A senior Treasury Department official is challenging the idea that rapidly evolving financial technology will require a sweeping overhaul of rules governing payment services and the electronic transfer of funds between consumers, banks, merchants and others.
In a recent analysis, Matt Swinehart, a senior counsel at Treasury, said a massive “regulatory rethink” of payment services won’t be required because many rules and standards governing payments are what he called technology neutral. The analysis appeared on a blog about the intersection between financial technology and government policy. Swinehart and the Treasury Department declined an interview request about his statements.
According to Swinehart, government oversight of payment services is meant to protect consumers, enforce laws and keep the financial system stable. Regulators’ approach to these goals doesn’t depend on what technology is used to make payments, meaning that regulation is more “durable in the face of financial change than the conventional wisdom would predict,” he said.
The components of moving a payment from one party to another includes as many as seven different types of services. Swinehart said a feature of payments regulation, however, is that government oversight is concerned with only two of those categories: account services, meaning who has control of the money and what rules they must follow, and settlement services, which ensures that the money properly changes hands and is accounted for.
Account services range from bank checking accounts to PayPal and Venmo accounts. Settlement services, sometimes referred to as connection services, complete the actual transfer of funds from the sender to the recipient. Examples include the Federal Reserve’s Fedwire, a widely used electronic funds-transfer service used by the private sector and government agencies alike for critical same-day transactions.
Swinehart said existing regulations can apply to account and settlement services regardless of what innovations develop, and a startup online bank must follow the rules just as brick-and-mortar one does.
That view finds favor with the leader of the Electronic Transactions
“This analysis properly advances the right regulatory approach to FinTech that will best promote consumer and merchant access to innovative and beneficial services,” the association’s CEO, Jason Oxman, said in an email. “Form factors may change — like using a watch instead of a plastic card — but the underlying infrastructure that has protected consumers effectively for decades is still in place.”
Oxman said his association supports the application of existing rules to fintech services.
Swinehart said there’s an assumption that a failure of financial regulators to adapt to fintech developments will reduce the competitiveness of U.S. financial services firms and hinder efforts to increase access to financial services. He said that logic may apply to many financial services, but not to payments.
That should hold true, he said, barring radical changes.
Swinehart painted a scenario where nonbanks become ubiquitous suppliers of payment services and supplant banks, which might require new regulatory adaptations. Such a displacement of the bank-centric payments model could lead to regulatory escape and reduced regulatory efficacy. But he added that it would require significant market changes, which he said were unlikely by current trends.
Swinehart concluded that payment regulators “have an opportunity to look beyond the conventional wisdom about fintech — and its call for large-scale reform — and to engage in fact-specific and nuanced strategies to address financial change.”
Swinehart said the views are his analysis, not those of the Treasury Department.
Correction Feb. 26 11:25 a.m. | An earlier version of this story misidentified the Electronic Transactions Association.