The Payments Experts Podcast
Expert payments attorneys discuss the electronic payments industry from a legal perspective.
The Payments Experts Podcast
ATMs to AI: The Complex Landscape of Real-Time Payments and Reg Changes with Patti Murphy | PEP050
From ATMs so novel they didn't even have a name to AI-powered payment systems that can take your order perfectly—the payments landscape has transformed dramatically since the 1970s. Joining Chris Dryden on the Payments Experts Podcast today is Patti Murphy, the "Payments Maven of the Fourth Estate," whose four-decade journey covering payment technology offers a unique perspective on how far we've come and where we're headed.
• Beginning her payments career in 1977 editing an EFT examination handbook when ATMs were so new they didn't even have that name
• Discussing current CFPB changes under the new administration, including regulations affecting big tech payment apps handling $13 trillion annually
• Explaining how real-time payments differ from services like Venmo and Zelle, which appear instant but process through traditional channels
• Exploring Durbin 2.0 and its requirements that merchants have choice of networks, with only one owned by Visa or Mastercard
• Examining Illinois' groundbreaking payment regulation and how 20 other states are developing similar legislation
• Looking at the evolution of ISOs through partnerships with software vendors and adoption of AI technology
• Highlighting innovative payment technologies including AI-powered ordering systems and SKU management for small retailers
Patti shares fascinating insights about her early days editing an EFT examination handbook in 1977, witnessing the birth of electronic payments when the technology was so revolutionary that people joked about "a hand sticking out of a television handing you money." That science fiction has become our everyday reality.
We dive deep into current regulatory challenges facing payment processors. The Consumer Financial Protection Bureau's changing role under different administrations has created a regulatory rollercoaster, particularly for big tech payment apps handling a staggering $13 trillion in annual transactions. Meanwhile, the Illinois legislation targeting card brands represents an unprecedented state-level challenge to payment networks—with 20 other states considering similar measures. Could this finally force federal action?
The conversation explores real-time payments and how they differ from services like Venmo that merely create the appearance of instant transfers. We unpack Durbin 2.0's potential impact on network competition, and how the Capital One acquisition of Discover adds a fascinating new dimension to the payments ecosystem.
For payment professionals, we examine how ISOs continue to evolve through partnerships with software vendors, combining sales expertise with technological innovation. The rise of AI-powered payment solutions—from automated ordering systems to comprehensive inventory management—represents both challenges and opportunities for industry veterans and newcomers alike.
Whether you're a payment professional, merchant, or simply fascinated by how money moves in our digital economy, this episode offers valuable perspective on an industry that, as Patti puts it, "is the engine that keeps the economy going." Subscribe now and join the conversation about the past, present, and future of payments!
**Matters discussed are all opinions and do not constitute legal advice. All events or likeness to real people and events is a coincidence.**
Visit us today: https://www.globallegallawfirm.com/
A payments podcast of Global Legal Law Firm
I would call that closed loop.
Speaker 2:Closed loop okay, and whereas Visa and MasterCard are not.
Speaker 1:Yeah, I just learned that distinction because somebody told me that Amex has a debit card and Amex came out and said, in the context of surcharging and Amex does indeed have a debit card. I just found this out.
Speaker 2:Yeah, I didn't know that.
Speaker 1:Only around since like 2023. It's a brand new thing found this out. Yeah, I didn't know that. Only around since like 2023. It's a brand new thing. But when we were talking to some people on the surcharging side in a particular industry, they were saying that at amex, all surcharges had to be uniform, even for debit cards, and I was like, oh, you can't, you can't surcharge debit cards, what are you talking about? It's like a direct violation of durbin. Amex is closed loop, durbin doesn't apply to it. Oh, wow, yeah, I just yeah, and I did. I had never made that distinction and I don't know, can't remember who it was that told me this, but I was really kind of blown away. Like, first said, amex had debit cards.
Speaker 2:I mean, I'm writing that one down.
Speaker 1:Yeah, totally. I was like could somebody verify that Cause I've never heard of that at all.
Speaker 3:Welcome to the Payments Experts Podcast, a podcast of Global Legal Law Firm. We hope you enjoy this episode. Very excited, We've got a remote podcast today In studio joining us founding and managing partner of the law firm, Christopher Dryden, as well as our special guest, we have Patty Murphy, who is the self-proclaimed payments maven of the fourth estate. Patty, we love having you on the podcast. This is the first time we've done one with you and Chris, so we're really looking forward to it.
Speaker 2:Thanks so much. I'm really excited about it. I know I did one with you early on, I think, but this is definitely the first I've done with Chris and it's the first. You've called me Payments Maven, the fourth of the state. That is definitely a self-proclaimed title, but, as I like to say to people, I understand this business better than anybody else who can write well.
Speaker 1:Well, I will tell you. You've been in it for a long time, so you know what's going on. It's always a pleasure to have you on, because you're a wealth of knowledge.
Speaker 2:Yeah, thank you, I appreciate that.
Speaker 1:It's well-deserved. So tell our listeners why are you the payments maven of the Fourth Estate?
