The Conference of State Bank Supervisors recently told the Federal Reserve in its request for comment that Fed banks are “uniquely positioned to coordinate improvements” to the U.S. payment system.
The CSBS encouraged the Fed to examine if emerging non-bank payment providers pose a threat to the existing system and assess how emerging payments technology innovations may benefit financial institutions, consumers, businesses and the overall economy.
“CSBS encourages the Federal Reserve Banks to determine why the U.S. payment system needs improvements and updates, and to explore in more detail what potential benefits and negative consequences might result from making significant changes to the U.S. payment system,” the letter said. “Alternative forms of payment and the emergence of digital currencies are clearly drivers of change and awareness of the limitations of the traditional payment system. The Federal Reserve Banks will need to determine if these innovations represent a paradigm shift in expectation for payments.”
CSBS told the Fed any system or network of systems should “substantially remain within the formal banking system,” adding that doing so “provides key benefits.”
“Firstly, the regulated banking system is better positioned to provide necessary protections to consumers and payment system participants, especially as new payment technologies, systems and processes are implemented,” CSBS said. “Secondly… [it] would also assist regulators and supervised financial institutions as they monitor and screen for risks, and would allow the Federal Reserve to better respond to any payment system issues in times of crisis.”
CSBS also said that while reducing costs, boosting speed and convenience are important goals, “ensuring that technology provides sufficient safeguards against fraud and other abuses is a critical component.”
“Otherwise, consumers, businesses and the economy as a whole ultimately will lose the confidence that is required to underpin any successful system,” CSBS said. “CSBS believes that the Federal Reserve Banks should pursue a system that is safer, more cost effective and faster, as any component alone is insufficient to ensure long-term viability.”