PEP Episode 050 — ATMs to AI: The Complex Landscape of Real-Time Payments and Reg Changes with Patti Murphy

Introduction

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!

Transcript

Christopher Dryden (00:00):

I would call that closed loop.

Patti Murphy (00:02):

Closed loop. Okay. And whereas Visa, MasterCard are not.

Christopher Dryden (00:08):

Yeah. I just learned that distinction. Somebody told me that Amex has a debit card, and Amex came out and said in the context of surcharge, and Amex does indeed have a debit card. I just found this out.

Patti Murphy (00:21):

Yeah, I didn’t know that.

Christopher Dryden (00:22):

Only around since 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 surcharge debit cards. What are you talking about? That’s like a direct violation of Durban. Amex is closed loop Durban doesn’t apply to it.

Patti Murphy (00:45):

Oh, wow.

Christopher Dryden (00:46):

Yeah. And 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 blown away first that Amex had debit cards.

Patti Murphy (00:57):

That’s I’m writing that one down.

Christopher Dryden (00:59):

Yeah, totally. I was like, can somebody verify that? I’ve never heard of that at all.

Jeremy Stock (01:05):

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.

Patti Murphy (01:39):

Oh, 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 it 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,

Christopher Dryden (02:00):

I will tell you, you’ve been in it for a long time, so what’s going on? It’s always a pleasure to have you on because you’re a wealth of knowledge for our listeners. I appreciate that. It’s well deserved. So tell our listeners, why are you the payments maven of the Fourth Estate?

Patti Murphy (02:18):

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.

Christopher Dryden (02:40):

That is great.

Patti Murphy (02:42):

It was so new at the time, they didn’t even call ATMs. ATMs.

Christopher Dryden (02:48):

It’s crazy, right? I mean, you’ve seen it from day one, almost.

Patti Murphy (02:52):

Yeah. Yeah. And I did a lot of work after I left the government, went into working, covering the government, covering the regulatory agencies, covering Congress, the Fed Congress, all the consumer protection laws, the EFT Act as it was implemented into regulations. I saw the first ATM go into existence and the first networks come into existence. And I remember interviewing a guy back in the late seventies, and he said, 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.

Christopher Dryden (03:38):

Yeah, it’s so funny you say that. So I say this a lot around my home to the kids,

Patti Murphy (03:44):

But

Christopher Dryden (03:45):

I’m a Cold War kid, and the dynamic of the world that I grew up in, I mean even even more so different, but 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 I’ve always been, I’m a big reader and boringly enough, I was a philosophy of political theory major in college. Where

Patti Murphy (04:11):

Was I? I was journalism and political theory.

Christopher Dryden (04:15):

Well, and the thing I liked about it was this idea of seeing the context of humanity and how it related not just individually, but in groups, and then towards a cohesive structure of how people would associate with one another. So I found that fascinating, but I also found writers really fascinating. So Orwell, all this Huxley.

Patti Murphy (04:41):

Oh, yeah.

Christopher Dryden (04:41):

And the things that they wrote about were so Isaac Asimov things way in the future, things that were just thoughts about potentially what could happen. And then all of a

Patti Murphy (04:52):

Sudden, I mean, you would think that they were off in outer space and the stuff they wrote about we’re seeing,

Christopher Dryden (05:00):

Or even cloning, right? Human cloning. I can’t say I’m very much of a science person. I mean, I took science,

Patti Murphy (05:08):

Who am I? I’m kind of dumb on science,

Christopher Dryden (05:11):

But the fascination of even pop culture stuff like Michael Creon and the stuff that he wrote about in the seventies and eighties, maybe Jurassic World’s real, who knows? I mean, but the fact is that there’s all these things that have taken place. I do a lot of trainings. I consider myself a veteran of the industry, not like yourself, but enough of a veteran to know that there’s been some major changes in the time that I’ve been in it. And most of them have to do with technology, which is just fascinating. I’m not a technology person. I’m not a techie. I don’t have gadgets. I live kind of a really quiet existence when I’m not at work outside of, I don’t care about phones and watches and all that other crap.

Patti Murphy (05:55):

People say to me, where’s your phone? I don’t know.