Speaker 2:Well, I started writing about payments in the 1970s. It was like 77 maybe or thereabouts my very first job out of college. I was editing a handbook. I was working for a bank regulatory agency and I was editing a handbook for EFT examinations. That is great, it was so new at the time, they didn't even call ATMs ATMs.
Speaker 1:Yeah, it's crazy, right? I mean like you've seen it from day one almost.
Speaker 2:Yeah, yeah, yeah. And you know, and I did a lot of work After I left the government. I went into working covering the government, you know, covering the regulatory agencies, covering Congress, the Fed, congress, all the consumer protection laws, the EFT Act as it was implemented into regulations. You know, I saw, you know, the first ATM go into existence and the first networks come into existence. And you know, I remember interviewing a guy back in the late 70s and he said you know, this stuff is so incredible that one of these days you'll have everything except for a hand sticking out of a television handing you money.
Speaker 1:Yeah, it's so funny you say that. So I say this a lot around my home to the kids. But you know, I'm a cold war kid and the dynamic of the world that I grew up in, I mean even even you even more. So different right, but I'm being a cold war kid before. Really, technology jeremy's the same way, because we're the same age and it's crazy to me to think that things that you know I've always been, I been, I'm a big reader and I was, boringly enough, I was a philosophy of political theory major in college.
Speaker 2:I was journalism and political theory.
Speaker 1:And the thing I liked about it was this idea of kind of like seeing the context of humanity and how it related, know, not just individually but in groups, and then towards like a structure, like a, a cohesive structure of how people would associate with one another, and so I found that fascinating. But I also found writers really fascinating, so, like you know, orwell, aldous, huxley, right, and the things that they wrote about were so Isaac Asimov things like way in the in the future, things that were just thoughts about potentially what could happen, and then all of a sudden, you know I mean you would think that they were, like you know, often outer space and the stuff they wrote about we're seeing.
Speaker 1:Or or even like cloning right Human cloning Like, or even like cloning right, human cloning Right. You know I'm not a science. I can't say I'm very much of a science person. I mean I took science.
Speaker 2:Nor am I. I'm kind of dumb on science.
Speaker 1:But the fascination of it, like even you know, pop culture stuff, like Michael Crichton and the stuff that he wrote about in the 70s and 80s Maybe Jurassic World's real, who knows I mean like, but, but the fact is, is that we there's all these things that have taken place, and I, you know, I do a lot of trainings. I, you know, I consider myself a veteran of the industry, not like yourself, but enough of a veteran to know that there's. I'm not a techie, I don't have gadgets, I live kind of like a really quiet existence when I'm not at work outside of. Like you know, I don't. I don't care about phones and watches and all that other crap.
Speaker 2:People say to me where's your phone? I don't know.
Speaker 1:Yeah, me too. I turn mine off during the day most of the time, actually Just put it on silence. But I think it's fascinating for your perspective, cause when I do trainings at work, I always say it's a lot easier to know where we are because you, the way I like to explain it to people is let me tell you where we've come from, and you kind of take them along and sort of like the progression of things. Now, you know, I would say the last 10 years. It's just crazy, the progression Cause yeah, 10 years.
Speaker 2:It's just crazy the progression, because, oh yeah, I mean in 10 years we've gone a couple generations, you know. Oh, I agree with you I, I agree with you.
Speaker 1:I mean, uh, from the, from the advent of the actual, you know, payment terminal at the checkout where a cash register. Some sort of cash register software system could now interface with a terminal and take a card payment. You know, originally swipe, yeah it, and that's. We're not that far away from that, that wasn't that long ago.
Speaker 2:And I remember what it was like a big deal that you could swipe your um, your your product across a screen and have the price register. Yeah, totally.
Speaker 1:Totally no, it's funny. It's funny. And now with the intercompatibility and compatibility and integration. And you know, I find myself understanding things about technology because it's a requirement of my job to know how these things are working. So maybe I know more than I really give myself credit for. But you know, taking it from your context and seeing, you know where you've come from and basically being at the advent of the entire thing, I mean you're early at the genesis.
Speaker 2:I mean, I wrote, in fact, and back in the eighties they used to, instead of having magazines, they had newsletters, right? I mean they were these very high price newsletters that people like you would buy to find out what's the latest in regulations. I did the first newsletter on EFT, I mean, and now I look and it's like I still keep copies of it, you know, just for haha sake. So I could, you know, say, gee, look how far we've come, because in those days we used to literally run charts of how many POS devices can take a debit card.
Speaker 1:Yeah Well, you know it's funny because I look at even in my you know, I've been in a couple decades and when I look at ETA and its role, it's not a trade association any longer, even though it's what it started out as, as just kind of a way for people that were in this space, that were regional, to associate with one another. It's not like a heavy duty lobby group. I mean, think about this. I didn't even know this. I was on a podcast last week or a couple of weeks ago and I mentioned Jared Isaacman, because you know one of the things that he did at Harbor Touch when he came out with the POS to find stickiness I mean, that's only like 15 years ago and that was one of the things he gave his free terminals.
