Twenty years ago the payments system in the United States was so stable it was considered the backwater of banking and finance, Rob Hunter, deputy general counsel of The Clearing House (TCH), a banking association and a payment company owned by the largest in the United States. commercial banks, Karen Webster said in a TechREG conversation from PYMNTS TV.
Today, with the launch of the RTPÂ® network by TCH, the growth of FinTechs, and the advent of cryptocurrencies, businesses are scrambling to determine the future of payments. And suddenly, the payments area seems rather a large agglomeration.
âWe have seen huge changes and we anticipate even bigger changes going forward,â said Hunter.
Dating back to 1853 and clearing and settling over $ 2 trillion in payments every day, The Clearing House has arguably the longest pedigree of any such race to speed up the way payments are made, cleared and settled in the United States. .
TCH began to formulate the ideas that would eventually become the RTP network, a real-time payment system open to all U.S. financial institutions, in 2010 – but the banking industry was still reeling from the subprime mortgage crisis and tackled Regulatory Reforms to the Dodd-Frank Act, leaving little technology investment fund to launch a new payments network. A working group was formed in October 2014 to explore use cases and design the system launched in November 2017. Today, Hunter said, the RTP network provides technical access to 73% of demand deposit accounts. in the United States and supports a variety of uses. cases, including concert workers’ payroll, P2P payments and bill payment.
Hunter said he understands the enthusiasm of many in the payments and FinTech communities for the technology behind crypto and blockchain. But he doesn’t agree that only stablecoins and cryptocurrencies can make payments transparent. It’s hard to get faster speed than snapshot, he noted, this is how the RTP network works in the United States.
Hunter added that technology isn’t the problem of blocking out making payments cheaper, faster, and more transparent for consumers when it comes to transferring money across borders – the factor. blocking is regulation.
“[The challenges are] regulatory and legal, and related to compliance, âexplained Hunter. âThis has to do with the fact that there are different laws in each jurisdiction on how payments are processed. This is the nut that really needs to be resolved to make cross-border payments more efficient and smoother. “
Scale is another important issue for network development. As Hunter noted, the U.S. financial ecosystem is significantly larger and more diverse than that of other jurisdictions, with 10,000 to 12,000 FIs all of which must be associated with a different system to transfer money between individuals. and businesses. It takes time for networks to evolve. For any money movement system to work, a significant majority of banks – from large to small – must be connected to ensure that the rails of the network have significant reach. It took almost 20 years for the ACH to evolve, and the RTP network reached significant scale in much less time.
The new technology
One of the latest entrants to the crypto payments space is the central bank’s digital currency, or CBDC. It’s a huge topic around the world, with dozens of countries questioning whether they should follow China’s lead with its launch of the digital yuan. Central banks are stepping up their review of CBDC’s possibilities in the face of the perceived threat of stablecoins to global fiat currencies – particularly the dollar.
Hunter has another point of view: âWe’ve seen a lot of debate in Congress on this issue,â he said. âMost of it focused on the potential benefits of central bank digital currency. I think you have to ask yourself the question: what problem does this really solve?
Among other things, he highlighted the design challenges that a CBDC would pose to the central banks that would issue them, and the potential disruptions to the existing financial system. At the heart of this discussion is the impact of a CDBC on bank deposits used for loans and reserves.
“It is difficult to understand how a central bank digital currency would add to what we already have in the payments system and the capabilities that exist today,” he explained.
As for stablecoins, Hunter pointed to the widespread belief that they currently exist outside the federal financial regulatory framework, despite attempts by agencies, including the Securities and Exchange Commission (SEC), to assert their authority under the rules. existing.
It means more than just a lack of proper supervision. There’s FDIC insurance, the speed at which stablecoins move with the rise of the DeFi industry and the lack of resources comparable to what banks can use “to consolidate their deposits in times of stress,” said Hunter added. Stable coin runs could easily turn into a “broader financial system run”, reflecting the greatest concern of many central bankers.
Many of these issues apply to other FinTechs as well, Hunter said, arguing that despite their deeper entry into the payments space over the past 15 years, the regulatory framework has not kept pace.
âThat could start to change in 2022,â he said, predicting that âI think you’re going to see regulatory agencies take some important steps to try to put stablecoins under some sort of regulatory control.â
That said, he believes it will take much longer than in 2022 to decide on their future and that of crypto. The agencies have been very cautious and technologically neutral in order to avoid stifling innovation, he noted.
But, added Hunter, âthey realize that these are real products. There are a lot of people using them and therefore they have to step in and create settings. Innovation is good, but there has to be a meaningful regulatory framework that protects people at the same time. “