[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
IS CASH STILL KING? REVIEWING
THE RISE OF MOBILE PAYMENTS
=======================================================================
HEARING
BEFORE THE
TASK FORCE ON FINANCIAL TECHNOLOGY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
JANUARY 30, 2020
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-80
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
42-795 PDF WASHINGTON : 2021
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California ANN WAGNER, Missouri
GREGORY W. MEEKS, New York PETER T. KING, New York
WM. LACY CLAY, Missouri FRANK D. LUCAS, Oklahoma
DAVID SCOTT, Georgia BILL POSEY, Florida
AL GREEN, Texas BLAINE LUETKEMEYER, Missouri
EMANUEL CLEAVER, Missouri BILL HUIZENGA, Michigan
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANDY BARR, Kentucky
BILL FOSTER, Illinois SCOTT TIPTON, Colorado
JOYCE BEATTY, Ohio ROGER WILLIAMS, Texas
DENNY HECK, Washington FRENCH HILL, Arkansas
JUAN VARGAS, California TOM EMMER, Minnesota
JOSH GOTTHEIMER, New Jersey LEE M. ZELDIN, New York
VICENTE GONZALEZ, Texas BARRY LOUDERMILK, Georgia
AL LAWSON, Florida ALEXANDER X. MOONEY, West Virginia
MICHAEL SAN NICOLAS, Guam WARREN DAVIDSON, Ohio
RASHIDA TLAIB, Michigan TED BUDD, North Carolina
KATIE PORTER, California DAVID KUSTOFF, Tennessee
CINDY AXNE, Iowa TREY HOLLINGSWORTH, Indiana
SEAN CASTEN, Illinois ANTHONY GONZALEZ, Ohio
AYANNA PRESSLEY, Massachusetts JOHN ROSE, Tennessee
BEN McADAMS, Utah BRYAN STEIL, Wisconsin
ALEXANDRIA OCASIO-CORTEZ, New York LANCE GOODEN, Texas
JENNIFER WEXTON, Virginia DENVER RIGGLEMAN, Virginia
STEPHEN F. LYNCH, Massachusetts WILLIAM TIMMONS, South Carolina
TULSI GABBARD, Hawaii VAN TAYLOR, Texas
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
TASK FORCE ON FINANCIAL TECHNOLOGY
STEPHEN F. LYNCH, Massachusetts, Chairman
DAVID SCOTT, Georgia TOM EMMER, Minnesota, Ranking
JOSH GOTTHEIMER, New Jersey Member
AL LAWSON, Florida BLAINE LUETKEMEYER, Missouri
CINDY AXNE, Iowa FRENCH HILL, Arkansas
BEN McADAMS, Utah WARREN DAVIDSON, Ohio
JENNIFER WEXTON, Virginia BRYAN STEIL, Wisconsin
C O N T E N T S
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Page
Hearing held on:
January 30, 2020............................................. 1
Appendix:
January 30, 2020............................................. 33
WITNESSES
Thursday, January 30, 2020
Ahmed, Usman, Head of Global Public Policy, PayPal Inc........... 6
Del Rio, Deyanira, Co-Director, New Economy Project.............. 4
Ford, Kim, Executive Director, U.S. Faster Payments Council (FPC) 11
Klein, Aaron, Fellow, Economic Studies, and Policy Director,
Center on Regulation and Markets, Brookings Institution........ 7
Tetreault, Christina, Senior Policy Counsel, Consumer Reports.... 9
APPENDIX
Prepared statements:
Payne, Hon. Donald M......................................... 34
Ahmed, Usman................................................. 37
Del Rio, Deyanira............................................ 47
Ford, Kim.................................................... 55
Klein, Aaron................................................. 65
Tetreault, Christina......................................... 76
Additional Material Submitted for the Record
Lynch, Hon. Stephen F.:
Written statement of Americans for Common Cents.............. 88
Written statement of Cardtronics............................. 94
Written statement of Coinstar................................ 102
Written statement of the Electronic Payments Coalition....... 105
Written statement of the Electronic Transactions Association. 108
Written statement of FMI-The Food Industry Association....... 111
Written statement of the Innovative Payments Association..... 118
Javelin Advisory Services report entitled, ``Growing P2P
Adoption''................................................. 126
Written statement of the Merchant Advisory Group............. 146
Written statement of the Modern Money Network................ 150
Written statement of the Money Services Business Association. 154
Written statement of Nacha................................... 158
Written statement of the National Association of Convenience
Stores..................................................... 160
Written statement of the National Grocers Association........ 162
Written statement of the Payment Card Industry Security
Standards Council.......................................... 164
Written statement of The Pew Charitable Trusts............... 171
RPGC Group Investigative White Paper entitled, ``Payment
Insecurity--How Visa and Mastercard Use Standard-Setting to
Restrict Competition and Thwart Payment Innovation''....... 179
Written statement of the Secure Payments Partnership......... 247
IS CASH STILL KING? REVIEWING
THE RISE OF MOBILE PAYMENTS
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Thursday, January 30, 2020
U.S. House of Representatives,
Task Force on Financial Technology,
Committee on Financial Services,
Washington, D.C.
The task force met, pursuant to notice, at 9:34 a.m., in
room 2128, Rayburn House Office Building, Hon. Stephen F. Lynch
[chairman of the task force] presiding.
Members present: Representatives Lynch, Scott, Gottheimer,
Axne, McAdams; Emmer, Luetkemeyer, Hill, Davidson, and Steil.
Ex officio present: Representatives Waters and McHenry.
Also present: Representatives Himes, Payne, Hollingsworth,
and Gonzalez of Ohio.
Chairman Lynch. The Task Force on Financial Technology will
now come to order.
Good morning. Without objection, the Chair is authorized to
declare a recess of the task force at any time. Also, without
objection, members of the full Financial Services Committee who
are not members of this task force are authorized to
participate in today's hearing.
And without objection, Representative Donald Payne of New
Jersey may also participate in today's hearing and be
recognized by the Chair to question witnesses under the 5-
minute rule, so long as all members of the Committee on
Financial Services who are present have been recognized for
that round of questioning.
Today's hearing is entitled, ``Is Cash Still King?