Christopher Dryden (05:57):

Yeah, me too. I turned mine off during the day. That’s the time actually. Just put it on silence. But I think it’s fascinating for your perspective because when I do trainings at work, I always say it’s a lot easier to know where we are, because the way I like to explain it to people is let me tell you where we’ve come from, and you kind of take ’em along and sort of the progression of things. Now, I would say the last 10 years, it’s just crazy, the progression because

Patti Murphy (06:22):

Oh yeah. I mean, in 10 years we’ve gone a couple generations.

Christopher Dryden (06:27):

Oh, I agree with you. I agree with you. I mean, from the advent of the actual 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 originally, swipe we’re not that far away from, that wasn’t that long ago and No, no, no,

Patti Murphy (06:53):

No. I remember what, it was a big deal that you could swipe your product across a screen and have the price register

Christopher Dryden (07:03):

Remember to build. Yeah, totally. Totally. No, it’s funny. It’s funny. And now with the, and compatibility and integration, and 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 taking it from your context and seeing where you’ve come from and basically being at the advent of the entire thing. I mean, you really, at the genesis,

Patti Murphy (07:28):

I mean, I wrote, in fact, back in the eighties, they used to, instead of having magazines, they had newsletters. I mean, they were these very high price newsletters that people like you would buy, find out what’s the latest in regulations. I did the first newsletter on EFTI, and now I look, and it’s like I still keep copies of it just for ha’s sake. So I could 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.

Christopher Dryden (08:06):

Yeah. Well, it’s funny, I look even in my, I’ve been in a couple decades,

Christopher Dryden (08:13):

And when I look at ETA and its role, it’s not a trade association any longer, even though what it started out 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 weeks ago, and I mentioned Jared Eisman because one of the things that he did at Harbor Touch when he came out with the POS, the fine stickiness, I mean, that’s only 15 years ago, and that was one of the things he gave his agents,

Patti Murphy (08:47):

What about his free terminals?

Christopher Dryden (08:49):

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 ’em signed up. Because 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. I was sick last week, and I found out that he’s been nominated to be the head of NASA and

Patti Murphy (09:11):

Nasa.

Christopher Dryden (09:12):

Yeah. And he’s a fascinating guy. The reason that there’s two things that I’ve always liked about Jared is that a, everybody’s in-house counsel I generally feel is a reflection of the organization. His in-house counsel, Jordan Frankel has always been a fair, decent person every time that I’ve interacted with them

Patti Murphy (09:33):

And

Christopher Dryden (09:34):

Has actually given me substantive responses, even if they weren’t what I wanted to hear in a polite and professional way. But he was the one that told me about Jared’s other business, which makes sense for the NASA thing, which was he bought refurbished retired military aircraft and then sold it worldwide, which I thought was fascinating. I don’t even know how you get into that business, but 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.

Patti Murphy (10:07):

He didn’t find his way into payments. He basically invented his way into payments. I mean, he started payments off on his mother and father’s kitchen table practically. I mean, I think it was the basement, actually. But I mean, I remember meeting Jared when he was like 20 years old, and he was just outselling terminals outselling. Well, actually, no, he had already formed the company, but he was still, it was a small company, outselling merchant accounts. And I was saying to friends when I saw that, I said, yeah, that guy that’s going to be the head of nasa, I knew him when he was 21.

Christopher Dryden (10:48):

And that’s the thing. And the thing I’ve appreciated about Jared is I’ve met him a few times. He 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. He seems like a very,

Patti Murphy (11:04):

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. Doesn’t age even,

Christopher Dryden (11:13):

Kind of Right. He looks good for his age, for sure. So I kind of have a tendency to tangent out, but

Patti Murphy (11:22):

Yeah, same here. But let’s talk about some hop.

Christopher Dryden (11:27):

Yeah. Let’s talk about, because you’re kind sit in a really focal place with everything. What are kind of the things in the payment space that you’ve been up to these days, and where’s your focus been?

Patti Murphy (11:37):

Well, I’ve been working with James Shepherd a lot. We’re doing, I did a podcast with him for a long time now. I have a segment of his podcast called Today In Payments, which we update everybody on everything that’s going on in the payment space. And there’s some really interesting stuff going on. For example, every time you have a change in administration, there’s change in regulations. I mean, so now of course, the Consumer Financial Protection Bureau has basically been

Christopher Dryden (12:13):

Dragged down to eviscerated.