Speaker 1:That's what I'm saying, and so I look at a guy like that who kind of understood the marketplace and how to actually gain customer loyalty in a way to at least get them signed up, cause once a merchant account comes on, it hardly ever goes away. I mean, if it's not broke, don't fix it. And then, lo and behold, I actually checked into the news this past weekend because I was sick last week and I found out that he's been nominated to be the head of NASA and he's a fascinating guy. The reason that there's two things that I've always liked about Jared is that, a his in-house council everybody's in-househouse counsel, I generally feel is a reflection of the organization.
Speaker 1:Sure, his in-house counsel, jordan Frankel, has always been a fair, decent person every time that I've interacted with him and has actually given me substantive responses even if they weren't what I wanted to hear in a polite and professional way, right. But he was the one that told me about Jared's other business, which makes sense for the NASA thing, which was he bought and refurbished retired military aircraft and then sold it worldwide, which I thought was fascinating, like, I don't even know how you get into that business, Right, but you know I knew that he had that background as being a pilot and that he had done that and then somehow he had found his way into payments, but to have somebody fascinating like that. And then I saw that he went into space and did the spacewalk. But the NASA thing's kind of crazy.
Speaker 2:He didn't find his way into payments. He basically invented his way into payments. I mean, he started payments off like on his mother and father's kitchen table, practically, you know. I mean I think it was the basement actually. But you know, I mean I remember meeting Jared when he was like 20 years old and he was just, you know, outselling terminals, outselling you know. Well, actually, no, he had already formed the company, but he was still, you know, it was a small company, outselling merchant accounts, and you know, I was saying to friends when I saw that, I said, yeah, that guy that's going gonna be the head of nasa. I knew him when he was 21 yeah, and that's the thing and the.
Speaker 1:The thing I've appreciated about jared is I've met him a few times you might not remember it, but I do and I will tell you he's kind of the same guy every time that I've met him, regardless of his station in life. I don't think who he is really changes.
Speaker 2:He seems like a very. I watched his hearing, I watched him in the hearing and it was like, wow, he's still Jared, he's still the same guy, he doesn't age even.
Speaker 1:Kind of right. He looks good for his age for sure. So let's, you know, let's, like you know, I kind of have a tendency to tangent out, but yeah, same here.
Speaker 2:But let have a tendency to tangent out. But yeah, same here.
Speaker 1:But let's, let's let's talk about some some hop. Let's talk about cause. You kind of sit in a really focal place with everything, what's the? You know, what are kind of the things in the payment space that, uh, you've been up to these days and where, where, where's your focus been?
Speaker 2:Well, you know I've been, I I've been working with James Shepard a lot. You know we're doing, you know I do. I did a podcast with him for a long time. Now we have a. I have a a segment of his podcast called Today in Payments, which you know we update everybody on everything that's going on in the payment space and a big you know there's some really interesting stuff going on. For example, you know, every time you have a change in administration there's change in regulations, right I mean. So now of course, the Consumer Financial Protection Bureau has basically been eviscerated.
Speaker 2:Yeah, you know, I mean it's. You know, gone are the regulations for big tech payment apps. You know the uh, the, the caps on um, on um, late fees, uh, what's the other one? Um, oh, oh, buy now, pay later.
Speaker 1:Yeah well like unpack that first one, because I think the first one's really important that you mentioned. It's uh, there was some regulation that was coming out for big tech companies and and, uh, the cfpb has been a real driver when it comes to consumer protection and trying to make sure that the cardholders don't get taken advantage. We go back to the Wells Fargo scandals and whatnot, but talk about kind of what was up on up on the CFPB rule that related to that and how they were going to regulate big tech and then how it fell by the wayside.
Speaker 2:Yeah, well, so any company that had 50 million transactions, a big tech company that had 50 million consumer transactions a year. So you're talking PayPal Venmo, which is part of PayPal, right? Google Pay, apple Pay, amazon Square and eventually X. You know, all combined those payment apps were handling, I think the CFPB said, $13 trillion a year in consumer transactions, right, and what it wanted to do is it wanted to supervise those companies, those apps, the companies that own those apps.
Speaker 2:So supervising, as you probably know, is different from regulation. Okay, a regulator goes in and they pour over somebody's books. A supervisor makes sure that you abide by consumer protection laws. So, therefore, if somebody was, let's say, I don't know, apple or Google were making loans and they were redlining, for example, not giving loans to certain categories of consumers, well then the CFPB could go in there and say, okay, you know, slap them on the wrist, give them a fine, make them, you know, change their habits and go on. But probably the biggest problem that they were looking at was something called debanking, where an account would be closed out and the consumer would not have any access to that money and it would basically be sitting in a pot. And you know, cfpb was getting a lot of complaints about that, which is one of the reasons why it passed that law, passed that regulation Actually, yeah, it was a regulation, or I guess you would call it a regulation. It's a rule.
Speaker 1:They go through a rulemaking process. I mean, they're all regulations, yeah, but I think the official title is rule.
Speaker 2:Yeah, I think the official title is rule, thank you. And so you know. Number one you have to remember that CFPB was the brainchild of Elizabeth Warren and we all know how President Trump feels about Elizabeth Warren to begin with. So you know, of course, when Biden, you know so, the last time that Trump was in office, he basically castrated CFPB. They didn't do anything, they just kind of sat by the wayside. Biden comes in the office and he says, ok, everything that Elizabeth Warren wanted to do, we're going to push through. And what was interesting is that this rule about big tech payments was pushed through in December of 2014, basically in hopes that, you know, it was going to become effective on January 7th, and so the hope was that, you know, the rule would slip through and nobody would notice. Well, of course they noticed, you know.
