How A New Policy On Real-Time Payments Threatens Blockchain And Crypto Payment Innovation

<figcaption><fbs-accordion><p class="color-body light-text">Ranking Member of the Senate Banking, Housing and Urban Affairs Committee Senator Sherrod Brown (R), Democrat of Ohio, and Chairman Mike Crapo (L), Republican of Idaho, question Treasury Secretary Steven Mnuchin and Housing and Urban Development</p><small>AFP/Getty Images</small></fbs-accordion></figcaption></figure><p>From the opening statements at both hearings, it was clear the Democratic leadership welcomed the idea of the Fed providing real-time payments. FedNow is seen to provide equality in the banking system and avoids families living paycheck to paycheck from dealing with overdraft fees, the inability to pay their bills on time, and turning to predatory payday lenders. Ranking Member Sherrod Brown (D-OH) of the Senate Banking Committee opened his remarks by stating, </p><blockquote class="quote-embed embed-27 bg-accent color-base font-accent"><p>“Whether it’s Facebook thinking it can run its own currency, or big banks wanting a monopoly over our payments system, we can’t allow corporations to take over critical public infrastructure so they can squeeze more profits out of working families”. </p><footer>Senator Sherrod Brown (D-OH), Ranking Member of the Senate Banking Committee</footer></blockquote><p>On the Republican side of the aisle, Senate Banking Committee Chairman Mike Crapo (R-ID) raised concerns about the Fed competing with the private sector, highlighting the costs to implement FedNow and challenges of interoperability. The Clearing House, run by the nation’s largest banks, had already launched RTP^TM in 2017 to offer real-time payments in the U.S. However, it appears to have failed to gain traction as many smaller banks are reluctant to use RTP.</p><p> The direct operation of retail payment systems by central banks is less widespread, although in some jurisdictions, central banks have a long history of operating such systems, sometimes in competition with privately operated systems.” Faster Payments - Enhancing The Speed And Availability Of Retail Payments: Bank For International Settlements 2016 The Faster Payments Council, a non-for-profit trade association in D.C., has as its mission to drive awareness of faster payments adoption, with its stakeholders including consumer protection groups, large and small banks, clearinghouses, and technology providers such as FIServ and Ripple. Kim Ford, Executive Director of the Faster Payments Council, noted that the move to faster payments is a …”natural evolution of how the US payments systems has grown over the years.” </p>

<p>Since 2015, the Federal Reserve Task Force on Faster Payments worked with academics, non-profits, and the private sector to come up with recommendations on ways to speed payments in the U.S. One of the Task Force recommendations was for the Fed to create its own real-time payments program. After the Federal Reserve Task Force wrote a final report in 2017 and ceased its activities, the non-profit Faster Payments Council assembled to continue the work on faster payments. Ms. Ford had the following comment on the FedNow program, </p><blockquote class="quote-embed embed-19 bg-accent color-base font-accent"><p>“While the Faster Payments Council is solution agnostic – our members have various faster payment products in the market today – we believe that the Federal Reserve’s decision to move forward with FedNow is a strong endorsement of faster payments. We plan to work closely with them to share our members’ perspectives on the design of FedNow and how to address more complex problems in the areas of fraud prevention, security and interoperability, for example.” </p><footer>Kimberly Ford, Executive Director, Faster Payments Council</footer></blockquote><p><strong>Legislating Real-Time Payments In The U.S. </strong></p><p>Meanwhile, as Republicans wanted the Federal Reserve to stay out of the payments business concerned the competition from the public sector would create a “chilling effect” to the private sector, Democrats introduced legislation that would make real-time payments by the Fed mandatory. Congresswoman Ayanna Pressley (D-MA) reintroduced the “Payments Modernization Act of 2019” that would require the Fed to offer real-time payments in three years. The current plan for FedNow is to open in 2023 or 2024. </p><blockquote class="quote-embed embed-18 bg-accent color-base font-accent"><p>“This is the only legislation that holds the Fed accountable for developing a faster payments system that prioritizes consumer protection fraud prevention and equal access in a reasonable time frame.” </p><footer>Congresswoman Pressley (D-MA), on the Payments Modernization Act of 2019</footer></blockquote><p>The policy of faster payments by the public sector to ensure fairness, equality and consumer protection, creates a new challenge for the private sector, including blockchain and cryptocurrency solutions, where millions of R&D dollars have already been spent on real-time payments innovation. </p><p>The proposed legislation as well as links to view the two hearings are below. </p>

