Payment Processors are getting hit with regulation
Payment processing businesses are facing rapid changes due to increasing debit, credit and prepaid landscapes. As a result, the business models even change on a daily basis. In order to accommodate these changes, it is important for a business to have a high level of agility and flexibility in all aspects. If you take a look at the mobile payment platforms, you would realize how dynamic the industry is. This is just one side of pressure that the businesses have to absorb in order to survive.
A variety of regulations are introduced at federal level. National Credit Union Administration (NCUA), Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board (FRB) and Comptroller of the Currency (OCC) are the key regulators out of them. These regulators are always looking forward to ensure a sound and safe financial system, which can provide enhanced protection to consumers. In the meantime, the anti-money laundering laws are being controlled on a regular basis as well.
If you take a look at some of the recently introduced regulatory compliances, you will be able to get a clear understanding about how payment processors are squeezed from all sides. DOJ’s Operation Chokepoint can be considered as a perfect example to prove the above mentioned fact. Operation Chokepoint has heavily influenced the payment processors. On the other hand, a massive data breach took place in the recent past and it created a tremendous impact on millions of consumers. JP Morgan Chase was attacked and The New York Times has reported that this attack touched over 83 million businesses and households.
Traditional banking agencies, such as NCUA, FRB, FDIC and OCC are responsible for maintaining the soundness and safety of the financial system. As per the viewpoint of these agencies, any party taking part in the payment process along with a financial institution is subjected to enforcement and supervision by the respective regulatory agency of the federal bank. This is another prominent reason that is squeezing the payment processors. In fact, this is considered as the top down squeeze.
Bottom up is responsible for another squeeze that payment processors have to experience. CFPB is having a singular focus on consumer. As a result, sufficient rules have been implemented to offer enhanced financial protection to the consumers. This has forced the CFPB to take strict action against credit card companies. The debt collection and marketing practices are considered as deceptive activities by CFPB.
Self-regulation, FTC and justice are responsible for the squeeze that payment processors have to experience from the sides. FTC, DOJ and other state and federal regulators are responsible for this side squeeze. Usually, the payment processors offer their services through the regulatory guidance of sponsoring banks. However, the payment processors are now being asked to operate in compliance with the operating regulations offered by payment card industry data security standards, different card brands, OFAC requirements, FinCEN requirements, economic sanctions and anti-money laundering sanctions.
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