Speaker 1:Yeah, there was a lot of that at the end of the administration. I mean, you know, I try to consider myself very middle of the road, yeah, but a politician's a politician, I don't really care what the letter is next to your name. Yeah, there's a lot of it that goes on. I mean, everybody wants to sit and villainize the other side, but I will tell you it not just that. I mean, uh, there were a lot of things that happened at the Biden administration that were kind of crazy, that non-business related, where you know they just did things that you know made no sense, even even even geopolitically. But but so the other one that I just found interesting that you threw up was, you know, probably the late fees has less meaning but buy now, pay later.
Speaker 2:Unpack that one. Buy now, pay later. That was a big one, yeah, yeah.
Speaker 1:Tell everyone about that one, because I think for our audience, that's one of those things that they really try to implement as maybe a ancillary product or service, you know, a value-added service that they can push out.
Speaker 2:I mean it's considered a form of payment really?
Speaker 1:Yeah, for sure.
Speaker 2:And so what CFPB was trying to do was say no, this is not really a form of payment, it's a form of loan and so it needs to be the credit. You know the consumer credit protection laws should apply to BNPL loans. And so that meant that you know you would have to do all kinds of disclosures and statements. I mean it was going to be a heavy duty workload for the BNPL folks, you know, because they were going to have to send out monthly statements. They were going to have to give out disclosures beforehand. They were going to have to give out disclosures later, if you're over. You know, if you were late on your payments, you had another set of disclosures.
Speaker 1:Was that going to be an omission of the four payment threshold, like they were?
Speaker 2:just going to get rid of-. Yeah, it was the four payment threshold. The four payment threshold was going to get rid of the four payment threshold. The four payment threshold was gonna was gonna be applied?
Speaker 1:yeah, well, but but still, if you were under four, you wouldn't have been subject to all that no, you're under four.
Speaker 2:You weren't going to be subject to it.
Speaker 1:It had to be four or more payments yeah, it's been a really active place because I I I saw it really find a foothold, maybe about even during the biden administration, maybe like three, four years ago. It felt like it was coming, and then I've seen less of it because it used to be an offering even that I would see for myself on my personal stuff, where I would oh you and me both. Yeah, and I haven't seen much of it recently. It's very interesting and maybe that was. Maybe that's why they went into hiding.
Speaker 2:They didn't know retroactively what it was going to look like what it was going to do and you know, and a lot of people that were doing it. What they found was a lot of people that were doing it with the people that were living paycheck to paycheck.
Speaker 1:Yeah, for sure it was another form of, I mean different types of goods. I would say like different types of purchases. But maybe not.
Speaker 2:I like I don't know, like I don't shop on Amazon, so I don't necessarily know if I do shop on Amazon a lot because I live out in the middle of nowhere and it I mean they'll, they'll, they'll offer me paying for for. Like you know, I buy a bunch of, uh, dog food. Let's say, you know you want to pay in for for your dog food. No, the dogs eat it too fast yeah.
Speaker 1:So and and that's that's an interesting part. Like I, I can't say I'm much of a consumer. It's one of those things where I'm not. Just look at me on any Saturday and you'll see I'm not much of a consumer, probably. So one of the things when we were getting together about hey, what do you want to talk about? Because you're a wealth of knowledge and you brought up real payment, real-time payment.
Speaker 2:Real-time payments. That's something I think a lot of people there's a lot of misunderstanding about. Real-time payment. Real-time payments that's something I think a lot of people there's a lot of misunderstanding about real-time payments.
Speaker 1:Well, I will tell you, I've never really like. You know, I I have the basic understanding of real-time payments, a basic understanding of the players, um, how, how it works, um right. But at the same time, I think that there is a lot of misunderstanding, and I think there's two things. One, tell us your impression of real-time payments, but tell us how card payments intersect with real-time payments, because I think that's maybe where people don't get the differentiation of a real-time payment and the card payment and how they kind of overlap with one another.
Speaker 2:Okay, so a real-time payment? First of all, what you have to understand is you know you have your Venmos and your Zells and they are advertised as real-time payments but they're not really real-time payments. It will give you and you know, if I send you, chris, $50 over Venmo, you'll get that $50 immediately. But it doesn't get taken out of my account for two or three days. It usually often will get taken out by the ACH or it may be used on one of the real-time payment networks, for example, rtp, which is owned by about 10 or 11 of the nation's largest banks and it's operated by the Clearinghouse, which is out of New York. It used to be a check clearinghouse, and so they do clear a lot of Zelle and Venmo transactions. But real, real-time payments are RTP or FedNow. Okay Now, the biggest way that these intersect in my mind at least, the biggest way that these intersect with card payments is with merchant funding.
Speaker 1:Yeah, so explain that, because I agree with you. When I do training sessions for new attorneys that come in, or paralegals, where I try to give them an introduction into payments, what?