Patti Murphy (12:15):

Yeah, I mean, gone are the regulations for big tech payment apps, the caps on late fees. What’s the other one? Oh, buy now. Pay later. Yeah. Well

Christopher Dryden (12:36):

Unpack that first one because I think the first one’s really important that you mentioned. There was some regulation that was coming out for big tech companies, and the ccfb has been a real driver when it comes to consumer protection and trying to make sure that the card holders don’t get taken advantage. We go back to the Wells Fargo scandals and whatnot, but talk about what was up on the CFPB rule that related to that, and how they were going to regulate big tech, and then how fell by the wayside.

Patti Murphy (13:06):

Yeah. Well, so any company that had a 50 million transaction, 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, all combined, those payment apps were handling, I think the CFPB said 13 trillion a year in consumer transactions. And what it wanted to do is it wanted to supervise those companies, those apps, the companies that own those apps. So supervising, as you probably know, is different from regulation. A regulator goes in and they pour over somebody’s books supervisor, make 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 CFPP could go in there and say, okay, slap ’em on the wrist, give ’em a fine, make them change their habits and go on. But probably the biggest problem that they were looking at was something called banking, where an account would be closed out and the consumer would not have any access to that money, and it would basically be sitting a pot. And CFPB was getting a lot of complaints about that, which is one of the reasons why I passed that law passed that regulation actually. Yeah, it was a regulation, or I guess you would call it a regulation

Christopher Dryden (15:08):

Supervisory. They go through rule making process. I mean, they’re all regulations, but I think the official title is rule.

Patti Murphy (15:15):

Yeah, I think the official title is rule. Thank you. And so 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. Of course, when Biden, 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, okay, 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 it was going to become effective on January 7th. And so the hope was that the rule would slip through and nobody would notice. Well, of course they noticed.

Christopher Dryden (16:13):

Yeah, there was a lot of that at the end of the administration. I mean, I try to consider myself very middle of the road, but a politician’s, a politician. I don’t really care what the letter is next to your name.

Patti Murphy (16:27):

Exactly.

Christopher Dryden (16:29):

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, not just that, there were a lot of things that happened at the Biden administration that were kind of crazy, that non-business related, where they just did things that made no sense, even geopolitically. But the other one that I just found interesting that you threw up was probably the late fees has less meaning, but buy now, pay later. Unpack that one.

Patti Murphy (17:00):

I didn’t pay later. That was a big one. Yeah.

Christopher Dryden (17:02):

Yeah. 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, a valued added service that they can

Patti Murphy (17:15):

Push out. I mean, it’s considered a form of payment really.

Christopher Dryden (17:18):

Yeah, for sure.

Patti Murphy (17:20):

And so what CFPB was trying to do was say, no, this is not really a form of payment. It’s a formal loan, and so it needs to be, the consumer credit protection laws should apply to NPL loans. And so that meant that 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 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 just give out disclosures later You’re over. If you were late on your payments yet, another set of disclosures,

Christopher Dryden (18:07):

Was that going to be an omission of the four payment threshold they were just

Patti Murphy (18:12):

Going to get rid of? Yeah, the four payment threshold was going to be applied. Yeah.

Christopher Dryden (18:17):

Well, but still, if you were under four, you wouldn’t have been subject to all that,

Patti Murphy (18:20):

Correct? No. If you were under four, you weren’t going to be subject to it. It had to be four or more payments.

Christopher Dryden (18:25):

It’s been a really active place because 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. It used to be an offering even that I would see for myself on my personal stuff where I would,

Patti Murphy (18:42):

Oh, you and me

Christopher Dryden (18:43):

Both. And I haven’t seen much of it recently. It’s very interesting. And maybe that’s why they went into hiding. They didn’t know retroactively what it was going to look like,

Patti Murphy (18:52):

What it was going to do. And a lot of people that were doing it, what they found was a lot of people that were doing it were the people that were living paycheck to paycheck,

Christopher Dryden (19:00):

For sure. It was another form of, I mean, different types of goods, I would say different types of purchases, but maybe not. I don’t know. I don’t shop on Amazon, so I don’t necessarily know if

Patti Murphy (19:11):

I do shop on Amazon a lot. I live out in the middle of nowhere. And I mean, they’ll offer me paying for, I buy a bunch of dog food. Let’s say you want to pay in four for your dog food. No, the dogs eat it too fast.

