Digital Dollars and Legal Drama

Next week is Crypto Week in Congress, with votes expected on stablecoin legislation and a bill to block CBDCs. Meanwhile, Apple, Visa, and Mastercard win in court, and the Treasury gets flooded with advice on how to finally ditch paper checks.

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

Next Week is Crypto Week in Congress

Next week – July 14–18, in legislative days – has been declared Crypto Week in Congress.

The plan is for the House to vote on the GENIUS Act – legislation passed by the U.S. Senate to establish a regulatory framework for stablecoins – as well as a similar bill, the CLARITY Act – a House bill which mirrors closely the GENIUS Act. President Trump has said he wants the House to pass the GENIUS Act as is.

Both bills have been hotly contested by Democrats. Senator Elizabeth Warren is the most vocal opponent, suggesting the legislation would “open a back door to destroy securities laws.” She pointed to the CLARITY Act, asserting that it includes language “that would allow non-crypto companies to tokenize their assets to evade the SEC’s regulations.”
She explained, “Under the House bill, a publicly traded company like Meta or Tesla could simply decide to put its stock on the blockchain and POOF! it would escape all SEC regulation.”

Also to be considered next week will be the Anti-CBDC Surveillance State Act, which aims to curb potential privacy concerns and surveillance risks associated with Central Bank Digital Currencies, which are digital forms of a country’s official currency. CBDCs are not part of the U.S. payments structure, so this is a bit of a preemptive move. It aims to establish safeguards against the misuse of personal data and the potential for CBDCs to be used as tools for mass surveillance.

“We are taking historic steps to ensure the United States remains the world’s leader in innovation, and I look forward to ‘Crypto Week’ in the House. After years of dedicated work in Congress on digital assets, we are advancing landmark legislation to establish a clear regulatory framework for digital assets that safeguards consumers and investors, provides rules for the issuance and operation of dollar-backed payment stablecoins, and permanently blocks the creation of a Central Bank Digital Currency (CBDC) to safeguard Americans’ financial privacy,” said Rep. Hill.

How large is the stablecoin market, really?

There have been a lot of numbers thrown around about the size of the stablecoin market. But what is it, really? As I reported last week, Zach Abrams, co-founder of stablecoin platform Bridge, which recently was acquired by Stripe, estimated the current market capitalization of stablecoins to be $400 billion. “That could easily grow to $2 trillion by 2028,” he added. As of July, the market capitalization of Visa and Mastercard combined was $1.22 trillion. But the number crunchers and analysts at JPMorgan Chase think Abrams and others who have offered similarly optimistic projections are way off. They just issued a forecast putting the current stablecoin market at about $15 billion and suggesting stablecoin growth will only reach $500 billion by 2028. Trillion-dollar projections are “far too optimistic,” they insisted.

A Court Win for Apple, Visa, and Mastercard

A U.S. District Court judge in Illinois has dismissed a lawsuit accusing Mastercard and Visa of conspiring with Apple to suppress network competition and causing merchants to pay inflated prices for processing transactions.

District Court Judge David Dugan ruled that the merchants hadn’t provided enough evidence to support their claim that Apple illegally declined to launch a competing payment network to rival Visa and Mastercard. He said they only presented a “slew of circumstantial allegations,” but gave them the option to amend their lawsuit to strengthen their claims, according to published reports.

Apple launched Apple Pay as a mobile payment feature in 2014. The app allows users to store card information and make purchases at businesses that support the Apple platform.

Retailer Mirage Wine and Spirits led the lawsuit, a class action, which reportedly included thousands of other merchants. The lawsuit alleged Visa and Mastercard paid “ongoing cash bribes” that amounted to hundreds of millions of dollars a year to keep Apple from competing with them. Visa and Mastercard denied the claims and countered that their agreements with Apple expressly preserved the right for the company to compete with them. Apple claimed it never had any plans to enter the payments network market and compete with Visa and Mastercard.

Feds Get Plenty of Advice on Switching Away from Checks

President Trump signed an Executive Order earlier this year mandating that the U.S. Treasury start phasing out checks, beginning Sept. 30.

It’s an ambitious undertaking. We’re talking about $175 billion in checks that go out to Social Security recipients, vendors, and others. But the savings could be significant. Processing a paper check costs the government $1.05 per item, compared to less than a dime for digital payments, according to a survey by PYMNTS.com. Then there are the potential for fraud and speed. It can take up to 5 days to clear a check; instant payments are, well, instant.

Treasury received hundreds of letters in response to a request for comments relating ways the switch could be made, as well as a few that urged to the contrary. Many of the comments came with expected recommendations considering the authors.

• NACHA, for example, touted the benefits of using the ACH,
• The card brands pitched their networks and products,
• The Clearing House put forth the idea of using RTP, the real-time network,
• Several banking groups agreed RTP, or FedNow, the Fed’s real-time network, would be the way to go, and
• Representatives of retailers used the comment opportunity to push for Fed adoption of new, lower debit card interchange. Something that has been pending for more than a year.

I’m still reviewing the hundreds of comment letters. But I have to say the one I found most interesting came from Early Warning Services. EWS, which is owned by many of the largest banks in the country, suggested the government use its network Zelle.

It touted Zelle as affording “near-instant delivery” of funds, and having “lower fraud rates than checks, ACH, and card-based systems.”

But here’s the thing: three of the largest banks, and owners of EWS, were sued last year by the Consumer Financial Protection Bureau for failing to adequately protect Zelle customers from financial fraud and scams. The consumer watchdog agency blamed the lapses on Zelle’s rush to compete with Venmo.

The lawsuit has since been dropped by the Trump Administration, but that by no means suggests the issue is dead. Ranking Democrats on the House and Senate committees with oversight for banking, as well as the Senate Subcommittee on Investigations, just sent a letter to Zelle demanding to know what it’s doing to track and stop social media scams that use the network to bilk Americans.

JPMorgan Chase has already begun to block Zelle payments originating from social media sites, on the assumption that social media is a hotbed of scams.

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