Speaker 1:I tell them is that merchant processing application is a credit app and most people don't understand that this is actually a form of credit. Visa, mastercard, discover these are credit networks and ultimately what they're doing is they're distributing a credit service out into an environment, and what most people don't usually get the cue on is that the merchant gets the money within 24 to 72 hours, but the cardholder doesn't pay for a good 15 to 20 days or more 30 days right.
Speaker 1:Totally so, depending on where they are in their cycle at the time of purchase. So there's a float that takes place. Somebody has to cover the risk associated with that, right? So when you're talking about merchant funding, tell people what you mean about that in context of real-time payments.
Speaker 2:So, as it stands now, okay, if I can hand my credit card, you're the merchant I hand you my credit card you actually don't get that money immediately. That money is held in a reserve and, you know, maybe, depending on how good of a customer you are, you might get it in two or three days. You might get it in two or three weeks, but with real-time payments you can actually, you know, if you're a merchant in good standing with your acquirer, you could get that money within seconds of taking the card transaction. You know.
Speaker 1:So I think what you're talking about to me is clean, efficient, makes total sense. What do you think the biggest barriers to the adoption of real-time payments? Because, look, you go to the shows, I go to the shows. Emv was a three-year. Here's what everybody's talking about in the breakout sessions Real-time payments. In the late 2000 teens it was something that everybody was talking about and then it kind of went away and I feel like it's a conversation that's been out there for at least a decade and it's been something that at times has been hey, look at this service that we had as a way to draw for the processors and acquiring banks to draw in right new, new payments people on the acquiring side for merchants. But what do you think the barrier is? Because we're still here. I mean, fednow is a real thing, but-.
Speaker 2:FedNow is the barrier because as long as things can't, you know things, everything eventually gets set. Well, not everything, but for the bulk of the 10,000 banks that are out there, they get settled through the Fed. So Fed now needs to be on board with all of the banks and it takes a decade or more to get all I mean. I remember back in the 90s it took the Fed a decade to get all of the banks, all of the financial institutions, onto PCs to submit ACH transactions. They were carrying around these big bulky mag tapes and delivering them to the Fed and I think that that's going to be a big deal right now. Is that the Fed? My last time I looked, I think the Fed had a few hundred banks on Fed now.
Speaker 1:So the implementation into Fed now. But how does RTP sit in and how could they actually grab more market share to accelerate that?
Speaker 2:Well, rtp settles amongst themselves on the books of the clearinghouse, so they can definitely charge ahead. And I should actually correct myself slightly the merchant doesn't immediately get that money, it's like at the end of the day.
Speaker 1:Yeah, it's a daily thing. Yeah, for sure, almost like a badge, but it comes through.
Speaker 2:Yeah, it comes through. The badge comes through much like at the end of the day instead of at the end of the week, right?
Speaker 1:So to you as a merchant advocate, because I think that you're probably I could phrase you that yeah, I like you. I play both sides, Well me too, but but I, I, I find myself as as, um, I think, when shit rolls downhill, uh, merchants usually sit at the bottom, so I feel bad for him, so I try to be uh sympathetic.
Speaker 2:I think the merchants get a wrong deal.
Speaker 1:But I think sometimes the merchants kind of like asked for too much sometimes, but you know, as a merchant, you know because I I think that that if there are merchants that are actually tuning in, but there are salespeople that definitely tune into this podcast, and I think that this is one of those differentiators, if you are a salesperson, but what are the benefits to the merchant if they are able to access into real-time payments?
Speaker 2:Yeah. So if the benefit you know to the merchant if they're able to access into real-time payments is that they're going to have a much better cash flow I mean, their cash flow is going to be far superior to the average merchant. But I don't think that all the merchants are going to get access to real-time payments. I think it's going to go to the cream of the crop.
Speaker 1:Just the mega merchants.
Speaker 2:Yeah, yeah, okay, the Walmarts, the Targets, the. You know, you have them. You know, chris. Another thing that I didn't mention when we were talking before, that I think everybody really ought to keep an eye out for is Durbin 2.0.
Speaker 1:Yeah, you know what? That's a good one. Why don't you explain to people and I think we've done this on the podcast before but explain Durbin 1.0 and explain how it didn't work?
Speaker 2:Yeah.
Speaker 1:And then explain Durbin 2.0 and then give me a real opinion about what you think.
Speaker 2:Okay, the Derby 1.0 was the Federal Reserve was given the authority to cap debit card interchange on the largest banks. Okay, and the theory being that if the merchants were paying less interchange, that money would go to either lower prices or it would flow down to the consumer.
Speaker 1:And it's really been to me the only federal legislation that really has touched card payments. I mean real, really, true, true.
Speaker 2:It is, and also that money did not flow down to consumers, Even by the Fed's own reckoning. It did a study that found like maybe I think it was 95% of merchants did not lower their prices after implementation of Durbin 1.0. So Durbin, so the 5% that did were, you know, even among those, it wasn't all of the money, it was like a part of the money that flowed down. Now, Durban 2.0, what they want to do is they want to give every merchant a choice of which network. They get to choose One of two networks over which their transactions will process, but only one of those networks can be owned by Visa or MasterCard.
