NMI’s executive team discusses accelerating regulatory complexity and other predictions for 2024 in Payments 2024: NMI Executive Predictions and Insights for the Year Ahead.
With payments becoming more digitized each year, governments worldwide are trying to determine the best way to regulate the industry and protect customer interests. Over the next two years, lawmakers aim to strengthen consumer protections with new compliance regulations around data privacy and fee structures.
While changes to government mandates could improve security (and competition), new laws and regulations would drastically change the payments landscape. Payment providers — such as independent sales organizations (ISOs) and software providers offering payments — will need to adapt their products and services to stay compliant, competitive and profitable.
For merchants, this increasing complexity represents a new point of friction. To help, providers should educate merchants on these new rules as they emerge or, preferably, manage them for the merchant altogether.
Pending Legislation in the U.S. and Europe Will Move Forward
The rapid growth of digital payments has created a regulatory vacuum. Laws and frameworks are still catching up to new consumer behaviors, business models and threats. In 2024, merchants and payment providers can expect new compliance initiatives to emerge, with some pending legislation moving forward or coming into effect.
Data privacy is one of the top concerns for regulators. The California Consumer Privacy Act (CCPA) may be enforced in the spring and is already functioning as a model for other states. Meanwhile, the European Union’s General Data Privacy Regulation (GDPR) is set to undergo its first major review by May 25th, 2024. By some estimates, 75% of the world’s population will have some form of data privacy regulations by the end of the year.
Regulators in the United States are also honing in on credit card fees. While the U.S. payments industry dodged a vote on the Credit Card Competition Act (CCCA) in 2023, its bipartisan sponsors are not giving up. If the CCCA were to pass, issuing banks would have to offer multiple card networks for transaction settlement. In 2024, expect industry groups hoping to increase competition and reduce fees to continue the fight. However, if the impact of 2010’s Dodd-Frank Act is any indication, the CCCA could be disruptive, especially for loyalty programs.
Guiding Merchants Through Regulatory Compliance Will Help Payment Providers Differentiate Themselves
As new payments compliance regulations become more complex, merchants will look for partners that can minimize the time, money and thought they must put into it. “Compliance-as-a-service” is a growing opportunity for providers to stand out and streamline the merchant experience.
“While these regulations are aimed at enhancing consumer protection and cybersecurity, unpacking them with minimal friction will separate the merchant services front runners,” said NMI Chief Product Officer Tiffany Johnson. “Choosing a partner that optimizes compliance and experience will be key for merchants in this evolving regulatory landscape.”
Transparency Will Become a More Important Topic
Payments regulations aim to protect consumers. Better transparency into how, where and when data is used will be critical in 2024.
“Transparency and context for the consumer will become extremely important, namely on the banking sides,” said NMI Chief Strategy Officer Kate Hampton. “The U.S. ecosystem is very fragmented, and the consumer has to piece together a picture from multiple sources. We need to start improving that as an industry, both for the good of consumers and because regulation will only get tighter and tighter.”
As payments digitize further and consumers become more aware of data security concerns, tighter EU-style regulation will eventually enter the U.S. market. Even without legislation, transparency builds trust; 2024 will be the perfect year for payment companies to develop strategies to maximize that all-important resource.
For more 2024 predictions from the NMI executive team, download Payments 2024: NMI Executive Predictions and Insights for the Year Ahead.
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