Early on in her remarks to open last month’s conference event, “Consumer Payment Innovation in the Connected Age,” Federal Reserve Bank of Kansas City President Esther George acknowledged that disagreement would be likely.
“As part of its mission to promote economic growth and financial stability, the Federal Reserve has a mandate to foster the efficiency, safety and accessibility of the payments system. Most people agree that these are appropriate,” she said. “Yet, as the payments system becomes more electronic, views will differ on how the Federal Reserve should go about achieving those goals.”
You can describe George’s general take on the subject with one word: “involved.” In particular, she sees two likely consequences of a more electronically connected payments network that will likely require the Fed’s involvement.
1. Security issues.
“Changes in commerce and technology are creating new risks to the payments system by providing criminals with novel ways to commit fraud quickly and on a large scale… The Federal Reserve could serve to ensure there is always a trusted way for consumers and businesses to pay each other through their banks. That back-up payment method used to be checks. As checks decline, the need remains for a safe, efficient and accessible alternative.”
2. P2P fragmentation.
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“As we look at person-to-person (P2P) payments services, for example, we see a fragmented market that limits the benefits consumers enjoy from the “pay anyone, anywhere” ubiquity of the check instrument. As network economies allow one of the new P2P methods to dominate, a concentrated market may deliver higher prices, restricted access and slower innovation. By staying involved in retail payments as an operator—by offering a competitively priced, end-to-end product—the Federal Reserve may help to avoid these adverse outcomes.”
What’s your take on George’s message? When you look into your crystal ball, what does the future relationship between the Fed and electronic payments look like?
Note: Official copies of George’s comments include an important disclaimer worth reprinting on PYMNTS.com: “The views expressed by [George] are her own and do not necessarily reflect those of the Federal Reserve System, its governors, officers or representatives.”
Other Items in the Regulation Roundup:
“Fourteen Points” for Payments: EC Sets eCommerce Rules
24 Million Man-Hours Needed for Dodd-Frank Compliance, House Says
Cordray Acknowledges His Rise to CFPB Lead May Have Violated Rules