Speaker 1:Well, the interesting thing to me is I've seen this from some different viewpoints. There was a situation that somebody brought to us about a year ago. About a year ago, and when Durban 2.0 came out, there was at Fiserv, and I'll just say it was a Fiserv.
Speaker 1:All of a sudden, all of the transactions seemed to be pushed out to Excel and Star, which are owned by Fiserv and then all of a sudden I had guys who had basically done the pricing to get an account on debit and price debit super low and then all of a sudden debit it spiked up to like three and a quarter bips or something like. Something crazy, Right, I mean right.
Speaker 1:And there were a lot of guys that I knew that were in the petrol space, that all of a sudden they were like my merchants are freaking out. I don't really know what to do, and I think that this was a big push, for Durban 2.0 was, hey, like, let's find something that's you know, not network, but that would still only be you know card brand related. What do you do in the situation?
Speaker 2:Well, also think about this, Chris. This is something that just recently happened and it's not completely through yet, but the Justice Department, you know, said it has no problem with Cap One acquiring Discover. Ok, discover owns an EFT network Pulse.
Speaker 1:Yeah, yeah.
Speaker 2:So you know what's if Discover wants to become a full-fledged credit card network, durban 2.0, the way it's written, the choice could be Visa or Discover.
Speaker 1:Yeah, and that's the thing it still doesn't accomplish what it's intended to accomplish.
Speaker 2:No, it's never going to accomplish what it did, because otherwise, I mean technically, it can accomplish what it wanted, just using Visa and MasterCard as the examples. Because if you use Visa and MasterCard, and what the idea is, well, they can go out and get one of those EFT networks, those ATM networks, to be the choice. But those are not they, they, they, they're single rails, right? Is that how you put it? Is that the Closed loop. Right term analogy.
Speaker 1:I would call that closed loop.
Speaker 2:Closed loop. Okay, and whereas you know, Visa and MasterCard are not.
Speaker 1:Yeah, I just, I just I just learned that distinction because somebody told me that Amex has a debit card and Amex came out and said, in the context of surcharging and Amex does indeed have a debit card. I just found this out.
Speaker 1:Yeah, I didn't know that Only around since like 2023. It's a brand new thing. But when we were talking to some people on the surcharging side in a particular industry, they were saying that at Amex, all surcharges had to be uniform, even for debit cards, and I was like, oh, you can't. You can't surcharge debit cards. What are you talking about? It's like a direct violation of Durban. Amex is closed loop, durbin doesn't apply to it. Oh, wow, yeah, I just yeah and I did. I had never made that distinction and I don't know I can't remember who it was that told me this, but I was really kind of blown away, like first, that amex had debit cards I mean, I'm writing that one down yeah, totally.
Speaker 1:I was like, could somebody verify that? Because I've never heard of that at all. But it was verified that amex doesn't need to have debit cards and that you have to surcharge the Amex debit card the same as you surcharge the Amex credit card and it has to be compliant with whatever surcharge laws. And I was really kind of thrown because we were doing some. You know, we do a lot of like regulatory compliance on certain stuff. That is really gray.
Speaker 3:And you know there's state laws.
Speaker 1:There's no federal standard. You got card brand rules that apply to it. None of them are the same, so you're trying to figure it out right.
Speaker 2:Right, right, that was that's something I did not know. I knew they had. I knew they had you know the what do you call it? Prepaid cards, but but their own debit card. That's interesting because you know the thing, the thing that always got me is that, okay, with Visa and MasterCard, you got a rail going in, you got a rail coming out. Right With the typical EFT network ATM network, you have a rail going in period it goes in the money comes out of the machine right.
Speaker 1:Yep.
Speaker 2:But if Amex is a closed loop and if the new Cap1 can become a closed loop, that would be very interesting it would be interesting, I mean my thought with the Cap1 was that they would just throw a bunch of money behind Pulse and create their sort of merge it with the Discover Network.
Speaker 1:Hey, I got one for you. That just popped into my mind. What's that? The Illinois law that came into effect.
Speaker 3:Oh yeah, You've been around for so long?
Speaker 1:And what do you think of the Illinois law? And look, I mean everybody and their brother is going to fight it.
Speaker 2:There's now 20 states that are debating that kind of law.
Speaker 1:Yeah, what do you think is going to happen with that?
Speaker 2:I can't. I can't say the word that I want to say yeah, okay, okay yeah. No, it's first part of it is cluster.
Speaker 1:Yeah, no, no, no, it's crazy, right, I mean, I it's. It's crazy that they did it in the fact that there's I mean, maybe that's the way that that there's going to be some sort of regulation on the card brands, is it's going to come from?
Speaker 2:the states. That's one of the see that my thought when, when they first did Illinois was OK, merchants can't get their way in the feds, so they'll take it to the states, and then the states will block.
Speaker 1:And finally the feds will do something. Yeah, maybe. I mean, maybe that's what this is. I, you know, I I hadn't really thought about it, but it happened, believe it or not, with sales tax for the longest time, when you had digital platforms, there were, you know, the sale of goods across state lines and nobody really knew how do you implement sales yeah, amazon and everything sure and then, finally, there was a Supreme Court case that came out and said look, I think it was like South Dakota they were trying to assess taxes to purchases to its residents that were coming from out of state on an online platform.
