Federal Regulatory Framework Needed for Nonbank Payment Service Providers to Reduce Risks and Promote Innovation

The need for a federal regulatory framework for nonbank payment service providers has never been more apparent. Nellie Liang, under secretary for domestic finance at the U.S. Treasury Department, highlighted the importance of such a framework in her recent remarks at the Chicago Payments Symposium.

Liang emphasized that the current state-based regulatory framework is inadequate to address the rapid growth in new forms of money and payments. This outdated framework not only poses risks to the integrity of payment systems but also hinders competition and innovation in the industry.

To address these challenges, Liang proposed a modern regulatory framework that includes key foundation elements such as financial resources, risk management, and activities restrictions. These elements are essential to protect against loss, reduce the risk of insolvency, and ensure that nonbank payment service providers do not engage in anti-competitive behavior.

By implementing a federal payments framework that incorporates these foundational standards, Liang believes that we can simplify the regulatory landscape, promote innovation and competition, and better protect consumers and the financial system. This framework would create a level playing field domestically and support U.S. global financial leadership.

The Treasury Department’s publication of “The Future of Money and Payments” report in 2022 further underscores the need for regulatory reform in the payments industry. The report discusses the potential benefits and risks of new technologies, including the idea of launching a central bank digital currency (CBDC) and improving cross-border payments.

In conclusion, a federal regulatory framework for nonbank payment service providers is essential to reduce risks, promote innovation, and ensure the integrity of payment systems. By implementing key foundation elements and addressing the challenges posed by the current regulatory framework, we can create a more secure and competitive payments industry for the future.