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2023 is expected to be a significant year for US payments with the launch of the Federal Reserve’s instant payment system and the release of its open banking rule. Legislative activity in the crypto space is also likely to heat up, Durbin’s credit card bill will be brought back to Congress and consumer protection issues will again take centre stage on the regulatory agenda.
The US is a contrasting payments market. In many respects it is highly developed in terms of non-cash payments usage and is at the forefront of payments technology.
In other aspects it lags behind other leading markets in key development areas. For example, it is one of the few countries in the world where cheques still play a significant role in the country’s payment mix.
However, 2023 is shaping up to be a key year for the US with the Federal Reserve’s forthcoming FedNow service expected to provide the much-needed impetus to grow instant payments, which together with regulatory changes, including new open banking rules, will pave the way for further disruptions in the payment space.
FedNow to launch between May and July
After four years in the making, the Federal Reserve’s instant payment system is set to launch between May and July this year.
According to Brigit Carroll, policy and campaigns manager for North America at Wise, FedNow is a crucial first step to bringing the US “up to reality” and spurring more innovation.
FedNow will exist in parallel with the existing real-time payment (RTP) network of the bank-owned The Clearing House (TCH), which was rolled out five years ago and processed 45m payments in the third quarter of 2022.
Although these volumes are extremely low when compared with other markets, membership in real-time payments has been growing steadily since the launch of RTP and it is expected to see a jump in participation once FedNow launches, Andrew Gomez, managing consultant at Lipis Advisors, told VIXIO.
The upcoming launch of FedNow not only raises awareness of instant payments but also signals to the market that real-time payments will inevitably come to the US, according to Gomez.
The US is like a “bigger ship that needs a longer time to turn”, Gomez said, explaining that US banks probably need longer time to prepare for real-time payments and build their products, while merchants and businesses could take even longer to adapt.
Therefore, it is unlikely that the launch of FedNow would change US payments on day one, but there will be big changes in the next three to five years, he added.
Open banking draft rule to be released in 2023
Another key topic that will shape discussions in the US payments scene is the Consumer Financial Protection Bureau’s (CFPB) ongoing rulemaking regarding financial data sharing.
As VIXIO pointed out previously, the rule would govern financial data sharing with third parties but payment initiation will not be included in the proposal at this time.
“It’s an exciting development in the space because it will increase competition, flexibility and consumer knowledge over their financial products and how they use them,” Scott Talbott SVP of government affairs at the Electronic Transactions Association (ETA), said.
The agency is currently in talks with small businesses regarding the draft open banking rule and its latest regulatory agenda shows that it plans to hand over a report on the conclusions of that exercise in February.
The proposed open banking rule, laying out the specifics of safe information sharing, will be released later in 2023, with the final rules and implementation planned for 2024.
Strengthening consumer protections
Under the current leadership of Rohit Chopra, the CFPB has already intensified its work around consumer protection. Going forward, Talbott said he expects the agency to carry on its policies focused on consumer protection, especially in the fintech space.
As part of this, the CFPB may continue its work around buy now, pay later (BNPL), data harvesting and unfair, deceptive, abusive acts and practices (UDAAP), according to Talbott.
At the same time, the agency must return before the US Supreme Court (SCOTUS) to defend its constitutionality and the validity of its past activities.
As reported by VIXIO in November, the CFPB’s authority to carry out regulatory and enforcement actions has been put into question by a US appeal court decision, which found the agency’s funding structure unconstitutional and declared a rule issued by the “unconstitutional agency” void.
SCOTUS will hear an appeal by the CFPB in April or May this year. Should SCOTUS side with the lower court, it could create a lot of confusion for the market as to whether the agency’s rules and enforcement actions need to be re-issued, Talbott said.
Durbin to revive credit card bill
Twelve years after the US passed legislation to rein in debit card fees, last year Senator Richard Durbin (D-IL) introduced legislation to spur competition in the credit card market.
Mirroring the dual routing provisions of the debit card legislation, the Credit Card Competition Act would mandate large credit card issuers to enable at least two competing networks on credit cards.
Despite several attempts to advance the bill in Congress, the legislative session ended without lawmakers voting on the bill.
However, the senator’s spokesperson confirmed to VIXIO that Durbin is planning to bring the bill back to the next Congress.
Although the bill has supporters on both sides of the aisle, many experts predict that the new, divided Congress, with the Democrat-led Senate and the Republican House, may more often lead to legislative gridlocks that may have an impact on Durbin’s bill.
Crypto legislation in the making
Finally, the new Congress is also expected to act to protect investors in the cryptocurrency space whose reputation was torn last year by numerous scandals and crypto exchange collapses.
For several months, top House Finance Committee members Maxine Waters (D-CA) and Patrick McHenry (R-NC) have been working on a bill to regulate stablecoins and are expected to file a proposal later this year.
“The 118th Congress will focus on crypto,” according to Talbott, who believes that legislators will first write policies to regulate stablecoins.
For instance, if crypto or stablecoins are used to make payments, issuers may need to comply with similar due diligence, bank secrecy and privacy requirements as other firms in the payment industry, Talbott said.