Speaker 1:And the Supreme Court came out and said hey, yeah, if you're selling goods inside a particular jurisdiction, you're subject to its state laws. It doesn't really matter if you're not there.
Speaker 2:You know this very well could go to the Supreme Court, chris, I mean because it's that thorny of an issue.
Speaker 1:Yeah, it's going to take a while too.
Speaker 2:Yeah, and you've got 50 different states. Right now you have 20 different states debating it right and you have Illinois is supposed to go into effect in on, yeah, on uh, july one, but only for illinois merchants.
Speaker 1:Yeah, no, no, that's the other thing. This reminds me of uh kind of the incongruity of of uh money transmission and there's no federal standard right. I mean there's certain things surcharge is the same thing. All of these states are going to pass laws. None of them are going to be the same, I mean, unless they band together and try to create some sort of like an agreement amongst states, almost like Articles of Confederation, something like that related to business.
Speaker 2:No, it's interesting because back in the 80s okay, back in the 70s there was no interstate banking, okay. So what happened is the states started making these compacts, like New York and the New England states and New Jersey would make a compact and they could branch out to each other's states.
Speaker 1:Well, it sounds like payments right, because all the networks were regional right.
Speaker 2:I'm saying it sounds to me like you could do something like that. And then, once it started, once the ball started rolling, finally the feds threw up their hands and said, okay, interstate banking is A-okay, you know, and that may be, I think, the sale this is my thing, though, chris, and maybe I'm way off base here, but I can see them doing it with sales tax. I'm not exactly sure how they can do it with the tips.
Speaker 1:Yeah, that's a tough one and you know, unfortunately the worker is the one that gets caught in that one.
Speaker 2:The worker is the one. I mean, I'm one of those people that I always leave tips with cash because you know, when I was a kid I waited tables and you know they would skim off that. They would skim off the interchange fee off of my tips.
Speaker 1:Oh, yeah, for sure. And the fact that the interchange fee is applied. I mean it's almost like free money, you know, beyond the base cost. Yeah, but look, I didn't mean to go too far off the off the beaten path on that one.
Speaker 2:I'm glad you did, because I I I hadn't even thought about that when you and I kind of were discussing this beforehand.
Speaker 1:Just being a lawyer, it's one of those things I've been fascinated with the fact that you've got a state that's sort of spearheaded an attempt to legislate, um, you know, really like a marketplace, that the Fed has basically said we're going to be hands-off and they're not necessarily declared monopolies but they're kind of quasi-governmental actors in my opinion, because they have so much power. But it's very interesting to see Illinois take on this fight. I'm surprised it wasn't California, to be honest with you.
Speaker 2:It surprised me that it was Illinois. I was expecting it to be New York or California.
Speaker 1:Yeah, for sure.
Speaker 2:We used to say in the old days where you know the way New York and California goes is the way the rest of the country goes.
Speaker 1:Generally speaking. Yeah, I mean, it's not great always being a resident, but at the same time you kind of see where things are happening.
Speaker 2:Yeah, I mean, but it doesn't always happen that way anymore, as this proves.
Speaker 1:Yeah, for sure, for sure. So you know back to kind of like the you know our base, you know what do you see, because we've asked this of some people that are longtime industry participants recently, like where do you see the ISO going at this point in time? I mean, there's a lot of competition from vendors and the landscape's changing, like where do you see you know issues potentially and opportunities.
Speaker 2:I think the landscape has always been changing from the day, from day one, from the first time that Paul Green started the first ISO, you know, all the way to today. Today, we have a lot of ISVs that are partnering with ISOs. You're going to see a lot more of that, but I still think there's going to be a place for the ISO. I think that the ISO like one of the things I've heard from people that have dealt with ISVs is they don't know how to sell. They don't even know how to sell their own products.
Speaker 1:That's the thing. That's actually where I think the opportunity lies. I was just thinking about that. You know, I've watched software companies buy payments companies now which has been a different trend right, and I think part of that is because the payments guys are sales guys and they know how to sell. If you can teach the payments guys the software, it could be a match made in heaven.
Speaker 2:It could be a match made in heaven and I think that you're going to see a lot more of those combination of ISVs and ISOs. Those are going to be the ISOs that are going to really soar, but I think you're still going to see the ISOs that are trying. You know they're going to plot along because everything changes so much. I mean I can't even imagine what the next technology innovation is going to be. But you and I both know that something's going to come along and innovation is going to be. But you and I both know that something's going to come along and you know it's going to give the ISO new life. You know, just like POS terminals gave them new life.
Speaker 1:I'll tell you what. Like I came in and what I call the smash and grab era, with leasing terminals and, and you know, leasing got a really bad name. Northern got pushed out, you know, people stopped leasing because it was just such a deterrent. Pushed out. You know, people stopped leasing because it was just such a deterrent. Nobody wanted to hear any of that. And today, with the expense of a one-time expense related to wireless terminals into POS systems that are integrated through a wifi in somebody's business like a restaurant, that's a pretty big price tag. So leasing, actually, or financing of some sort sort of, makes sense.
