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Two large U.S. banks are embroiled in a legal debate over a key mobile banking app feature: remote check deposits.
United Services Automobile Association first filed a lawsuit June 7 against Wells Fargo Bank NA, a unit of Wells Fargo & Co., alleging that the bank infringed on USAA's remote deposit capture patents. Depositing a check through a bank's mobile app has become commonplace, but if USAA wins the lawsuit, Wells Fargo could be on the hook for paying to use the technology.
In legal filings, Wells Fargo argued that "taking and processing check images using a digital camera or mobile device was well-understood, routine and conventional" prior to USAA's patents. The bank also said USAA's complaints are "barred, at least in part" by the fact that USAA licenses its mobile check deposit technology to some banks.
A Wells Fargo spokesperson said the bank can not comment on pending litigation, and a USAA spokesperson declined to say how many banks are licensed to use USAA's check scanning technology.
On Aug. 17, USAA filed a second lawsuit against Wells Fargo Bank, citing similar infringement claims but for additional patents. USAA has a "substantial family of patents related to different aspects of remote deposit capture technology," the company's spokesperson said.
USAA undertook a similar legal battle with Mitek Systems in 2012 in which both companies alleged that the other infringed on their respective patents. That dispute ended in 2014 with neither side paying the other.
Megan La Belle, law professor at the Catholic University of America who researches intellectual property law, thinks USAA stands a chance to win.
The lawsuit marks a shift in the banking world, La Belle said in an interview. Historically, banks relied on trade secrets to protect their innovations, and only in the past 10 to 20 years have banks turned more to patents, La Belle said. She called the USAA-Wells Fargo suit "really significant" because it is the first patent infringement action between competitors in the banking industry.
"This could be the beginning of a trend," La Belle said. "As financial innovators become more reliant on patents, we would expect more enforcement of patents through licensing and infringement suits."
Bob Meara, a senior analyst in the banking group at consulting firm Celent, questioned the timing and target of USAA's lawsuit.
"I've scratched my head around why Wells," Meara said in an interview. The basic user experience and technology approach underlying the mobile deposit feature is "stunningly similar" among different banks' apps, he said.
A victory for USAA could put other banks with apps for mobile check deposit at risk, though it is unclear which banks already license another company's check scanning technology or hold their own patents.
The most commonly used mobile banks include JPMorgan Chase & Co., Bank of America Corp., PNC Financial Services Group Inc., U.S. Bancorp and Capital One Financial Corp., according to a recent S&P Global Market Intelligence analysis.
Elsewhere in fintech, PwC published a survey that found business executives expect China to pass the U.S. in blockchain leadership in the next three to five years. When asked about the greatest barrier to blockchain adoption, 27% of all respondents cited regulatory uncertainty as their top concern, followed by lack of trust among users.
After the U.S. reinstated sanctions against Iran, the German and French central banks began considering building an independent payments instrument, French Finance Minister Bruno Le Maire said at a press conference. The independent financing tool would allow the countries "to avoid being the collateral victims of U.S. extra-territorial sanctions," Le Maire said.
On the cryptocurrency front, Square Inc. secured a patent in the U.S. for a system that allows merchants to accept cryptocurrencies at the point of sale, the cryptocurrency news service CCN reported. If it is rolled out, Square's system would be the first to accept cryptocurrencies, Credit Suisse analyst Paul Condra wrote in an Aug. 30 note. The move would put the payments company in direct competition with the likes of Coinbase Inc., Condra said.
In regulatory news, the Monetary Authority of Singapore and the Dubai Financial Services Authority agreed to work on joint innovation projects of key technologies, including digital and mobile payments and big data.
The Swiss Financial Market Supervisory Authority wants to relax anti-money laundering rules for smaller fintech firms and will consult until Oct. 26 on the proposal.
And Mexico will require fintech companies to have minimum capital that is five times larger than incumbent finance companies, according to a preliminary draft of the secondary legislation for the country's fintech law. Some industry participants said the requirement is too large for startups, most of which are newly established with limited budgets.
From Aug. 24 to Aug. 31, the SNL U.S. Financial Technology Index rose 1.87%.
A recent report from S&P Global Market Intelligence explores how banks and insurers are embracing fintech innovation. The report looks at recent trends and provides outlooks for the insurtech, digital lending, digital investment management, digital banking, payments and distributed ledger technology sectors. Click here to read the report.