Reviewing the Rise of Mobile Payments.'' I now recognize myself
for 4 minutes to give an opening statement.
Again, welcome, everyone. Good morning, and thank you for
attending this hearing of the task force, and thank you for
joining us today. We are here to discuss the future of payments
in America. Over the past few years, we have heard anecdotal
but growing evidence that retailers and consumers are moving
toward a cashless society, a society where consumers don't
carry cash and retailers don't accept it, instead using either
plastic or mobile forms of payment. A truly cashless future is
not imminent, but the rise is real, and today's conversation is
to help our committee better understand the implications of
that rise for financial inclusion, consumer privacy, and costs
to both business and consumers.
New payment methods, the theory goes, speed up transactions
to give consumers more control over their money, and make
operating a business cheaper and safer. A consumer can swipe a
card or tap their phone instead of making change at the
register. That transition is then instantaneously documented
with her financial institution, automatically adding it to her
ledger which tracks spending and available balances, and the
business gets to avoid the time and expense of accounting for
safely storing and moving physical currency.
However, the use of physical cash is still a major part of
our retail economy. Research shows that cash payments make up
42 percent of transactions under $25, and 49 percent of
transactions under $10. These transactions disproportionately
involve disadvantaged and working-class Americans.
Cashless payments typically require that consumers have
access to a bank account to back their payment method. Despite
improvements over the past few years, the most recent FDIC
survey showed that roughly 14 million adults, 6\1/2\ percent of
America's households, lack bank account access. If we don't
solve the problem of banking access before transitioning to a
cashless society, we will be preventing families across the
country from accessing many of the basic goods and services
they need to survive.
Further, high-profile data breaches have been a regular
fixture in the news over the past few years. This has left
consumers rightly concerned about the security of their
financial data. Cash transactions involve no consumer data
being collected, while non-cash payments require at least some
data to be exchanged.
More than a quarter of all malware attacks in 2018 were
directed at banks and financial organizations. As the amount of
personally identifiable information (PII) stored by financial
services firms grows, we will continue to see a rise in the
attacks on these groups. And while our financial institutions
continue to combat these attacks, some consumers choose to
manage their finances in cash. A cashless future would not give
these Americans that choice.
We need to continue to promote innovation and payment
technology, inclusion, and security. I hope that today's
hearing will focus on the ways we can develop our payment
system to reflect these needs. The ubiquity of mobile payments
is on the rise in Europe and Asia, and our competitors there
will also continue to develop their own technology. We must
learn from their experience and focus on meeting the needs of
all of our consumers here at home.
So I look forward to today's discussion, and to hearing
from our witnesses. With that, I now recognize my friend, and
the new ranking member of the task force, Mr. Emmer, for 5
minutes for an opening statement.
Mr. Emmer. Thank you, Mr. Chairman, and thank you for
convening this hearing on mobile payments.
I want to take a moment to acknowledge the concerns that
some of our witnesses will offer in their testimony, some of
which you just shared. There are serious public policy
challenges to address, and I look forward to working through
them with you and everybody on this task force. However, I may
differ in tone today because I would like to look at the many
positive changes and innovations we have in mobile payments.
We have tremendous innovation occurring in the mobile
payment space. The term, ``mobile payments,'' is so broad that
it even fails to capture all of the improvements in ease and
convenience of payment as well as the growing methods of
payment.
We can't be afraid of innovation and change. Ignoring, or
even suppressing innovation, will not make it go away.
Innovation can actually be a key driver in lowering costs to
individuals and creating new ways to enhance consumer
protection.
We have so many ways to pay today using our digital
devices. This past holiday season, Americans spent more than
$50 billion just using their phones. Apple Pay, Venmo, Zelle,
Square Cash, and even Bitcoin are now household names. Some of
the most successful mobile payment applications include Uber
and Lyft, or I can open my favorite merchant mobile app, select
items to purchase, see what coupons and rewards are available,
and in one click, pay for my items.
This hearing is titled, ``Is Cash Still King?'' While we
have differing opinions among our witnesses and among task
force members, is this really the right question to ask?
Regardless of the dominant form of payments, shouldn't be we be
asking, how can we make access to commerce easier and more
fair? How do we ensure financial inclusion in an evolving
world? How can new forms of payment facilitate access to
services and uplift struggling Americans?
Cash is undoubtedly still with us, and will remain that way
for the foreseeable future, but this is the Financial
Technology Task Force, and I hope we spend some time trying to
learn about and better understand the changes taking place in
our society. And I hope we discuss ways that mobile payments
can include everyone and enable access to capital and financial
services in ways that were previously impossible.
I would also like to acknowledge former Ranking Member
French Hill for his efforts in this space. Representative Hill
led a letter to the Federal Reserve supporting further research
into the concept of a digital dollar. This concept could both
speed up transactions and provide convenience for consumers,
but it could also extend access to those previously excluded,
and help bring more people into our increasingly digital world.
In advance, I thank the witnesses for their time and
insights on these topics. I look forward to the discussion
today, and I yield back.
Chairman Lynch. The gentleman yields back.
The Chair now recognizes Mr. Scott from Georgia for 1
minute.
Mr. Scott. Thank you very much, Chairman Lynch. I look
forward to today's hearing on financial inclusion, how we can
work on that, on how payments innovation can improve access and
convenience for underbanked customers. Also, security in our
financial system, and how an increase in online transactions
impact transparency and fraud.
And also, Mr. Chairman, our task force has been critically
engaged in the ways that cutting-edge technology can benefit
consumers and small businesses. I look forward to our
distinguished panelists. And thank you, Mr. Chairman.
Chairman Lynch. The gentleman yields back.
Today, we welcome the testimony of a distinguished and
accomplished panel of witnesses: Ms. Deyanira Del Rio, the co-
executive director of the New Economy Project, an organization
built to support community-controlled development and produce
safe and healthy communities; Mr. Usman Ahmed, head of global
public policy at PayPal, a leading company in digital payments
technology, and owner of the peer-to-peer payments company,
Venmo, which I use to continually send money to my daughter in
college, at Elon University in North Carolina--she appreciates
your service; Mr. Aaron Klein, a fellow in economic studies,
and the policy director for the Center on Regulation and
Markets at the Brookings Institution. Mr. Cline has also served
as Deputy Assistant Secretary for Economic Policy at the
Treasury Department, and as the Chief Economist for the Senate
Banking Committee.
