Payments Systems Access and Governance

Position

  • ICBA supports payment systems that are competitive, progressive, and secure and that offer fair and open access to all community banks regardless of size and operational capability so they can meet the existing and evolving global payment needs of their customers.
  • ICBA supports industry efforts that improve payments efficiency, security, speed, and efforts that make bank-centric payments models more competitive in an evolving and dynamic marketplace and enable open competition among financial institutions of all sizes and charters.
  • Ubiquitous faster payment initiatives should include compensation to the receiving bank for its role in processing the transaction.
  • ICBA strongly supports subjecting non-bank payments providers to the same privacy, security and consumer protection requirements as banks.
  • ICBA encourages the CFPB to use its authority to regulate large market participants to address non- banks serving as payments channels and to create consistent transparency and protections for consumers as well as a level playing field for all payments providers.
  • ICBA encourages a federal and state regulatory framework for virtual currencies and the virtual wallets, exchange services, and merchant enablers that support these services.
  • ICBA welcomes the development of digital and mobile wallets as an important consumer innovation. These products must evolve in a way that protects consumer privacy, accommodates bank-centric payments, and allows all financial institutions an equal opportunity to have their cards and accounts at the top of the wallet.
  • ICBA supports the Federal Reserve System in its dual role as payment systems regulator and provider/operator of services.
  • ICBA strongly supports the Federal Reserve Banks’ effort to foster the creation of a ubiquitous, near- real-time payment system and urges the Reserve Banks to participate in this new system as an operator and service provider.
  • ICBA encourages the Federal Reserve to use vigorously its authority to identify and regulate systemically important payment, clearing and settlement systems.
  • ICBA supports the important roles private-sector rulemaking organizations – payment card networks, check and ACH clearing houses, and standards-setting organizations – play in developing and maintaining rules supporting fair, open, and efficient access to payment systems and promotes community bank participation in the governance and rulemaking of these organizations.
  • ICBA encourages both the Federal Reserve Board and private-sector rulemaking organizations to uniformly enforce rules; to timely and transparently refine rules to address new services, technologies regulatory requirements and marketplace dynamics; and to collaborate on further establishing uniformity and efficiency between the various rules.
  • ICBA urges policymakers to raise the safe harbor exemption in Regulation E from 100 to 1,200 transfers in the previous year to provide a more meaningful safe harbor amount for community banks. ICBA urges policymakers to make permanent the temporary provision under Section 1073 of the Dodd-Frank Act that permits insured institutions to estimate certain pricing.

Background

Access. Community banks’ payment systems access must not be limited through the imposition of anti- competitive and discriminatory pricing or policies, membership requirements, standards, operating rules or technological barriers. The concentration of market power should not be used to force changes that would materially and adversely impact the competitive nature of our nation’s payments system.

Payments Improvement. Community banks need a faster, more efficient and more secure bank-centric payments system to effectively serve their customers and communities. ICBA is a longtime advocate of Same-day ACH and is an active participant in the Federal Reserve’s Faster Payments and Secure Task Forces. ICBA partnered with North American Banking Company to submit a faster payments proposal for consideration before the Task Force which stresses low-cost on-ramps to a payments system that can reach any financial institution. Core attributes of any faster payments system should include end-user payment experience, ubiquity, efficiency, inter-bank compensation, and strong oversight by financial institutions.

Non-Bank Providers. The emergence of non-bank payments providers adds risk and threatens the integrity of the payments system as these providers are not subject to the same safety and soundness, oversight and examination requirements as banks. This lack of oversight places consumers and small businesses using these services at greater risk. Additionally, these non-bank providers should not disrupt or disintermediate the bank-centric payments system. These technologies should be safe and secure, adhere to the same regulations and consumer protections as banks, and enable banks, regardless of size, charter-type or location, to play an active role in the customer relationship.

Virtual Currencies. Virtual currencies offer consumers a new choice of payment method and have the potential to create further new options for consumers, international commerce and investors in the future. However, many of these options come with great risk for customers and the banks that serve them, as virtual currencies are often used for illicit purposes. The current limited regulation and oversight applied to the virtual currency marketplace and transactions mean that consumers and investors that use or hold virtual currency are exposed to significant risks. ICBA continues to advocate on behalf of community banks to educate policymakers regarding the risks related to virtual currencies.

Virtual currencies’ use of blockchain and distributed ledger technology is spurring significant investments in payments technology. These technologies can be used for executable contracts and international payments, but can also be re-purposed as public records of transactions and can be used for non-payment- related purposes, such as voting and as an exchange value database.

Digital and Mobile Wallets. Digital and mobile wallets, such ApplePay, MasterPass, and Samsung Pay, offer consumers a means of consolidating their payment card and account information. It is imperative that these wallets evolve in a manner that ensures that customer data is protected, login credentials are never shared, non-banks (software companies, retailers, and phone manufacturers) do not have access to customer account information, and bank-centric payments are accommodated. Digital and mobile wallets should be ubiquitous – connecting all consumers to all businesses – through all financial institutions. They should allow for an open competitive environment and not add unrecoverable costs.

Federal Reserve System. The Federal Reserve’s ongoing dual payments role as a regulator and a provider of services allows it to maintain efficient, accessible, reliable, and safe payment systems for all financial services stakeholders. The new strategic focus for the Federal Reserve’s Financial Services bodes well for all participants as the industry strives to meet the payments needs of consumers and businesses in a dynamic and innovative commerce environment fueled by the emergence of smart-phones, tablets, and other mobile devices. This strategy moves the Federal Reserve’s focus from the interbank payments market to the entire payments supply chain to shape the end-user payments experience. It is essential that, as part of this initiative, the Federal Reserve participates as a payments operator and service provider to all banks, regardless of size and charter.

Private-Sector Governance. Given that private sector rules govern the ACH, payment card networks, check clearing houses and the next generation of payments, it is vital for community banks to participate in the rulemaking, operations, and governance of these organization. At the national level, ICBA actively represents the community bank perspective before NACHA --The Electronic Payments Association as new ACH rules and innovative products are vetted and implemented. ICBA Bancard representatives are active participants in the Visa and MasterCard policymaking bodies. Additionally, ICBA and community bankers interject the community bank voice in the Electronic Check Clearing House Organization (ECCHO) rulemaking process governing check image exchange and the Accredited Standards Committee X9 mission to develop standards for the financial services industry.

Remittance Transfers. The CFPB’s 2013 remittance transfer rule, designed to protect consumers who send money electronically to foreign countries, exempts community banks and others sending fewer than 100 transfers per year. This threshold, which is unreasonably low and forces community banks to manage volume to stay below it, results in fewer consumer options. Additionally, this rule contains a temporary provision that permits insured institutions to estimate certain pricing. Since most community banks use open networks and cannot predict with certainty the exact amount that will be received, this temporary provision should be made permanent.

Staff Contact: Cary Whaley and Rhonda Thomas-Whitley