Christopher Dryden (19:29):

And that’s an interesting part. I can’t say I’m much of a consumer. It’s one of those things where, I mean, just look at me on any Saturday, and you’ll see I’m not much of a consumer probably, but 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, realtime payment,

Patti Murphy (19:52):

Realtime payments. That’s something I think a lot of people, there’s a lot of misunderstanding about realtime payments.

Christopher Dryden (19:58):

Well, I will tell you, I’ve never really, I have the basic understanding of real-time payments, a basic understanding of the players, how it works. 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 realtime payments, but tell us how card payments intersect with realtime payments, because I think that’s maybe where people don’t get the differentiation of a realtime payment and the card payment and how they kind of overlap with one another.

Patti Murphy (20:35):

Okay, so a realtime payment, first of all, what you have to understand is you have your Venmos and your Zelle, and they are advertised as realtime payments, but they’re not really realtime payments. It will give you, and 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 A CH, or it may be used on one of the real time payment networks. For example, RTP, which is the, it’s owned by about 10 or 11 of the nation’s largest banks. And it’s operated by the Clearing House, which is out of New York. It used to be a check clearing house. And so they do clear a lot of Zelle and Venmo transactions, but real time payments are RTP or Fed now. 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.

Christopher Dryden (21:46):

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 I tell them is that merchant processing application is its 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 Q on is that the merchant gets the money within 24 to 72 hours, but the card holder doesn’t pay for a good 15 to 20 days

Patti Murphy (22:35):

Or more 30 days, right?

Christopher Dryden (22:36):

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. So when you’re talking about merchant funding, tell people what you mean about that in context of real-time payments.

Patti Murphy (22:51):

So as it stands now, okay, if I 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 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, if you’re a merchant in good standing with your acquirer, you could get that money within seconds of taking the card transaction.

Christopher Dryden (23:28):

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 for the processors and acquiring banks to draw in new payments, people on the acquiring side for merchants. But what do you think the barrier is? Because we’re still here. I mean, fed now is a real thing, but

Patti Murphy (24:21):

Fed Now is the barrier because as long as things can’t, 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 nineties, it took the Fed a decade to get all of the banks, all of the financial institutions onto PCs to submit a CH transactions. They were carrying around these big bulky mag tapes and delivering ’em 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

Christopher Dryden (25:24):

The implementation into Fed now. But how does RTP sit in and how could they actually grab more market share to accelerate that?

Patti Murphy (25:33):

Well, RTP settles amongst themselves on the books of the Clearing House. So they can definitely charge ahead, and I should actually correct myself slightly, don’t get, the merchant doesn’t get immediately get that money. It’s like at the end of the day, daily.

Christopher Dryden (25:50):

Yeah, it’s a daily thing. Yeah, for sure. Almost like a batch, but it comes through.

Patti Murphy (25:53):

Yeah, it comes through as the batch comes through much at the end of the day instead of at the end of the week.

Christopher Dryden (25:59):

So to you as a merchant advocate, because I think that you’re probably, I could phrase you that.

Patti Murphy (26:06):

Yeah, yeah. I play both sides.

Christopher Dryden (26:10):

Well, me too. But I find myself as, I think when shit rolls downhill, merchants usually sit at the bottom. So I feel bad for ’em. So I try to be sympathetic.

Patti Murphy (26:23):

I merchants, I think the merchants get a raw deal, but I think sometimes the merchants kind of ask for too much

Christopher Dryden (26:29):

Sometimes. But as a merchant, because I think 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?

Patti Murphy (26:50):

So if the benefit 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 cashflow 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.

Christopher Dryden (27:14):

Just the mega merchants.

Patti Murphy (27:16):

Yeah. Yeah.

Christopher Dryden (27:17):

The

Patti Murphy (27:18):

Walmarts, the Targets. You have ’em. 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 Durban 2.0.

Christopher Dryden (27:34):

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, and then explain Durbin 2.0 and then give me a real opinion about what you think.

Patti Murphy (27:55):

Okay, so Durbin 1.0 was the Federal Reserve was given the authority cap, debit card interchange on the largest banks. 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.

Christopher Dryden (28:20):

And it’s really been, to me, the only federal legislation that really has touched card payments. I mean, real,

Patti Murphy (28:27):

Really. You’re true. True. 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 maybe, I think it was 95% of merchants did not lower their prices after implementation of Durban 1.0. So Durban, so the 5% that did were even among those, it wasn’t all of the money. It was 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.