Next, Ms. Christina Tetreault, senior policy counsel at
Consumer Reports, a nonprofit consisting of policy and legal
experts who advocate for pro-consumer policies and financial
services; and Ms. Kim Ford, executive director of the U.S.
Faster Payments Council, an industry trade organization
dedicated to modernizing the U.S. payment system.
Thank you all for being here, and for helping the task
force with its work. Witnesses are reminded that your oral
testimony will be limited to 5 minutes. And without objection,
your written statements will be made a part of the record.
Ms. Del Rio, you are now recognized for 5 minutes to give
an oral presentation of your testimony.
STATEMENT OF DEYANIRA DEL RIO, CO-DIRECTOR, NEW ECONOMY PROJECT
Ms. Del Rio. Thank you. Chairman Lynch, Ranking Member
Emmer, and members of the Task Force on Financial Technology,
thank you for the invitation to testify at today's hearing. I
am here on behalf of the New Economy Project, an economic
justice center in New York City that, for more than 25 years,
has worked with low-income New Yorkers and community-based
organizations to challenge systemic discrimination in our
financial system, and to advance fair lending, financial
inclusion, and reinvestment as a matter of racial justice, and
to ensure the tools are available for equitable neighborhood
development.
I am pleased to share our perspectives on some of the
issues being discussed at today's hearing, focusing on bank
redlining, and continued impediments to banking access for too
many Americans, as well as the growth of cashless businesses
and disparities in financial services access as they play out
in low-income neighborhoods and communities of color.
I have attached to my testimony several maps that just
paint a bit of the landscape in New York City and show the vast
disparities in terms of where bank branches even locate based
on the racial composition of neighborhoods. And you will see
that on the maps, they show that there is fewer than one bank
branch per 10,000 residents in communities that are
predominantly Black or Latino, and that compares to 3\1/2\
branches in predominantly white neighborhoods. It is just one
indicator that shows the different kind of financial services
landscape that people encounter in their daily lives, not only
in New York City but throughout the country, where those
patterns play out consistently.
I want to emphasize a few things in my verbal testimony.
One is that the issues addressed in today's hearing, we
believe, are systemic in nature and deeply entrenched. They
call for bold, systemic solutions, including strong regulation.
Too often, discussions about financial access disparities,
including the use of cash versus credit or debit, focus on
choices or behaviors of individuals or on the need to design
so-called alternative products, rather than on addressing the
continued structural barriers that block millions of people,
including poor people, immigrants, low-wage workers, and many
others from accessing mainstream and strongly-regulated
institutions, products, and systems.
As this committee knows, there are multiple impediments,
and some of them include the high cost of maintaining bank
accounts; persistent redlining, as I mentioned; and prohibitive
identification requirements, which all create barriers to entry
for millions of people.
Through our legal assistance hotline which assists
thousands of people every year, we have, in fact, seen a very
clear and growing pattern of mainstream banks actually pushing
low-income people out of the banking system and out of
regulated services in a myriad of ways.
One example is the way that banks typically will close
people's accounts if they experience fraud, or at the end of
the month, if they have incurred high and hidden overdraft fees
and are unable to pay those overdraft fees back, which can
easily total in the hundreds of dollars. Not only do banks
close people's accounts in those instances, but they report
those customers' information to ChexSystems and other consumer
reporting databases shared by the bank, and it effectively
blacklists people from opening accounts elsewhere. And so, the
conversation about access to finance and how that can
facilitate mobile payments needs to look at some of the
continued predatory practices in our system.
I want to point out a few things. One is that while we
believe that eliminating barriers to access is important, at
the same time, we have to recognize that financial products and
technology are not a solution to these deeply systemic
problems. They aren't solving poverty or income inequality. Too
often, we hear industry and policymakers tout different
products and services as being the solution to deeply
entrenched problems that require bolder solutions.
We also believe that we must challenge the rhetoric and the
sort of alleged benefits around financial innovation and
fintech, which, in the experience of low-income people and
communities that we work with, just simply fail to match
reality too often.
For decades, companies have invoked innovation as a
smokescreen, frankly, to evade strong regulation and to peddle
inferior high-cost, or even outright predatory products, from
subprime lending to payday loans to fee-riddled prepaid debit
cards and payroll cards that are often marketed to low-wage
workers or that employers force workers to receive their
payments on, essentially transferring the cost of managing
payroll from the employer to the low-wage worker.
And I just want to emphasize that the term, ``fintech,''
obviously is very broad, and is used in many ways. It can refer
to a range of companies and technologies. We recognize that
appropriate and safe technology can, of course, benefit people.
But too often, we see these companies claiming to be
eliminating banking deserts and supporting and empowering
communities when they are, in fact, perpetuating segregation in
our banking system.
One example is how fintech companies in New York are
routinely seeking to circumvent strong State consumer
protection laws, including our State usury laws, which have
effectively kept out payday and other exploitive usurious
lending from our State. The Administration's efforts currently
to exempt fintech companies from critical consumer protection
rules only exacerbates the serious risks.
Thank you so much for your time, and I look forward to
addressing the other topics during the Q&A.
[The prepared statement of Ms. Del Rio can be found on page
47 of the appendix.]
Chairman Lynch. Thank you, Ms. Del Rio.
Mr. Ahmed, you are now recognized for 5 minutes.
STATEMENT OF USMAN AHMED, HEAD OF GLOBAL PUBLIC POLICY, PAYPAL
INC.
Mr. Ahmed. Thank you, Chairman Lynch, Ranking Member Emmer,
Chairwoman Waters, Ranking Member McHenry, and members of the
task force. I would like to thank you all for giving PayPal the
opportunity to testify today on the important topic of mobile
payments.
Since 1998, PayPal has been at the forefront of mobile
payments. PayPal operates an open, secure, and technology-
agnostic digital payments platform that gives our over 300
million active account holders the confidence to connect and
transact in new and powerful ways, whether they are online, in
app, or in person.