Speaker 2:Yeah.
Speaker 1:Because, we're not talking about a $200 terminal anymore. We're talking about systems that could be $25,000 to $100,000.
Speaker 2:$10,000 to $100,000. Yeah, yeah for sure, and leasing becomes a more so that's what I'm thinking. I mean, I think that sort of what goes around comes around in that respect.
Speaker 1:I think that'd be. I think that'd be great. Where do you see kind of some of the deterrence or like the barriers for the ISO these days as far as adaptation?
Speaker 2:I think the barrier is going to be the old guys. That just can't make change. I think we're going to. I think that you know we have a lot of fresh. I've been to the ETA in a few years. I go to the regional ones and I see a lot of young, fresh faces, you know, fresh out of college, you know and they're out to build their portfolios, team up with the right older guys. They're going to go places and if the older guys can't keep up with those younger guys, they're just going to retire.
Speaker 1:They're going to take their residuals and retire.
Speaker 2:All right, well, I they have some good residuals. I mean, let's face it.
Speaker 1:I mean no, no, no, no. Residual income is a great thing. And look, I go to all the regional shows too, and I do. I'm always surprised when I see kind of like a I wouldn't say it's in mass, but I do see an integration of new people coming in. And I'm always amazed when I do talk to people. I mean, I get a lot of people that come up and, you know, ask questions, and I'm always happy to talk to people.
Speaker 1:No problem, no problem and and I'm always interested to see how many people operate in a way or a space that I didn't even think that was very prevalent any longer. Right, they're still doing it and they're not really big, but they're super successful and they're making a pretty damn good living.
Speaker 2:And the other thing that really surprises me are like I was just at the NEAA.
Speaker 1:Okay, Me too.
Speaker 2:Okay, did you go to where they did the new competition?
Speaker 1:No, I was exhibiting, so I kind of got stuck at the table.
Speaker 2:Oh, that's right. That's right. I saw you exhibiting, yeah, okay, so they had some interesting stuff in the competition, like automated. They were all AI powered Innovations. Ok, one of them that could take your order on the phone and get it perfectly and sound perfectly like a person.
Speaker 1:Yeah, that's great, like it's sort of a. That's the other thing I saw. I go to this place with my daughter sometimes, where it's a hot pot place that they have in one of the local malls and they got robots that kick out all the food around. Oh, that's funny yeah and which I always thought was pretty cool too. It was like you know. It's one of those innovations within. It wasn't necessarily a replacement for the waiters and waitresses, as much as a supplement.
Speaker 2:Yeah, as an innovation. Yeah, and another one of those innovations that I saw was it was a guy that had somehow managed to get like all the SKUs imaginable into a system for mom and pop shops. In fact, it's called Bodeg AI.
Speaker 1:Yeah, that's pretty cool too. I've seen some stuff related to digital pricing off the SKU system too, where you can get the SKUs into the computer and then they'll transmit to wherever you place the product and you can change the prices to stay compliant with surcharging, so you can have list price, cash price.
Speaker 2:Yeah.
Speaker 1:And it's, yeah, it's, it's pretty fascinating. I don't, I can't proclaim to know that. Like, conceptually I get it, but you know, technically I don't think I understand.
Speaker 2:Same here. I'm not, I mean I'm I'm not a science person, but I mean, when I watched this guy do the demonstration, I was in awe and you know, in fact I think I wrote it in one of my, one of the green sheet columns I did, you know, and I, and that is where you know, I think that's that's going to be another way that the ISO is going to be able to march forward if they can figure out ways to capture AI.
Speaker 1:All right, Well, look, I really appreciate you coming on the show. It's always good to have you here. I love it. I love your knowledge. Is there anything you want to?
Speaker 2:I'm going to give you the last word Is there anything you want to tell us on the way out? Nothing I can think of. But you know, just keep on trucking, man, because this business I mean, I tell people. People say to me why do you write about payments? You know, why are you so much? Because it's the. It's the engine that keeps the economy going.
Speaker 1:You and I are the same. I can't say I really identify with my profession. Like a lot of people, they identify with what they do and it's kind of like part of their person. I, you know I don't really identify with myself as an attorney, but I will say the thing that keeps me coming back is payments, because it changes every day and it makes things interesting.
Speaker 2:Every day, and if it wasn't making it interesting, I would have left a long time ago. Look at how much gray. Look at my hair isn't gray, it's white.
Speaker 1:That's great. Well, thanks so much for coming on, Patty. We really appreciate it.
Speaker 2:I love talking with you, Chris. We'll do it again sometime, okay.
Speaker 1:Okay, sounds good. You take care of yourself.
Speaker 3:Soon. Guys, this was a really a great conversation and a lot of context for, like you were saying, where payments has been and where it's at now, and maybe where it's headed. Thank you for listening to the Payments Experts podcast, a podcast of Global Legal Law Firm. Today we have joining us Patty Murphy. Patty, thank you so much. It was great and, as always, christopher Dryden in studio. Have a good one. We'll see you on the next one. Thanks, patty. Thank you for listening to this episode of the Payments Experts Podcast, a podcast of Global Legal Law Firm. Visit us online today at globallegallawfirmcom.