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Facilitating Faster Payments in the United States Hearing

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Facilitating Faster Payments in the United States Hearing S. HRG. 116–93 FACILITATING FASTER PAYMENTS IN THE UNITED STATES HEARING BEFORE THE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS UNITED STATES SENATE ONE HUNDRED SIXTEENTH CONGRESS FIRST SESSION ON EXAMINING THE CURRENT STATE AND EVOLUTION OF THE U.S. PAY- MENTS ECOSYSTEM AND HOW THE CURRENT PAYMENTS SYSTEM WORKS OR COULD BE IMPROVED SEPTEMBER 25, 2019 Printed for the use of the Committee on Banking, Housing, and Urban Affairs ( Available at: https://www.govinfo.gov/ U.S. GOVERNMENT PUBLISHING OFFICE 38–550 PDF WASHINGTON : 2020 COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS MIKE CRAPO, Idaho, Chairman RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio PATRICK J. TOOMEY, Pennsylvania JACK REED, Rhode Island TIM SCOTT, South Carolina ROBERT MENENDEZ, New Jersey BEN SASSE, Nebraska JON TESTER, Montana TOM COTTON, Arkansas MARK R. WARNER, Virginia MIKE ROUNDS, South Dakota ELIZABETH WARREN, Massachusetts DAVID PERDUE, Georgia BRIAN SCHATZ, Hawaii THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada MARTHA MCSALLY, Arizona DOUG JONES, Alabama JERRY MORAN, Kansas TINA SMITH, Minnesota KEVIN CRAMER, North Dakota KYRSTEN SINEMA, Arizona GREGG RICHARD, Staff Director LAURA SWANSON, Democratic Staff Director CATHERINE FUCHS, Counsel COREY FRAYER, Democratic Professional Staff Member CAMERON RICKER, Chief Clerk SHELVIN SIMMONS, IT Director CHARLES J. MOFFAT, Hearing Clerk JIM CROWELL, Editor (II) CONTENTS WEDNESDAY, SEPTEMBER 25, 2019 Page Opening statement of Chairman Crapo ................................................................. 1 Prepared statement .......................................................................................... 36 Opening statements, comments, or prepared statements of: Senator Brown .................................................................................................. 3 Prepared statement ................................................................................... 37 WITNESSES Esther George, President, Federal Reserve Bank of Kansas City, on behalf of the Federal Reserve System ............................................................................ 5 Prepared statement .......................................................................................... 38 Responses to written questions of: Senator Brown ........................................................................................... 71 Senator Toomey ......................................................................................... 75 Senator Warren ......................................................................................... 77 Senator Sinema ......................................................................................... 80 Robert Hunter, Executive Managing Director and Deputy General Counsel, The Clearing House Payments Company ........................................................... 6 Prepared statement .......................................................................................... 44 Responses to written questions of: Senator Brown ........................................................................................... 81 Senator Warren ......................................................................................... 82 Robert A. Steen, Chairman and CEO, Bridge Community Bank, on behalf of the Independent Community Bankers of America ........................................ 8 Prepared statement .......................................................................................... 53 Responses to written questions of: Chairman Crapo ........................................................................................ 84 Senator Brown ........................................................................................... 85 Senator Warren ......................................................................................... 85 George Selgin, Senior Fellow and Director, Center for Monetary and Financial Alternatives, Cato Institute ................................................................................ 9 Prepared statement .......................................................................................... 56 Sheila C. Bair, Former Chair, Federal Deposit Insurance Corporation .............. 11 Prepared statement .......................................................................................... 62 Responses to written questions of: Senator Brown ........................................................................................... 87 Senator Warren ......................................................................................... 90 ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD Revised Statement of George Selgin ...................................................................... 92 Statement of The American Bankers Association ................................................. 98 Statement of The Credit Union National Association .......................................... 103 Statement of Financial Innovation Now ................................................................ 106 Statement of Food Marketing Institute ................................................................. 107 Statement of Nacha ................................................................................................. 110 Statement of The National Association of Federally-Insured Credit Unions ..... 114 Statement of The Retail Industry Leaders Association ........................................ 116 (III) FACILITATING FASTER PAYMENTS IN THE UNITED STATES WEDNESDAY, SEPTEMBER 25, 2019 U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. The Committee met at 10 a.m., in room SD–538, Dirksen Senate Office Building, Hon. Mike Crapo, Chairman of the Committee, presiding. OPENING STATEMENT OF CHAIRMAN MIKE CRAPO Chairman CRAPO. The Committee will come to order. Today the Committee will turn its focus to facilitating faster pay- ments in the United States. Faster payments are important and yield economic benefits for both consumers and businesses by pro- viding them with greater flexibility when managing money and making time-sensitive payments on demand. Real-time payments offer efficiency and convenience, helping con- sumers to better manage their spending and avoid unnecessary fees and penalties, and helping businesses pay for goods and avoid other costly sources of funding. Unfortunately, the U.S. has lagged behind other countries in the development of real-time faster payments for retail. Recognizing this shortcoming, in 2015, the Federal Reserve orga- nized a Faster Payments Task Force, made up of a diverse group of stakeholders, to encourage the development of a real-time pay- ment system in the United States. The Fed stated in its report on strategies for improving the U.S. payment system that it ‘‘would not consider expanding its service provider role unless it determines that doing so is necessary to bring about significant improvements to the payment system and that actions of the private sector alone will likely not achieve the desired outcomes for speed, efficiency, and safety in a timely man- ner.’’ Responding to the mission of the Faster Payments Task Force, The Clearing House announced in 2016 its intent to launch a real- time payments system, which it officially launched in November 2017. Just prior to The Clearing House launching that system, the Faster Payments Task Force in July of 2017 issued a final report, which offered several recommendations for achieving a safe, ubiq- uitous, and efficient faster payments system in the United States. One of those recommendations was for the Federal Reserve to de- velop its own 24x7x365 real-time gross settlement system for retail (1) 2 payments and to assess whether there were other operational roles the Fed should play in faster payments. After determining the Federal Reserve Banks should develop a new real-time gross settlement service, on August 2, 2019, the Fed- eral Reserve Board voted on the Fed’s proposal. The lone dissenter was Vice Chairman for Supervision Randy Quarles. The Federal Reserve then issued a notice and request for com- ment on Federal Reserve Actions to Support Interbank Settlement of Faster Payments—a system referred to as FedNow. In Vice Chairman Quarles’ dissent, he noted that, ‘‘The U.S. pri- vate sector has a long history of providing efficient payment solu- tions to consumers and businesses.’’ He added that, ‘‘The public sector should provide its own capacity only when the evidence of market failure is clear and alternative means to achieve public goals are not feasible. He added that he ‘‘does not see a strong jus- tification for the Federal Reserve to move into this area and crowd out innovation when viable private sector alternatives are avail- able.’’ Additionally, when providing a new payment service, the Federal Reserve is required to meet certain obligations and criteria before moving forward. Those criteria are: the Federal Reserve must ex- pect that its providing the service will yield a clear public benefit; the service should be one that other providers alone cannot be ex- pected to provide with reasonable effectiveness, scope, and equity; and the Federal Reserve must expect to achieve full recovery of costs over the long run. Throughout the Fed’s process, some financial institutions have raised concerns about the Fed’s analysis and its process, the cost and amount of time it would take to develop its own real-time pay- ment system, its prospects
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