Through a combination of technological innovation and
strategic partnerships, PayPal creates better ways to manage
and move money. We offer people and businesses choice and
flexibility when they send and receive payments. Whether
sending and receiving money with friends and family through
apps like PayPal, Venmo, and Zoom, or engaging in e-commerce,
more and more people are using their smartphones to make
purchases, receive payments, and manage their accounts. Our
technology is giving more people and businesses access to the
global market, and the ability to use financial services
tailored to their specific needs.
The mobile phone has transformed nearly every aspect of our
lives. We use it to communicate with friends and family, watch
our favorite shows, order a cab, change the temperature at
home, and engage in payments. The growth of smartphones, over
the past decade, has been incredible. In 2011, only 35 percent
of Americans had access to a smartphone. The percentage grew to
81 percent by 2019. At PayPal, we have witnessed how the rise
of mobile devices has transformed payments. In Q4 of 2019, 44
percent of the $199 billion of total payment volume we
processed was made on a mobile device.
The advancement of mobile payments has important
implications for unbanked, underbanked, and financially
unhealthy individuals and communities. For example, giving
people access to money instantly via mobile device can help in
reducing fees and late payments. Sending remittances using a
mobile device is about half the cost of a traditional
remittance, and can save over an hour of time for both the
sender and the receiver. Mobile payments can also provide a
baseline for credit underwriting, which can enable consumer
finance during cash-flow challenges.
Mobile payments can also benefit small businesses due to
the lower costs of acceptance as well as payments data being
leveraged to help fill the gap in small business working
capital, in particular for women- and minority-owned
businesses.
Security has been front and center throughout the
development of mobile payments, leading to the adoption of
tokenization technology, which reduces the number of entities
that have access to sensitive financial data. PayPal is a
pioneer of tokenization technology. Tokenization substitutes
sensitive financial information with a series of non-sensitive
numbers that confirm to a business that a payment is authentic,
but minimizes the likelihood of data breaches and reduces
fraud. Mobile payment information is sensitive, and PayPal
leverages payment data for fraud reduction and service
improvement.
Cash is an ubiquitous form of payment. But while it may
appear costless to transfer, there are costs associated with
cash. Cash is deeply implicated in tax evasion, which costs the
U.S. Federal Government some $500 billion a year in revenue.
When Mexican drug lord El Chapo was arrested, there was more
than $200 million in cash found on the premises, and the global
drug trade is estimated at $600 billion.
And finally, 20 percent of unbanked consumers report having
cash lost or stolen. In a study of low-income Los Angeles area
households, the finding was that the average unbanked consumer
lost the equivalent of nearly 2 weeks of household expenses
when cash was lost or stolen.
Mobile payments present a tremendous opportunity to reduce
many of these costs associated with cash. While we don't
predict the death of cash in the next decade or two, and we
believe that consumers should have a choice in what payments
options they choose, at PayPal, we are working diligently to
make sure that the value proposition of digital payments vastly
exceeds the value proposition of cash for every member of
society.
Thank you, again, for the opportunity to address the task
force on this important and timely topic, and I look forward to
answering any questions.
[The prepared statement of Mr. Ahmed can be found on page
34 of the appendix.]
Chairman Lynch. Thank you, Mr. Ahmed.
Mr. Klein, you are now recognized for 5 minutes.
STATEMENT OF AARON KLEIN, FELLOW, ECONOMIC STUDIES, AND POLICY
DIRECTOR, CENTER ON REGULATION AND MARKETS, BROOKINGS
INSTITUTION
Mr. Klein. Thank you, Chairman Lynch, Ranking Member Emmer,
Chairwoman Waters, Ranking Member McHenry, and members of the
task force, for the opportunity to testify on the critically
important issue of the future of cash and the rise of digital
wallets.
Let me start by answering the question the hearing poses.
Yes, cash is still king. In fact, cash is used by a diverse set
of people who defy traditional political or geographic
boundaries. False narratives abound that cash is dying or a
cashless society is the future or that millennials don't use
cash. In fact, millennials and their grandparents have cash in
common. Both generations use it more than those between ages 30
and 60.
In a sample of mostly small business transactions, Iowa and
Wisconsin, two of the more cash-intensive States, have a lot
more in common with the Bronx and Staten Island, while Utah and
Virginia, two of the more card-intensive States, are much more
similar to Brooklyn and Manhattan. Nationally, racial
minorities and rural Americans both use cash more frequently,
and it has been stated that cash is the most common way people
pay for things under $25.
While cash is still king, there is no denying that an
increasingly large number of goods and services are moving onto
digital payment platforms that do not accept cash. As the
economy digitizes, those without access to low-cost, reliable
digital payments are increasingly unable to participate and
share in the benefits.
Prior concerns about a digital divide were centered around
the question of access. Smartphones have successfully bridged
this divide. However, online access alone is insufficient.
Without a means to purchase the goods or services being
offered, the benefits of the app, gig, or online economy fail
to convey.
Access to digital payments has become the new digital
divide. Online and app-based goods and services lower costs for
everything from ordering groceries to hailing a cab. However,
the economics of many digital services simply assume users will
always have funds to cover recurring or periodic expenses, and
expect the ability to tap into a consumer's bank account to get
paid. Given the high cost of overdraft fees, growing income
volatility, and our nation's anachronistically slow payment
system, the reality for people living paycheck to paycheck is a
far more expensive system than for those on the other side of
the divide.
For consumers to truly benefit from the digital economy,
cheap and reliable digital payments are necessary. Yet, our
existing system provides them freely to those with money, and
charges a lot to those without. It may require government
policy and resources and strong rules to fix this problem.
A corollary to the policy that businesses continue to
accept cash is that consumers have access to digital payments,
and that needs to be facilitated. My written testimony goes
into significant detail regarding the high and often hidden
costs of existing banking products like overdraft fees that
create an effectively different cost structure for people
living paycheck to paycheck. It highlights multiple policies to
solve some of these problems, and reduce the demand for
expensive ways to access cash, like check-cashing. The key is
to require immediate funds availability for consumers, which
most of rest of the world developed decades ago through real-
time payments.
Waiting for the Federal Reserve to follow through on its
announcement to build a system sometime this decade is not
enough. Policymakers could solve this problem today if they
wanted to, by regulation or legislation. In fact, tomorrow is
the 31st. A lot of people will get paid that day and will
struggle to come up with the amount of money available in their
bank account to meet their payments on the first of the month
the next day.
