Treasury Calls for Federal Payments Framework, but Key Details Remain Unclear

Through the past several weeks and months, the drumbeat’s grown louder for regulations at the federal level to govern nonbanks — especially FinTechs, neobanks and Big Tech.

And while the goal may be uniformity, there’s still a lack of concrete detail about who would be regulated, at what level — and just what is to be regulated, by whom and when.

The question remains as to whether various one-size-fits all efforts may in fact stifle innovation as companies await regulatory clarity.

In just one of the latest examples of what may lie ahead,  Nellie Liang, under secretary for domestic finance at the U.S. Treasury Department, said in a speech last week that a federal regulatory framework would include “key foundation elements” spanning financial resources, risk management and activities restrictions governing domestic payments.

The End Goals

“A federal payments framework that includes the key foundational standards discussed above can both simplify our domestic regulatory patchwork and make the regulatory framework more robust,” Liang said. “We can promote innovation and competition, while better protecting consumers, the payment system and the financial system. We can create a more level playing field domestically and also support U.S. global financial leadership.”

In her speech, Liang noted that “we have also seen growth in payment apps offered by nonbank firms.  Some may rely on bank partners or are linked to credit cards, but others may offer the ability to hold e-money balances. Adoption of payment apps — including Venmo, Apple Pay, Google Pay or CashApp — now rivals adoption of credit cards,” she said.

Risk Management — But Who’s the Overseer?

Within risk management, she said, the “payment systems need to be resilient,” particularly as payments themselves move toward real-time status and “failures or delays in some payments could spill over to other parts of the economy and the financial system. She noted, also, that third-party risk remains a concern.

As to the framework: “A regulatory framework is only as effective as its oversight and enforcement. A federal framework should have a federal supervisor with the authority and resources necessary to examine e-money issuers and be able to act if standards are not being met.” We note that the would-be federal overseer is not named here. PYMNTS has reached out to the Treasury Department for comments but had not yet received a response.

Several Regulators, Several Areas of Scrutiny

This week also saw the launch of the Consumer Financial Protection Bureau’s nonbank registry, where  nonbanks must register with the CFPB when they have been caught violating consumer law and must provide an attestation from a senior executive that the company follows any relevant orders, as had been announced back in June. The registration deadlines, depending on the types of nonbanks, are staggered through from January to July. In an earlier move at the end of last year, the CFPB had proposed that larger nonbanks — including digital payment apps and wallets handling more than 5 million transactions per year — be under the same regulatory scrutiny as large banks, credit unions and other financial institutions already supervised by the CFPB.

Reached Friday by PYMNTS, the CFPB declined comment on federal oversights and frameworks, referring us to CFPB Director Rohit Chopra’s comments from late last year that included observations on private firms’ digital dollar efforts and privatized payments systems. In those remarks, Chopra said that the “Financial Stability Oversight Council should consider exercising its authority under Title VIII of the Dodd-Frank Act to designate [these activities] as, or as likely to become, a systemically important payment, clearing, or settlement activity.”

And as we’ve documented this week, open banking, still a work in progress, may (or may not) see the release of final rulemaking on data sharing and standard setting on that data sharing between traditional FIs and third parties. In July, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the FDIC issued a Request for Information on bank-FinTech arrangements that are used to extend banking products and services distributed to consumers and businesses.

In just the last several paragraphs, then, we see the influence and the input of several authorities across a broad range of players and various services and systems — with a fair amount of it not exactly hashed out yet. A framework may be ardently desired by some, but in at least some cases it seems like there’s just the start of developing frameworks to regulate beyond the state level. The risks are that non-traditional players expend resources keeping up with a regulatory portrait that’s still being painted or take a wait-and-see approach before debuting new products and services.