Christopher Dryden (29:22):

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, and when Durban 2.0 came out there was at Fiserv, and I’ll just say it was at Fiserv. All of a sudden, all of the transactions seemed to be pushed out to Excel and Star, which are owned by Fiserv.

Patti Murphy (29:49):

And

Christopher Dryden (29:49):

Then all of a sudden I had guys who had basically done the pricing to get an account on debit and priced debit super low, and then all of a sudden debit had spiked up to three and a quarter bips or something like something crazy. I mean, 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, let’s find something that’s not network, but that would still only be card brand related. What do you do in this situation where you’ve got,

Patti Murphy (30:29):

Well also think about this, Chris, this is something that just recently happened, and it’s not completely through yet, but the Justice Department said it has no problems with Cap One acquiring Discover. Okay, discover owns an EFT network Pulse.

Christopher Dryden (30:45):

Yeah. Yeah, totally. So

Patti Murphy (30:50):

If Discover wants to become a full fledge credit card network, Durban 2.0, the way it’s written, the choice could be Visa or Discover.

Christopher Dryden (31:07):

Yeah. And that’s the thing. It still doesn’t accomplish what it’s intended to accomplish, but

Patti Murphy (31:12):

No, it’s never going to accomplish what, because otherwise, I mean, technically it can’t accomplish what it wanted just using Visa and MasterCard as the examples. Because if you use Visa and MasterCard, and 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’re single rails. Is that how you put it? Is that the

Christopher Dryden (31:38):

Closed loop

Patti Murphy (31:40):

Right term terminology.

Christopher Dryden (31:41):

I would call that closed loop.

Patti Murphy (31:43):

Closed loop, okay. And whereas Visa and MasterCard are not,

Christopher Dryden (31:49):

Yeah, I just learned that distinction. 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.

Patti Murphy (32:02):

Yeah, I didn’t know that.

Christopher Dryden (32:03):

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 surcharge debit cards. What are you talking about? It’s like a direct violation of Durban. Amex is closed. Loop Durban doesn’t apply to it.

Patti Murphy (32:26):

Oh, wow.

Christopher Dryden (32:28):

And 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. First Dynamics had debit cards.

Patti Murphy (32:39):

I mean, I’m writing that one down.

Christopher Dryden (32:40):

Yeah, totally. I was like, could somebody verify that? 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. We were, we do a lot of regulatory compliance on certain stuff that is really gray, and there’s state laws, there’s no federal standard. You got card brand rules that apply to it. None of ’em are the same. So you’re trying to figure it out. Right,

Patti Murphy (33:13):

Right. That’s something I did not know. I knew they had the, what do you call it, prepaid cards, but they have their own debit card. That’s interesting because the thing that always got me is that okay with Visa, 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 goes in, the money comes out of the machine. Right. But if Amex is a closed loop, and if the new cap one can become a closed loop,

Christopher Dryden (33:56):

That

Patti Murphy (33:57):

Would be very interesting.

Christopher Dryden (33:58):

It’d be interesting. Huh? It’s funny,

Patti Murphy (34:00):

I mean, my thought with the CAP one was that they would throw a bunch of money behind Pulse and create their, sort of merge it with the Discover network.

Christopher Dryden (34:12):

Hey, I got one for you. That just popped into my mind.

Patti Murphy (34:15):

What’s that?

Christopher Dryden (34:16):

The Illinois law that came into effect.

Patti Murphy (34:20):

You’ve

Christopher Dryden (34:20):

Been around for so long, and what do you think of the Illinois law? And look, I mean everybody and their brothers going to fight it.

Patti Murphy (34:28):

It’s now 20 states that are debating that kind of law.

Christopher Dryden (34:31):

Yeah. What do you think is going to happen with that?

Patti Murphy (34:36):

I can’t say the word that I want to say.

Christopher Dryden (34:38):

Okay. Okay. Yeah. The

Patti Murphy (34:40):

First part of it is cluster.

Christopher Dryden (34:41):

Yeah. No, no, no. It’s crazy, right? I mean, it’s crazy that they did it. And the fact that there’s, I mean, maybe that’s the way that there’s going to be some sort of regulation on the card brands is it’s going to come from the States.

Patti Murphy (34:55):

That’s what I’m saying. That’s one of my thought when they first did Illinois was, okay, merchants can’t get their way and the Feds, so they’ll take it to the states and then the states will balk and finally the feds will do something.