I want to conclude by noting that America once led the
world in payment technology. Fifty years ago, America pioneered
the new payment technology that would come to dominate the
world, magnetic stripe plastic cards, but technology alone was
not enough. It required robust consumer protection legislation
from Congress, such as the Electronic Funds Transfer Act, to
successfully create an environment where cards flourished.
Today, China has leapfrogged cards. China's new system is
built on digital wallets, and QR codes, and runs through their
own big tech firms. China's system largely disintermediates
banks, and creates an alternative payment ecosystem with
different incentives between merchants, consumers, and payment
system providers. It challenges the longstanding placement of
payments on the side of banking as opposed to commerce.
China's system is unlikely to catch on in America precisely
because it is more efficient. Because it does not take large
sums of money from merchants at the register, it will not be
able to compete with the growing high-end credit cards that
come to line America's wealthy with thousands of tax-free
dollars in rewards. Ironically, the inefficiency in America's
payment system that has turned it into a reverse Robin Hood
that contributes income equality will block adoption of
alternative technology.
This committee is wise to consider the rise of mobile
wallets, and policymakers should devote more time and attention
and resources to figure out how to create a more fair,
efficient, and inclusive payment system.
I thank the chairman and the ranking member and the rest of
the task force, and I look forward to your questions.
[The prepared statement of Mr. Klein can be found on page
65 of the appendix.]
Chairman Lynch. Thank you, Mr. Klein.
Ms. Tetreault, you are now recognized for 5 minutes,
STATEMENT OF CHRISTINA TETREAULT, SENIOR POLICY COUNSEL,
CONSUMER REPORTS
Ms. Tetreault. Chairwoman Waters, Ranking Member McHenry,
Chairman Lynch, Ranking Member Emmer, and members of the
Financial Technology Task Force, thank you for the opportunity
to be here today. I am Christina Tetreault, senior policy
counsel for Consumer Reports (CR). CR is an expert,
independent, non-profit organization whose mission is to work
for a fair, safe, and just marketplace for all.
My CR colleague, Suzanne Martindale, testified before this
committee in 2012 regarding the future of money and the rise of
mobile payments. She noted that consumer privacy concerns
inhibited mobile payments adoption and that fragmentation in
payments law creates uncertainty for consumers. Eight years
later, I will make these same points today.
American adoption of mobile payments continues to lag that
of other countries. Americans still love cash, and as compared
to mobile, they love cards. It is important to note that mobile
is a platform and not a new payment type. Beneath the modern
veneer of mobile payments is mostly technology built in the
early 1970s. New payments rails including faster payments and
cryptocurrency are, in the case of faster payments, or should
be, in the case of cryptocurrency, covered by existing laws.
Unfortunately, payments law is an irrational mess. Under
current law, credit card holders have the strongest
protections. Debit card, bank transfer, and prepaid accounts
have weaker protections. Gift cards and direct to carrier
building have almost none. Congress can fix the mess in
payments law making every way safe to pay. They can do this by
establishing a strong floor of uniform protections for all non-
cash, non-check payments.
Now, when it comes to mobile payments, unfortunately,
consumers do not understand their rights and obligations. When
we asked a focus group of mobile payments users what they
thought would happen if something went wrong with the payment,
they uniformly said that they expected that the company whose
name was on the app or wallet would fix the problem and make
them whole. This is not necessarily the case. In some
instances, users may, in fact, be obligated to contact their
bank or card issuer for help. Other problems fall outside the
scope of current law. For example, when a consumer is tricked
into sending money to a scammer, they will find that these
transactions have essentially the same level of protection as
cash.
Now, many claims have been made about how mobile will
increase financial inclusion. The reality is quite different.
Americans without checking and savings accounts are less likely
than bank consumers to use mobile payments and are far more
cash-reliant than other Americans. Unbanked consumers are more
likely to suspend or cancel their cell service because of the
cost of maintaining coverage, making regular use of mobile
financial services nearly impossible. No act fixes the
structural issues that lock out too many Americans.
Cryptocurrency has also been proposed as a fix for
financial inclusion. If the legal mess in traditional payments
is bad, the legal mess in cryptocurrency is worse. The few
consumer protections that cryptocurrency payments have are
largely found in State money transmitter laws and are seriously
lacking.
Cryptocurrency, and for that matter, any emerging financial
service should not be tested on consumers with the least
cushion in their financial lives. The best way to ensure
consumer access to faster and safer electronic payments is to
support the Federal Reserve's proposal to build the FedNow
faster payment system, and not by empowering untested,
unregulated corporate schemes such as Facebook's Libra.
There is another shadow over mobile payments. The current
protections for mobile payments made with stored value, for
example, the money held in Venmo accounts, are threatened by
the PayPal lawsuit seeking to invalidate the Consumer Financial
Protection Bureau's (CFPB's) prepaid rule. Before the rule,
consumers had to rely on the inadequate protections provided by
State money transmitter laws. Billions of dollars and millions
of consumer accounts are at risk if this rule is invalidated.
Privacy concerns exist alongside legal concerns in mobile
payments. So while mobile payments and even some additional
financial services are free to consumers, users are not the
customers of these services. They are, in fact, the product.
The potential for users' information to be weaponized against
them is particularly acute when payments are combined with
platforms.
We need strong privacy legislation that creates a Federal
floor of protections, a law that requires data minimization,
clear information about provider practices, and strong data
security standards. This law must also have vigorous
enforcement tools and tools to ensure accountability.
I thank you for the opportunity to be here today, and I
look forward to your questions.
[The prepared statement of Ms. Tetreault can be found on
page 76 of the appendix.
Chairman Lynch. Thank you, Ms. Tetreault.
And Ms. Ford, you are now recognized for 5 minutes.
