House Committee Examines Evolving U.S. Payments System and Innovations

The evolving landscape of the United States payment system and its impact on both bank and non-bank charters took center stage in a recent House Financial Services Committee hearing. This comprehensive examination showcased discussions among lawmakers and industry leaders, highlighting the need to adapt to the rapid changes in financial technology.

Modernizing Financial Innovation

Subcommittee on Financial Institutions Chairman Andy Barr (KY-06) remarked, “For generations, the United States has benefited from having one of the strongest and most trusted financial systems in the world. That success rests on a foundation of innovation, competition, and confidence, and a modern economy depends on a payments system capable of supporting all three.”

Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence Chairman Bryan Steil (WI-01) noted, “I think we all know innovation is occurring across all levels of the financial system, from our state-based institutions, fintechs, novel business models, and federally chartered banks. The dual banking system in the United States has allowed institutions to choose what charter and what model fits well for them. And it's one of the reasons the U.S is so diverse and innovative in our financial markets.”

Rep. John Rose (TN-06) stated, “The United States stands at a critical inflection point in the future of payments. We are living through an era of rapid financial technology advancement. New firms are reimagining how families, workers, and small businesses send, receive, and store value. If our chartering framework does not evolve alongside this innovation, we risk falling behind. America's long-standing role as the global hub for fintechs and the preferred destination for startups is not guaranteed.”

Impact of Payment Technologies on Small Businesses

Small Business Committee Chairman Roger Williams (TX-25) commented, “Small businesses are the backbone of our economy, whether it's a family-owned restaurant, a local retailer, or a startup trying to grow; every dollar matters. New payment technologies have the potential to lower costs, improve cash flow, and make it easier for businesses to serve their customers.”

Rep. Young Kim (CA-40) expressed, “… I represent the counties of Orange, Riverside, and San Bernardino in Southern California. And I've heard from so many of my constituents working in health care, retail, and other industries about how payments modernization is pivotal in helping small business owners make their payroll and get the workers their paychecks on time.”

Calls for Regulatory Clarity

Mr. David Portilla, Partner and Co-Head, Financial Institutions, Davis Polk & Wardell LLP, stated, “The recurring difficulty across chartering, payments licensing, and access to Federal Reserve services is the same: a framework organized around a bundled conception of banking has not fully adapted to a world in which the core banking functions have become increasingly unbundled. The remedy is not to force new business models into ill-fitting categories. Rather, responsible innovation is best fostered by clear legal standards about which charters and licenses are available, what activities they permit, and on what terms institutions may access Federal Reserve services. Having clear standards for these issues could spur a further wave of investment into the future of financial services.”

Mrs. Paige Paridon, Executive Vice President & Co-Head of Regulatory Affairs, Bank Policy Institute, said, “Technological innovation in the payments ecosystem has further increased the speed of payments, clearing, and settlement, providing even greater benefits to consumers and businesses. While fintechs and other nonbanks have engaged in payment innovation, significant innovation is also occurring within the banking sector. Banks are using new technologies to provide consumers and businesses with innovative products and services, consistent with the banks’ safe and sound operation.”

Mrs. Eileen O'Mara, Vice Chair, Stripe, emphasized, "The question the committee is examining — how best to modernize payments — is not a narrow technical question. Getting paid quickly and reliably matters deeply to every business. It determines whether they hire the next employee, make the next investment, or survive the next slow month. Modernizing America’s financial infrastructure can help businesses grow faster."

Ms. Rachel Anderika, Head of Global Operations, Anchorage Digital asserted, “One important lesson I have learned is this: If America is going to continue to be the financial capital of the world, we need regulatory frameworks – federal and state – that allow innovation. ... Our regulator, the OCC, is focused on safety and soundness, fair access, consumer protections, and compliance with laws and regulations, and its work is ongoing. From my experience with the OCC, the agency has been rigorous in its supervision and steadfast in its obligations to apply laws and regulations to crypto banking. We are regulated on the same footing as any other bank in the OCC’s portfolio, and the agency is diligently investing resources to responsibly regulate digital asset activities as the industry grows.”

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