Christopher Dryden (35:08):

Maybe that’s what this is. 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 the sale of goods across state lines, and nobody really knew how do you implement sales

Patti Murphy (35:24):

Tax tax that with Amazon and everything. Yeah, sure.

Christopher Dryden (35:26):

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. And the Supreme Court came out and said, Hey, yeah, if you’re selling goods inside a particular jurisdiction, you’re subject to it state laws. It doesn’t really matter if you’re not there.

Patti Murphy (35:51):

This very well could go to the Supreme Court, Chris, I mean, because that thorny of an issue.

Christopher Dryden (35:56):

Yeah, it’s going to take a while too.

Patti Murphy (35:59):

And you got 50 different states right now you have 20 different states debating it. Right? And you have, Illinois is supposed to go into effect on July one, but only for Illinois merchants.

Christopher Dryden (36:12):

Yeah, no, no. That’s the other thing. This reminds me of the incongruity of money transmission. And there’s no federal standard. I mean, there’s certain things. Surcharge is the same thing. All of these states are going to pass laws. None of ’em are going to be the same. I mean, unless they band together and try to create some sort of an agreement amongst states, almost like Articles of Confederation, something like that related to business.

Patti Murphy (36:42):

What’s interesting, because back in the eighties, back in the seventies, there was no interstate banking. Okay. So what happened is that the states started making these compacts, New York and the New England states, and New Jersey would make a compact and they could branch out to each other’s states.

Christopher Dryden (37:03):

Well, it sounds like payments, right? Because all the networks for regional,

Patti Murphy (37:06):

Right, exactly. I’m saying it almost, it sounds to me like you could do something like that. And then once the ball started rolling, finally the feds threw up their hands and said, okay, interstate banking is a, okay. I think 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.

Christopher Dryden (37:36):

Yeah, that’s a tough one. And unfortunately, the worker’s, the one that gets caught in that one

Patti Murphy (37:42):

Workers are the one, I mean, I’m one of those people that I always leave tips with cash because when I was a kid, I waited tables and they would skim off that. They would skim off the interchange fee off of my tips.

Christopher Dryden (37:57):

Oh yeah, for sure. And the fact that the interchange fee is applied, I mean, it’s almost like free money beyond the base cost. But look, I didn’t mean to go too far off the beaten path on that one.

Patti Murphy (38:09):

I’m glad you did because I hadn’t even thought about that when you and I were discussing this beforehand.

Christopher Dryden (38:15):

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 late, really like a marketplace that the Fed has basically said we’re going to be hands off.

Patti Murphy (38:30):

And

Christopher Dryden (38:31):

They’re not necessarily declared monopolies, but they’re kind of quasi-governmental actors, in my opinion. 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, but

Patti Murphy (38:44):

It surprised me that it was Illinois. I was expecting it to be New York or California

Christopher Dryden (38:50):

For

Patti Murphy (38:50):

Sure. We used to say in the old days, the way New York and California goes is the way the rest of the country goes,

Christopher Dryden (38:57):

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.

Patti Murphy (39:03):

Yeah, I But it doesn’t always happen that way anymore as this proves.

Christopher Dryden (39:06):

Yeah, for sure. For sure. So back to kind of our base, what do you see, because asked this of some people that are longtime industry participants recently, where do you see the ISO going at this point in time? I mean, there’s a lot of competition from vendors and the landscapes changing. Where do you see issues potentially and opportunities?

Patti Murphy (39:30):

I think the landscape has always been changing from day one, from the first time that Paul Green started the first ISO 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, 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.

Christopher Dryden (40:00):

That’s the thing. That’s actually where I think the opportunity lies. I was just thinking about that. I’ve watched software companies buy payments companies now, which has been a different trend. 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.

Patti Murphy (40:23):

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, they’re going to plot ’em on 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 it’s going to give the ISO new life, just like POS terminals gave them new life.

Christopher Dryden (40:56):

I’ll tell you what I came in and what I call the smash and grab arrow with leasing terminals. Oh yeah. And leasing got a really bad name. Northern got pushed out, people stopped leasing. It was just such a deterrent. Nobody wanted to hear any of that.