STATEMENT OF KIM FORD, EXECUTIVE DIRECTOR, U.S. FASTER PAYMENTS
COUNCIL (FPC)
Ms. Ford. Good morning, Chairman Lynch, Ranking Member
Emmer, and distinguished members of the task force. Thank you
for the invitation to be here today. My name is Kim Ford, and I
am executive director of the U.S. Faster Payments Council
(FPC). The FPC is a membership organization that is leading the
industry effort to modernize the U.S. payment system. We were
formed from the work of the Federal Reserve's Faster Payments
Task Force, which brought the industry together to start to
figure out how to make the U.S. payment system faster, more
secure, and more efficient. I am grateful for the opportunity
to be with you today as we examine consumers' payment
preferences, and look to what the future may hold for the U.S.
payment system as a result.
As you know, the payments landscape is in the midst of
unprecedented change. When I entered this industry in 2004, the
headline at that time was that checks were just starting to
lose ground to debit and credit cards, and now, we are talking
about things like mobile payments, biometrics, machine
learning, artificial intelligence, cryptocurrency, and more.
Clearly, we have transitioned in this country from an
environment dominated by paper checks and cash to one dominated
by electronic payments. And we are seeing that cash is being
used less and less for some of the major payment categories it
once led.
For example, historically, cash has been used for low value
payments below $25, but we are seeing card use grow in this
area as well. And as we think about why that is, two themes
come across most clearly: consumers' desire for convenience;
and consumers' desire for security. Take electronic payment
cards. They are accepted at retailers across the globe. They
enable convenient tracking of transactions, provide budgeting
options, and provide consumers with protections against loss
and fraud. And while cash may also be convenient, easy to
carry, and widely accepted, it can be easily lost or stolen,
and there are no measures in place for consumers to recoup such
funds.
For these reasons, among others, electronic payments have
climbed the ranks to become a preferred payment option for U.S.
consumers. Moreover, as Americans incorporate their smartphones
into so many aspects of their lives, they also expect that on-
demand functionality to transact with their friends, family,
businesses, employers, and even the government.
This has translated to an increase in the use of
smartphones for things like internet banking, e-commerce
transactions, and the use of mobile payment apps. One study by
payment provider TSYS reported that over the last 3 years of
their consumer payment research, survey respondents
consistently rated the most attractive features of mobile
payments as: one, the ability to immediately stop a fraudulent
transaction; two, the ability to instantly view their
transactions; and three, the ability to use their phone to turn
their payment card on or off to prevent unauthorized usage.
These findings underscore so many Americans' increasing
reliance on electronic payments to solve for convenience and
added security.
But of course, the popularity of mobile phones and access
to the internet are not enough to increase financial inclusion,
and certainly, it is appropriate to ensure that people can
actually benefit from digital financial services. And this, of
course, requires a well-developed payment system, reliable and
accessible infrastructure, and a robust regulatory framework
with consumer protection safeguards. And while we haven't
completely solved the access issue in the U.S., financial
inclusion is getting better, due in part to new types of
financial services that are accessed through mobile phones and
the internet.
But challenging our system to be better isn't limited to
plastic cards and mobile phones. At the FPC, we believe that
the next evolution of our payment system is a more real-time,
safe, and efficient system that anyone can access at any time,
anyhow, and anywhere. We believe that faster payments have the
potential to build on the benefits of current electronic
payment mechanisms, and further improve money management,
remove costly paper processes, minimize settlement risks, and
encourage global competitiveness.
Our members believe it so much that they created an
organization to bring all the payment industry stakeholders
segments together to identify barriers to faster payments
adoption and then work shoulder to shoulder to solve those
problems.
For example, we are examining the regulatory landscape for
faster payments, studying fraud best practices and trends,
promoting transparency for consumer and business end users,
assessing directory models, and helping our members understand
how to develop and implement a faster payment strategy.
Yes, we support electronic payments, but we also support an
environment in which payment choice is preserved, whether that
be paying with cash, writing a check, sending a wire ACH, or
using a credit, debit, or prepaid card. I am also proud of the
fact that we are demonstrating that it is possible to get a
widely diverse group of industry stakeholders together,
representing consumer groups, merchants, tech providers,
financial institutions, and more, to tackle complex problems in
a fair, inclusive, and transparent manner with an end goal on
which we all agree, which is driving universal access to a
faster payment system that delivers a high quality and secure
user experience for all.
Thank you for the opportunity to present to you, and I look
forward to answering your questions.
[The prepared statement of Ms. Ford can be found on page 55
of the appendix.]
Chairman Lynch. Thank you, Ms. Ford. I now yield myself 5
minutes for questions.
Mr. Klein, you illustrate a good point where if you look at
young people and their consumer preferences, you know, our two
girls, I don't think, have ever been in a bank except for maybe
getting travelers' checks or something like that. Probably less
than 5 times in their lifetime, compared to how I grew up,
where on payday, you would go down there and stand in line with
everybody else.
So this is a trend that is really overtaking us, and it is
being driven by consumer preference. I don't think it is
necessarily some cabal or diabolical plan. I think it is just
easier, and people want to do it. The problem is that not
everybody has that opportunity.
You have an interesting background in terms of looking at
international payment systems and things like that. Are there
models out there that would sort of address what we are trying
to get at? We know this is much cheaper, and in many ways, more
efficient and safer in some instances. Are there systems out
there that do a better job than we have right now in terms of
the payment systems that are out there?
Mr. Klein. Yes. Chairman Lynch, it pains me to say this,
but China's system is much more efficient, much faster, and has
reached a level of universal adoption that is somewhat mind
boggling. You have 2 services that started less than 5 years
ago, and they each have a billion monthly users.
Chairman Lynch. Yes.
Mr. Klein. And they were able to do it, in part--one of the
fascinating things about the Chinese experience is this is a
country that had, by some estimates, 7 million debit cards, but
only 20 million to 40 million card readers. You could not take
a card--go around China and try and do something with your
magnetic stripe card, and they look at you like you are from a
century ago.
It is all on codes and digital wallets. Now, the problems
with the Chinese system--I am not advocating that we move
there, particularly because of some of the commercial concerns
involved in bringing the banking system--the payment system
outside of banking. And our legal and regulatory framework
completely assumes that payments are part of a banking system.
As Ms. Tetreault's testimony points out, everything is tied to
this being in banking. When you legally look at the cleft
between banking and commerce in the United States, there is
nothing that ties payments onto the banking side.
Chairman Lynch. Thank you.
