Financial Services and Hate Speech
Should everyone be granted access to the payments system, as long as they are engaged in legal activity? Or should payments providers be able to bar certain businesses and individuals that engage in activities that are legal but controversial and potentially risky to the provider’s brand?
This isn’t just a theoretical debate. Porn content providers have been deplatformed by PayPal. But the porn industry isn’t the only segment of society to bear the brunt of a payments ban. Businesses allegedly trafficking in hate speech have also been abandoned by their payments providers.
I find hate speech to be despicable. But, like porn, it is legal in the U.S. — enjoying the protection of the First Amendment.
So far, hate speech blockades have occurred along the periphery of the U.S. payments system, specifically various payment processors. The core networks — systems like the Visa and MasterCard networks, Fedwire, and CHIPS — remain relatively insulated. But one should not expect that to last. The real battle will be at the core.
Gab, a right-wing social media site, provides one of the most well-known examples of payments censorship. In October 2018, Robert Bowers left a hate-filled message on Gab and then proceeded to murder 11 people at a Pittsburgh synagogue. Gab was immediately cut off by a number of service providers, including payment processors PayPal and Stripe, which cited terms-of-service violations.
In PayPal’s case, it prohibits transactions involving “the promotion of hate.” Stripe reserves the right to remove any business that encourages “unlawful violence toward any group based on race, religion, disability, gender, sexual orientation, national origin, or any other immutable characteristic.” To this day, Gab doesn’t accept card payments, only bitcoin, check, and echeck.
Gab joins a number of other right-wing organizations and individuals that have been dropped by payments processors due to accusations of promoting hatred. Last month, white nationalist Stefan Molyneux was blocked from accepting payments on PayPal. Earlier this year, Slate reported that 1776.shop — a shop that sells t-shirts for the Proud Boys, a neo-fascist organization — has been cut off by payment processors Square, Chase Paymentstech, and PayPal.
Payment processors operate on the periphery of the payments system. If a business wants to begin accepting online card payments, they will have to be connected to the core MasterCard or Visa networks. They can do this by contracting with a third-party payment processor like Stripe, Square, and PayPal. These companies provide a gateway to the card networks, process incoming payments, and deal with customer refunds and chargebacks.
Being deplatformed by a payments processor is painful, but not fatal. Payments processing is a highly competitive industry with many participants. Dropped by one gateway? Find another. For instance, 1776.shop still appears to be processing card payments. Presumably it has succeeded in finding a new payments provider to replace Square.
Even if efforts to deplatform hate speech were to gather enough momentum that all processors stopped providing would-be haters with access to the credit card networks, the ranks of deplatformed extremists would probably be large enough to band together and start their own gateway. Call it First Amendment Payments Processing. That would allow hate speech purveyors and racists to accept MasterCard and Visa.
At that point, the deplatforming debate would be knocked out of the payment-processing periphery and toward the core. MasterCard and Visa would be forced to decide if they will approve First Amendment Payments Processing as a gateway to their networks.
Unlike Stripe and other payments processors, the card networks do not currently prohibit transactions that involve hate speech. In fact, in a recent MasterCard annual meeting, executives were challenged by activist Nandini Jammi of Sleeping Giants to explain why they did not “boot” neo-Nazis and hate groups off of their payments platform. In response, Chairman Rick Haythornthwaite noted that if there is any illegal activity taking place, we “shut it down.” But if it is lawful,
then we need to respect that transaction. If it is something that is swimming against the tide of society, it’s for the society to rise up and change the law and then we can move on this.
At least for now, the card networks appear willing to accept all users, as long as the trade that they engage in is licit. But this commitment to free speech probably isn’t absolute. In Visa’s rule book, for example, it reserves the right to terminate access to any merchant that enters “brand-damaging” transactions into the Visa system.
If First Amendment Payments Processing, or something like it, were to be kickstarted, the political and media pressure for the card networks to adopt some sort of anti–hate speech policy, and thus exclude the new gateway, would become much more intense. They might very well decide that their philosophical commitment to processing all lawful transactions is less important than the brand damage caused by facilitating hate speech. And so they would start cutting haters off.
A policy of policing hate speech at the core of the payments system would be much more far-reaching than at the periphery. As I suggested earlier, being excluded by any given payment processor is not life-threatening.
But card networks are different. There are only two big ones, three if you include American Express. Get booted and there is no real alternative. And starting a new, competing network would be next to impossible.
Should card networks have the power to ban distasteful but legal activities that hurt their brand? Or are they so vital to commercial society that they should be legally obliged to serve everyone?
I have mixed emotions about this. As I said earlier, I don’t like hate speech or racists. However, I do worry about core networks like Visa and MasterCard taking the initiative to choose what sorts of legal transactions make it through their filters and which ones won’t. I’m less concerned about blockades being made at the payments periphery.
The battle over financial deplatforming isn’t going to go away. Before we act, let’s be sure we’ve thought things over.
J.P. Koning
J.P. Koning is a financial writer and blogger with interests in monetary economics, economic history, finance, and fintech. He has worked as an equity researcher at a Canadian brokerage firm and a financial writer and publisher at a large Canadian bank. More recently, he has written several papers for R3, a distributed ledger company, on the topics of central bank cryptocurrency and cross border payments. He founded the popular blog Moneyness in 2012. He designs economics and financial wallcharts at Financial Graph & Art.
Koning earned his B.A. in Economics from McGill University.
