CFO Chapter 8: New payment regulations

What is it that excites us about technology? One thing for certain is that we all love its ability to modernise, incite change and move things forward. While this is the massive allure of technology for users, it is a constant headache for those concerned with laws and regulations.

After all, laws and regulations must be crafted carefully to cover every eventuality. At the same time, they must also not infringe too harshly on items and actions which public opinion holds in high esteem. This is difficult to achieve when creating rules relating to ever-evolving technology. From the Communications Decency Act (1996) stating that platforms should not be held liable for what users post, to it still being unclear whether scraping of online images infringes copyright when training AI image-generator tools such as Stable Diffusion, regulations are infamous for only coming into existence after technology has already made its mark on society.

The payments industry is one of the most innovative in the world having gained a reputation for churning out new technology on a regular basis. It is also of great monetary importance both in terms of value (the global digital payment market was valued at $104.94 billion in 2022) and also by the very fact that every day $2 billion is transacted every day via mobile money accounts alone. Undeniably, the payments industry therefore requires regulation and is tricky to keep up with.

For better or for worse – depending on an individual’s views – regulations are now starting to catch up with the technology of the payments sector. Many are already in place like Strong Customer Authentication and Anti-Money Laundering Directives but inevitably, more are still to come. In this CFO Chapter, we will therefore develop a foolproof strategy for those concerned with payments to cultivate a positive relationship with regulations which might have knock-on effects on their business.

Payments and regulations – the story so far

Payments technology is constantly pushing the boundaries and on the surface of things benefitting customers. However, it has often been the case that innovations take place without regulations being adhered to fully, or even created in the first place. As a result, whilst payments technology regularly puts new innovations such as SumUp Tap in the hands of individuals, it doesn’t always mean that users are well protected against the likes of fraud.

For example, as recently as March 2023, the FCA wrote to the CEOs of 300 payments companies to exclaim that they believed customers were being placed at “unacceptable risk” due to their malpractice. Whilst this might have been shocking for some, millions continue to use payments tech. Arguably, their appeal has been driven due to not being strictly regulated. Without such restrictions, they have been able to create solutions which people will not part with no matter what. In fact, despite 69% of people digital payment users being concerned with security issues, 79% of them continue to use payment platforms at least once a month.

Whilst compliance with regulations therefore does not appear to be of concern to immediate users, it should be for organisations who interact with such services. After all, if they employ payments technology which places customers at risk, they too will be highly scrutinised. As a result, CFOs of e-commerce sites, of businesses which use POS terminals, and more must all be mindful of how payments regulations can impact their core business and their providers.

How to befriend any regulation

Although it is understandable that the some payment firms are warning against “heavy-handed” regulations, CFOs should be looking to partner with those who embrace their implementation. This is because regulations are frequently implemented to benefit users. As a result, leaning into compliance produces an opportunity for competitive advantage. With this in mind, here’s how CFOs can direct their company to be compliant with the right payment partners and keeps their customers onboard:

Keep up to date with changes

Just like how regulations struggle to keep up with the developments within the payments industry, it can be equally tricky to stay informed of all the changes that new regulations bring. This is unlikely to be due to the rate at which they are generated but more due to their detail and size. After all, due to regulations usually being generated months or even years after the technology has been developed, when they do eventually arise, they will have a lot of topics to cover.

To simplify understanding of new regulations so that companies don’t drag their feet on adapting to them, tracking their creation is the best way. Insider knowledge is always helpful but not always accessible. Fortunately, for some media outlets, it is their job to be aware. In terms of payment regulations, some of the best to follow and be informed by are:

·      Regulation Tomorrow

·      UK Finance

·      PaymentEye

Be prepared for change

Having operated in one for way for so long, when regulations do arise, payment companies and those who employ their services could experience turmoil. This could either be due to having to completely overhaul their operations, or failing to do so and being fined accordingly. Neither option is desirable and neither has to be chosen.

Instead, firms can be prepared in advance for change so that they don’t have to radically pivot their operations. Achieving this when not knowing for certain what is round the corner in terms of new regulations is easier said than done but the following actions will put you in good stead:‍

• ‍Maintain high standards when it comes to the likes of fraud prevention, audits and reconciliation. Typically these are responsibilities which are impacted by changes in payments regulations. Consistently revisiting their status and taking the initiative to improve them whenever possible – even before regulations make doing so mandatory – is a great way to make the jump to meet new regulations not so large.
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• ‍Manage your resources wisely. Pumping extra money or personnel into initiatives simply to comply with new regulations might not be the most exciting way to pivot but it is necessary at times. Whilst other initiatives can be postponed, compliance with regulations cannot. As a result, CFOs and other business leaders must be mindful of what resources they have available should new payment regulations arise so that they don’t fall foul.

Spread the word

Knowing of and preparing for new regulations are vital to acting on the changes they might usher in; however, for long-term compliance, another step must not be missed – informing the correct individuals of relevant changes.

Typically, new payment regulations could impact the following professionals within an organisation:

• Payments Processor
• Accountant
• Fraud Analyst
• Reconciliation Officer
• Payment Partnership Manager
• Auditor

Whilst communication to these groups is very important, so too is how. A simple initial message or meeting on the topic of new regulations is a good place to start but in reality, something more lasting is likely to be required. As a result, just like how regulations come with their own documentation, internal communication about them should too.

In contrast to the original regulation documentation, any internal literature should be tailored specifically to what is relevant to an organisation. This will streamline regulation and automatically make it more accessible. Although creating such documentation sounds time-consuming, it will certainly save time in the long run. Moreover, thanks to AI tools like Scribe which are purpose built to condense documentation, the benefits of such an exercise can now be claimed in record speed.

New regulations on the horizon

Hopefully this latest CFO Chapter has highlighted why keeping up with new payment regulations is important and how to achieve that. To make things even easier, here are some to be aware of in the not so distant future:‍

• ‍Payments System Regulator imposes changes to APP fraud reimbursement
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  Authorised Push Payment Fraud accrued £485.2 million in 2022. Come 2024, banks, PSPs and other firms that use the UK’s Faster Payments network will have to split the cost of reimbursing victims.
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• Payment Services Directive 2 to tackle the problem of tax‍
  
  Tax infrastructure is playing catch-up when it comes to cross-border transactions. The EU are rectifying this with introduction of PSD2 in January 2024, placing responsibility on PSPs to keep records of cross-border transactions for at least 3 years.
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• IRS to shake up Payment Apps Tax
  
  When the 2024 tax year commences in America, new taxes will come into force for purchases over $600 made via any third-party settlement organisation such as PayPal or Venmo having a knock-on effect on other businesses.
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• UK government weighing up overhauling the Payments Services Regulations
  
  ‍Following Brexit, the UK government has the ability to alter laws and regulations which it adopted from the EU such as the European Payment Services Directive. Consultations have taken place on amendments and changes seem inevitable.

Stay regular on your regulations

Regulations don’t like discrepancies. That’s why being “regular” is the aim of the game. Regularly check for any changes in compliance rules, regularly seek ways to improve your reconciliation, audit trails and fraud prevention, and – most importantly – ensure you operate in a regular manner.

The next chapter

One final regular tip which will help you excel with payments and more is to regularly check back to the CFO Chapters. In next month’s issue you will find top tips on how to optimise your recruitment process in order to fulfil the new skillsets which today’s finance professionals require. Find out more about the next chapter here.