And Ms. Tetreault, I want to ask you--we raised the China
model. So right now, if banking goes the way of the internet
where they just collect all of our information, not what they
need to, but everything they can get their hands on, and then
they screen scrape and sell personal data, personal financial
data--I know that you have written extensively on privacy. Do
we need a new architecture, with respect to financial data than
we--we have given it away in terms of our personal data on the
information side, on the internet side. Do we need a new
architecture to be more covetous and protective of our
financial data, or can we overlay this on the existing system?
Ms. Tetreault. I think there are two solutions to the
problem. The first is provider practices, so enabling tools for
consumers to be able to really see what information is being
collected and then make choices, and there are efforts out
there. I know that the Financial Data Exchange was here before
the committee previously, and they are creating those tools,
and those tools are very helpful and more supportive of that
effort.
The other aspect, though, is strong, a Federal privacy
floor that actually includes curbs on data collection and
sharing. The Gramm-Leach-Bliley Act (GLBA) is often touted as a
privacy law, but it is not, in fact, privacy protected in those
ways, so it is time for a new approach.
Chairman Lynch. Right. Thank you.
Mr. Ahmed, speaking for Venmo and for the industry in terms
of what you have come up with, are there mechanisms or models
that you identify that might address the concerns that we have
raised here?
Mr. Ahmed. Certainly. I want to acknowledge something Mr.
Klein raised about merchant acceptance. In China, a lot of the
reason why there has been success there in moving to mobile
payments was getting all of the businesses to accept these
small QR codes. And I agree with Mr. Klein that maybe it is
that model, or maybe it is something else. But I just want to
stress that when we are talking about consumer adoption, low-
and moderate-income consumers, rural consumers, if the places
where they go don't accept mobile payments, then they won't
switch. It is a chicken-and-egg problem, and we also have to
include a focus on the merchant side of the equation.
Chairman Lynch. That is great. Thank you very much. My time
has expired.
I now recognize the gentleman from Minnesota, our ranking
member, Mr. Emmer, for 5 minutes.
Mr. Emmer. Thank you, Mr. Chairman, and thank you to the
witnesses for your testimony and for being here today. It is
interesting. More than one of you this morning was critical in
different respects to the promise that the innovation, that new
technologies provide. In fact, I think one of you even referred
to the rhetoric that gets used about how this is going to
benefit consumers in society.
I could focus on several, but in my short time, Ms.
Tetreault, I was particularly concerned by some provisions in
your written testimony that you have submitted that criticize
cryptocurrency, although you only mention Libra which is not,
in itself, a cryptocurrency. I would hope that you more fully
explored these innovations, or if you haven't, that you will be
in the opportunities that they provide to both build a
financial future for individuals, but also to empower
individuals to control the value of their own assets separate
from government control. Have you done any of that?
Ms. Tetreault. We have looked at cryptocurrency, and I made
remarks almost, what, 6 or 7 years ago, that the original
promise of cryptocurrency was returning power to consumers. And
what, in fact, has happened in the intervening years is that--
what we have seen is an infrastructure that is built up, that
is largely acting as an intermediary, that consumers are not
truly empowered to ``be their own bank.'' And that these
intermediaries are often underregulated, and undersupervised,
that there aren't clear rules of the road, and so the promise
of cryptocurrency in many ways has been lost.
There are any number of needs, not the least of which is to
fold them into payments law in a more rational way, and to
rationalize payments law overall.
Mr. Emmer. Right. As defined by you or someone else what is
rational. Seriously. It is your definition of what is rational,
because there is a whole environment out there, brilliant,
genius young people who are coming up with new ways to transfer
value every single day, and I worry that we are going to crush
that entrepreneurial spirit and that advancement. Obviously,
you and I, we have heard of Bitcoin. We have heard of Ethereum.
Are you familiar with XRP and the efforts of Ripple?
Ms. Tetreault. With the distributed ledger technology for
their payments?
Mr. Emmer. Yes. And you are familiar with Eos?
Ms. Tetreault. No.
Mr. Emmer. What about privacy coins like Monero or Zcash?
Ms. Tetreault. I had a footnote. If I understood the aim of
this hearing, it was that I was not going to approach the
privacy concerns. There are any number of different privacy
technologies around cryptocurrencies. Some are concerning, some
are very promising, and it really is very item-specific. So I
don't have a lot to say on that, only that you are right. I
agree with you that there are definitely some interesting
things going on there.
Mr. Emmer. How about Zero Pay and Algorand? What about
Stellar, which is facilitating cross-border transfers? Are you
familiar with that one?
Ms. Tetreault. No.
Mr. Emmer. I could keep going through these, but it is
amazing, the things that are happening out there, and it
concerns me when we are talking about mobile payment systems,
and we draw in any one of you, cryptocurrency or these new
innovations and suggest that it is a negative. Because, by the
way, major companies like IBM are doing work on this too. The
Plastic Bank is a pilot program that has proven to be
successful in Haiti, where a digital asset is provided in
return for cleaning up plastic waste, amazing things. Are you
familiar with M-Pesa?
Ms. Tetreault. Yes.
Mr. Emmer. We should talk because somebody used the term,
``rhetoric.'' ``M'' stands for mobile. ``Pesa'' is Swahili for
money. This is a mobile phone-based money transfer, financing,
and microfinancing service launched in 2007 by Vodaphone, the
largest mobile network operator in Kenya and Tanzania. By 2012,
it had 17 million accounts. This service has been credited with
giving millions of people access to the formal financial system
and for reducing crime in the otherwise largely cash-based
society.
Again, I think we have to take a deeper look at this and
learn more about these innovations. It is not black and white.
And the really interesting developments come when you start to
get into the details and differences in the technology. So I
would appreciate it, as we talk about mobile payments and move
forward, if we could be more inclusive about the technologies
instead of fearing something that we don't know enough about.
Thank you.
Chairman Lynch. The gentleman yields back. The Chair now
recognizes the gentleman from Georgia, Mr. Scott, for 5
minutes.
Mr. Scott. Thank you very much, Mr. Chairman. Ladies and
gentlemen, first, let me say that each of your testimonies were
very, very informative, and opened our eyes, I am sure, to much
of what we were only dimly aware of. However, this whole issue
is sort of bringing us into the new frontier for our entire
financial services industry. It is very important.
