The supervisory hearing in the house bank talks about peer-to-peer payments, stablecoins

How do you take your bank managers?

Big bank executives arrived on Capitol Hill Wednesday for day one of their semi-regular grilling of congressional leaders. (Olive oil, salt, pepper and some light balance sheet research, that sort of thing.) Although the hearing focused on traditional finance, the day-long affair included rounds of questions from lawmakers on two big fintech topics: peer-to-peer payment systems and a digital dollar .

There was some early shade cast on major fintechs. “Despite the headlines, disputes within the Zelle network account for less than 10 basis points of all transactions,” said PNC Bank CEO Bill Demchak. “That is not true for unregulated P2P digital payment services.”

• Zelle is the money transfer network owned by many of the nation’s largest banks that competes with Blocks Cash App and PayPal, which also owns Venmo.
• The Financial Technology Association, a trade group that counts PayPal and Block as members, called Demchak’s comments misleading. “As bank CEOs know, non-banks are regulated at the federal and state levels and maintain robust consumer protection standards, including for privacy and fraud responses in electronic funds transfers,” CEO Penny Lee told Protocol. (We noticed yesterday that Demchak’s description was off.)
• Regulators are cracking down on complaints about fraud on P2P services, and banks appear to be distancing themselves from tech players. The Bank Policy Institute, a think tank that represents financial institutions, released a report earlier this week that said Zelle had the lowest rate of disputed transactions among P2P payment platforms. However, their own report showed that Venmo’s fraud rate was only 0.004 percentage points higher than Zelle’s, and it did not examine all P2P transactions — only those at eight major banks were examined.
• Bank executives said they are refunding customers for “unauthorized” transfers, but the broader question is whether banks are responsible for fraud that tricks customers into sending money. The Wall Street Journal reported that the CFPB is considering requiring banks to refund customers defrauded by popular scams, such as someone pretending to represent the bank. Banks have pushed back, saying it could actually encourage more fraud.

Big banks are financial “leaders,” several representatives said, but they won’t take the lead in adopting a CBDC. The banks took a passive approach when asked about a digital US dollar, signaling that they will not proactively push implementation forward. The crypto industry, meanwhile, has rallied around asset-backed stablecoins.

• JPMorgan Chase’s Jamie Dimon said he thinks CBDCs are a fair idea, but doesn’t expect the Federal Reserve to implement their use smoothly. He described the Fed as less nimble than private institutions, and ill-equipped for something so technically complicated. “You’re not going to see the Fed running call centers,” he mused. “There is much more to banking than a symbol that moves the money.”
• Specifically, Dimon said he was wary of the Fed’s ability to handle fraud, risk prevention and regulatory responsibilities like the Community Reinvestment Act. (He also said he considers other cryptocurrencies, like bitcoin, to be “decentralized Ponzi schemes.”)
• DeFi, meanwhile, increasingly relies on stablecoin providers. After the moon crash earlier this summer, the importance of having a genuinely stable digital dollar became clear. Circle’s USDC has increasingly become the stablecoin of choice for DeFi, although Tether, with more dubious support, still has the highest market cap.
• The witnesses have signaled a serious interest in stablecoins in the past. For example, JPMorgan created JPM Coin to use as a payment rail and deposit ledger for certain institutional clients. Wells Fargo piloted a stablecoin for use in transfers that it said could be more efficient than SWIFT. Citi, meanwhile, has taken a more cautious approach. While acknowledging that stablecoins could create more utility in crypto, Citi’s managing director of new payments for finance and trade solutions wrote that competition between CBDCs and stablecoins could generate significant instability in the banking system.
• As we wrote in May, if stablecoins were to be widely adopted, a digital US dollar could prove elusive.

The hearing showed that lawmakers still see many flaws in traditional finance — areas where they may be more prepared to accept disruption from potential incumbents despite growing skepticism about technology in general. It also demonstrated where regulators are concerned that new tech companies could perpetuate the same harms. Fintech leaders would be smart to tread carefully with P2P payments and push for a CBDC, and to appear keen to do so in a way that does not perpetuate harm to consumers. Otherwise, they may find it’s their turn for a Capitol roasting.

— Veronica Irwin (e-mail | twitter) and Ryan Deffenbaugh (e-mail | twitter)

A MESSAGE FROM VERSAPAY

AR Disconnect happens when AR teams and customers struggle to communicate, causing reduced cash flow and damaged relationships. If that sounds familiar, get our new report that covers what’s really hurting the customer experience, and what you can do about it.

Learn more

On the money

About protocol: Kraken CEO Jesse Powell is stepping down and will be replaced by CEO David Ripley.