<p>FinTech Task Force Hearing on September 26, 2019, 2pm </p><a class="link-embed embed-23 bg-accent font-accent color-base" href="https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=404240" target="_blank"> <header class="color-base">The Future of Real-Time Payments | Financial Services Committee</header> <small class="color-base"> <span class="provider-name">House</span> </small></a><p>Senate Banking Committee Hearing on September 25, 2019, 10AM </p><a class="link-embed embed-25 bg-accent font-accent color-base" href="https://www.banking.senate.gov/hearings/facilitating-faster-payments-in-the-us" target="_blank"> <header class="color-base">Facilitating Faster Payments in the U.S. | United States Committee on Banking, Housing, and Urban Affairs</header> <small class="color-base"> <span class="provider-name">Senate</span> </small></a>”>

Congress held two hearings last week on the subject of real-time payments where the focus was on the Federal Reserve System of the United States deciding that for the public good, it needs to create a real-time payments system to compete against the private sector. The Fed plans to implement and run the FedNow Service^SM that offers interbank 24/7/365 gross settlement. FedNow would allow any financial institution to send and receive payments any time, any day, anywhere, and have full access to those funds within seconds.

From the opening statements at both hearings, it was clear the Democratic leadership welcomed the idea of the Fed providing real-time payments. FedNow is seen to provide equality in the banking system and avoids families living paycheck to paycheck from dealing with overdraft fees, the inability to pay their bills on time, and turning to predatory payday lenders. Ranking Member Sherrod Brown (D-OH) of the Senate Banking Committee opened his remarks by stating,

“Whether it’s Facebook thinking it can run its own currency, or big banks wanting a monopoly over our payments system, we can’t allow corporations to take over critical public infrastructure so they can squeeze more profits out of working families”.

On the Republican side of the aisle, Senate Banking Committee Chairman Mike Crapo (R-ID) raised concerns about the Fed competing with the private sector, highlighting the costs to implement FedNow and challenges of interoperability. The Clearing House, run by the nation’s largest banks, had already launched RTP^TM in 2017 to offer real-time payments in the U.S. However, it appears to have failed to gain traction as many smaller banks are reluctant to use RTP.

The direct operation of retail payment systems by central banks is less widespread, although in some jurisdictions, central banks have a long history of operating such systems, sometimes in competition with privately operated systems.” Faster Payments - Enhancing The Speed And Availability Of Retail Payments: Bank For International Settlements 2016 The Faster Payments Council, a non-for-profit trade association in D.C., has as its mission to drive awareness of faster payments adoption, with its stakeholders including consumer protection groups, large and small banks, clearinghouses, and technology providers such as FIServ and Ripple. Kim Ford, Executive Director of the Faster Payments Council, noted that the move to faster payments is a …”natural evolution of how the US payments systems has grown over the years.”

Since 2015, the Federal Reserve Task Force on Faster Payments worked with academics, non-profits, and the private sector to come up with recommendations on ways to speed payments in the U.S. One of the Task Force recommendations was for the Fed to create its own real-time payments program. After the Federal Reserve Task Force wrote a final report in 2017 and ceased its activities, the non-profit Faster Payments Council assembled to continue the work on faster payments. Ms. Ford had the following comment on the FedNow program,

“While the Faster Payments Council is solution agnostic – our members have various faster payment products in the market today – we believe that the Federal Reserve’s decision to move forward with FedNow is a strong endorsement of faster payments. We plan to work closely with them to share our members’ perspectives on the design of FedNow and how to address more complex problems in the areas of fraud prevention, security and interoperability, for example.”

Legislating Real-Time Payments In The U.S.

Meanwhile, as Republicans wanted the Federal Reserve to stay out of the payments business concerned the competition from the public sector would create a “chilling effect” to the private sector, Democrats introduced legislation that would make real-time payments by the Fed mandatory. Congresswoman Ayanna Pressley (D-MA) reintroduced the “Payments Modernization Act of 2019” that would require the Fed to offer real-time payments in three years. The current plan for FedNow is to open in 2023 or 2024.

“This is the only legislation that holds the Fed accountable for developing a faster payments system that prioritizes consumer protection fraud prevention and equal access in a reasonable time frame.”

The policy of faster payments by the public sector to ensure fairness, equality and consumer protection, creates a new challenge for the private sector, including blockchain and cryptocurrency solutions, where millions of R&D dollars have already been spent on real-time payments innovation.

The proposed legislation as well as links to view the two hearings are below.

FinTech Task Force Hearing on September 26, 2019, 2pm

The Future of Real-Time Payments | Financial Services Committee

House

Senate Banking Committee Hearing on September 25, 2019, 10AM

Facilitating Faster Payments in the U.S. | United States Committee on Banking, Housing, and Urban Affairs

Senate