dispensaries.

Cannabis is an industry bursting with cash, largely due to federal law that classifies it as a dangerous drug and card brand rules that prohibit the processing of cannabis purchases on their networks. Last year, consumers spent an estimated $15.2 billion at state-authorized retail pot shops. By 2028, the estimated spend could reach $171 billion, according to MJBiz, a media and events company focused on the cannabis industry.

There have been numerous one-off solutions to the prohibitions around running pot shop sales through the Visa and Mastercard networks. These include prepaid cards, digital wallets and cashless ATMs. All have been stymied, however, by financial institutions and the card brands.

About 3 dozen states have legalized recreational use and/or medicinal uses of cannabis. About a half dozen have decriminalized possession of weed.

Fiserv has decided it’s time to get into the action with a solution that avoids Visa and Mastercard prohibitions, and stays true to state laws. Cardholders within the Accel network can now make card-present, PIN-based mag-stripe purchases at cannabis dispensaries in states where cannabis sales are legal, explained Carol Specogna, senior vice president, network business at Fiserv.

3,100 financial institutions participate on Accel, which serves an estimated 3 million merchant locations.

Fiserv is also partnering with financial institutions participating on Accel to support issuance and use of debit cards to licensed pot shops. The solution enables these businesses to transact securely over the Accel debit rails and helps financial institutions diversify their portfolios by expanding into this emerging market, a Fiserv executive explained to me in an email exchange. The only caveat: cards issued to dispensaries cannot be used to purchase cannabis.

State AGs Seek Payments Companies Help in Fighting Deepfake Porn

Attorneys general of 44 states have written payments companies seeking help in reining in computer-generated nonconsensual intimate imagery (NII), commonly known as deepfake pornography, or revenge porn. 

Apparently, these computer-generated images “have increasingly been used to embarrass, intimidate, and exploit people around the world, including notable cases involving celebrities like Taylor Swift, as well as school-aged young people in the United States and worldwide,” according to the AGs letter

The letter, issued by the National Association of Attorneys General was sent to the legal counsels of Visa, Mastercard, American Express, PayPal, Google Pay and Apple Pay. It asks the companies what they are doing to ferret out deepfake tools and content, “if at all.” They also were asked for commitments to not be “complicit in the creation and spread of NCII,” such as by allowing them access to authorization and payment processes.

“Payment platforms typically have terms of service and acceptable use policies that prohibit the use of their services in connection with harmful content. At times, payment platforms have taken action to remove the ability for sellers to accept payment for other services related to harmful content,” the letter noted. “We ask that payment platforms direct their attention to the threat of deepfake NCII and work to ensure they enforce their policies and avoid playing any role in allowing people to profit from deepfake NCII,” the AGs wrote.

Letters were also sent to the 3 search engine companies.

I reached out to Mastercard. A spokesman suggested in an email that his company is on the same page as the AGs. “We have zero tolerance for unlawful activity on our network. When we see or are made aware of specific instances of such activity, we investigate the allegations and take action to ensure compliance with both local laws and our rules and standards,” the spokesman wrote.

Credit Card Spending Growth Slows, Debit Cards, BNPL picking up the slack 

I’ve come across several articles and press releases that suggest consumers are dialing down their use of credit cards, after a pandemic-related surge that pushed balances above $1 trillion.

An article in the Wall Street Journal reports that credit card spending is growing more slowly than debit-card spending for the first time in 4 years, when credit card spending grew 7 times as fast as debit card spending.

The experts interviewed noted that household budgets are under pressure on several fronts, from the resumption of student loan payments to higher credit-card interest rates, which could explain the trepidation. Based on data from Mastercard and Visa, debit card spending rose 6.57% during the first six months of the year. Credit card spending rose 5.5%

In addition to the debit card bump, buy now pay later has “exploded among consumers,” the Journal reported. That’s good news for the Swedish BNPL firm Klarna, which is planning an IPO this fall with a listing on the NYSE. The company is expecting to raise up to $14 billion.

The BNPL market was valued at $18.02 billion in 2023 and is projected to grow to $60 billion by 2035. Ecommerce is seen as a major contributor to that growth trajectory.

Klarna had been planning an IPO in April, but backed off due to concerns over tariffs. Klarna executives have said they aim to become a formidable player in the banking space. It offers money management solutions, including savings accounts and a debit card. The company has said it will differentiate itself from traditional banks with perks like cash-back services and real-time debit payouts.

Small Businesses Say Yes to Embedded Payments

An article published last week on PYMNTS.com suggests small businesses are a lot more financially sophisticated than many may give them credit for. 

According to a report PYMNTS collaborated on with Worldpay 9 out of 10 businesses view access to embedded financial products as critical to their operations. Accounting departments “are leaning into these tools to reduce friction in daily workflows and sharpen their influence over business strategy,” the article noted.

That’s an impressive trend. But here’s a number that really caught my attention: the accounting teams at 37% of small and microbusinesses said they were highly likely to switch to a payment provider that offered embedded lending. 

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