Patti Murphy (41:12):

And

Christopher Dryden (41:12):

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, big price tag. So leasing actually, or financing of some sort sort of makes sense

Patti Murphy (41:29):

Because

Christopher Dryden (41:30):

We’re not talking about a $200 terminal anymore. We’re talking about systems that could be 25 to a hundred thousand

Patti Murphy (41:36):

Dollars, 10,000 to a hundred thousand dollars. Yeah,

Christopher Dryden (41:39):

Yeah, for sure.

Patti Murphy (41:40):

Becomes more. So that’s what I’m thinking. I mean, I think that sort of what goes around comes around in that

Christopher Dryden (41:48):

Respect, I think that’d be great. Where do you see kind some of the deterrent or the barriers for the iceo these days? As far as adaptation?

Patti Murphy (41:57):

I think the barrier is going to be the old guys that just can’t make change. I think that a lot of fresh, I go to, I don’t haven’t been to the ETA in a few years, the regional ones. And I see a lot of young, fresh faces, fresh out of college, and they’re out to build their portfolios. And I think that if they 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. They’re going to take their residuals and retire.

Christopher Dryden (42:36):

Alright, well I

Patti Murphy (42:37):

Have some good residuals. I mean, let’s face it. I mean,

Christopher Dryden (42:40):

No, no, no. Residual income’s a great thing. And look, I go to all the regional shows too, and I do, I’m always surprised when I see, I wouldn’t say it’s en 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 ask questions, and I’m always happy to talk to people. No problem. 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.

Patti Murphy (43:14):

But

Christopher Dryden (43:15):

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.

Patti Murphy (43:22):

And the other thing that really surprises me are I was just at the NEAA. Okay.

Christopher Dryden (43:28):

Me too.

Patti Murphy (43:29):

Okay. Did you go to where they did the new, the competition?

Christopher Dryden (43:37):

No, I was exhibiting, so I kind of got stuck at the table.

Patti Murphy (43:40):

Okay. That 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. Okay. One of ’em that could take your order on the phone and get it perfectly and sound perfectly like a person.

Christopher Dryden (44:05):

Yeah, that’s great. 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.

Patti Murphy (44:17):

Oh, that’s funny. That’s funny.

Christopher Dryden (44:19):

Which I always thought was pretty cool too. It’s one of those innovations within, it wasn’t necessarily a replacement for the waiters and waitresses as much as a supplement,

Patti Murphy (44:28):

As an innovation. And another one of those innovations that I saw was it was a guy that had somehow managed to get all the skews imaginable into a system for mom and pop shops. In fact, it’s called Bode ai.

Christopher Dryden (44:49):

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

Patti Murphy (45:00):

And

Christopher Dryden (45:01):

You can change the prices to stay compliant with surcharging. So you can have list price, cash price.

Patti Murphy (45:07):

Exactly.

Christopher Dryden (45:09):

Yeah, it’s pretty fascinating. I can’t proclaim to know that conceptually I get it, but technically I don’t think I understand.

Patti Murphy (45:16):

Same here. I’m not a science person, but I mean, when I watched this guy do the demonstration, I was in awe. And in fact, I think I wrote it in one of the green sheet columns I did. And I think 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.

Christopher Dryden (45:42):

Alright. Well look, I really appreciate you coming on the show. It’s always good to have you here.

Patti Murphy (45:47):

I love it.

Christopher Dryden (45:48):

I love your knowledge. Is there anything you want, I’m going to give you the last word. Is there anything you want to tell us on the way out?

Patti Murphy (45:56):

Not that I can think of, but just keep on trucking, man. Because this business, I mean, I tell people say to me, why do you write about payments? Why are you somebody? Because it’s the engine that keeps the economy going.

Christopher Dryden (46:10):

You and I are the same. I can’t say I really identify with my profession. A lot of people, they identify with what they do and it’s kind of like part of their person. 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

Patti Murphy (46:29):

Every day. And if it wasn’t making it interesting, I would’ve left a long time ago. Look at how much gray, look at my hair isn’t gray. It’s white.

Christopher Dryden (46:37):

That’s great. Well, thanks so much for coming on, Patty. We really appreciate it.

Patti Murphy (46:41):

I love talking with you, Chris. We’ll do it again sometime. Okay.

Christopher Dryden (46:43):

Okay. Sounds good. You take

Jeremy Stock (46:44):

Care of yourself again soon. Guys. This was 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. Peace. Some love. Thank you for listening to this episode of The Payments Experts Podcast, a podcast of global legal law firm. Visit us online today at global legal law firm.com.