I have been spending quite a bit of my time dealing with an
issue that I want to present to this committee, which is, are
we doing enough to make sure we address this fundamental
problem? According to the most recent statistics, there are 58
million unbanked and underbanked folks out there. What is most
startling is that most of these are unbanked, meaning they
don't have a savings account, not mama, not daddy, sister,
brother. Nobody in the household has a savings account or a
checking account.
Mr. Ahmed, let me start with you. How do we address this to
make sure that we are providing the transparency, the
affordability, the convenience for these consumers, but access
to electronic payment systems have traditionally required a
savings account, or a checking account, which presents
challenges here. How are you all at PayPal, which has certainly
been a forerunner in all of this, addressing this issue to make
sure we bring everybody along with us as we make this
technology jump?
Mr. Ahmed. Thank you for the question, Mr. Scott. I think
it has to be done in partnership. PayPal is a technology
company, but there are all sorts of entities that are on the
ground in the communities, in the places where you are talking
about. I think of retailers, 7-Eleven, Walmart. I think of a
remittance provider like ARIAS, where we can partner with those
entities, enable cash to be offered up at the point of sale,
and then digitize it on the back end.
So I think it is really in getting on the ground in the
communities and the places where these people are and providing
them a service, as I mentioned in my testimony, that is
actually more valuable than just a cash-based service. Because
until and unless we create a value proposition that really can
respond to the challenges and the issues that they are facing,
then there won't be a reason to move into this ecosystem.
Mr. Scott. Are you confident that we will not leave these
unbanked and underbanked folks behind?
Mr. Ahmed. I would say at PayPal, we are making very, very
strong efforts to do that, and I think it is going to be about
everyone in this room working together, a public-private
partnership, and intentionality behind the efforts in order to
prevent that from happening.
Mr. Scott. Do you think there are costs associated with
accepting cash for small businesses?
Mr. Smith. Certainly. I think a typical small business,
when they are accepting cash, they assume that it is a costless
transaction. But actually, when it comes to simple things like
accounting for that cash, doing payouts to employees, doing
payouts to vendors, providing security for the cash, there are
actually a number of costs associated with that. My mom was a
small business owner, and I remember the challenges of trying
to account for everything. And so, digital kinds of
transactions can really help to simplify a lot of those
processes and reduce some of those transaction costs.
Mr. Scott. Ms. Ford, you have been working very much in
this area throughout your career. What are your thoughts on
this?
Ms. Ford. I think that we have to recognize that,
obviously, there are limitations that financial institutions
have because there is a regulatory framework in which they have
to operate. But I think when we look at the experience in the
U.S. as well as globally, I think that is one reason we have
seen the rise of non-bank fintechs who are saying, okay, we
have this great technology out there. We want to try to be some
sort of a link to consumers. So if we can be that intermediary
and try to get somebody who is unbanked to be more comfortable,
maybe it starts with a gift card or some sort of prepaid card
they can load with cash. Then, that gets them slowly into the
financial services system, and they can become banked. That is
obviously where we want to move things.
So I think that we are making progress, but I agree with
you that the unbanked issue is very real. It is one reason that
at the FPC, we have a whole consumer segment who are constantly
asking, how are we going to make this as inclusive as possible?
But I do think we have to acknowledge that financial
institutions are constrained by certain regulations as well.
Mr. Scott. Thank you very much.
Thank you, Mr. Chairman.
Chairman Lynch. The gentleman yields back.
The Chair now recognizes the gentleman from Missouri, Mr.
Luetkemeyer, for 5 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
Mr. Klein, you made my day today when you said a while ago
that the seniors and the millennials have something in common
with regard to cash. Seniors don't have anything in common with
millennials, so thank you.
Mr. Klein. You are welcome.
Mr. Luetkemeyer. Also, one of the attributes and one of the
benefits, I guess, of being a little older and having been
through the mill a little bit here is the fact I remember when
credit cards came out. Yes, I am that old. Moses and I, we came
down the mountain together. And I remember everybody said,
well, that is the end of the checks. No more checks. Credit
cards are going to take over. Checks are gone.
But as of today, the latest Federal Reserve report from the
Federal Reserve Bank of St. Louis said we actually have twice
as much cash in the system now as we did 10 years ago. We still
have as many checks issued today as we did 40 years ago, or
whenever credit cards--50 years ago when credit cards came out,
and now, we have all different sorts of payment systems out
there. If I was forming a new business today, I would have all
of these kinds of payments, because it enhances the ability for
me to be a new business, to transact business, to attract
everybody in, and enable them to make the transaction.
So when people get exercised here about this is going to
happen, that is going to happen, everybody should take a deep
breath and step back. This is just an alternative, another way
of doing this.
I come from the point of view of, okay, how can we do this
in a safe fashion? I think Ms. Ford made some really good
closing comments in her testimony a minute ago. I think Ms.
Tetreault made some comments with regards to Libra and
cryptocurrencies, and that, quite frankly, is now the preferred
way of money laundering with cryptocurrencies for all of our
nefarious folks out there.
I look at the security of the data, how you can improve the
convenience for people, and how you can minimize the use of
enabling people to do fraud and launder money. So to me, this
is where we need to be focusing, to enhance the ability of the
mobile phones and the different types of payment transactions.
Ms. Ford, I would like for you to elaborate just a little
bit on your final comments about how we can make a faster
system and a safer system and be more inclusive.
Ms. Ford. Absolutely. Again, one of the elements that is
driving this whole conversation around faster payments, besides
the fact that a lot of other countries have implemented faster
payment systems, is that we have better technology out there.
And I think, as we look to, for instance, the experience in the
card space as it relates to security, we have seen some great
innovations around encryption and tokenization where the idea
is that--I think the mindset used to be, how do we protect our
sensitive information from being subject to unauthorized usage?
Now, I think we know how sophisticated the criminals are,
so the conversation has shifted to, how do we devalue the data,
because it is likely that there is going to be some sort of a
breach somewhere.
So I think those are the kinds of things that we are
looking at in the context of faster payments as well, which is,
how can we continue to leverage these types of innovations? For
instance, if you look at fraud prevention practices
historically in payments, a lot of that was very manual
processes, individuals actually sitting in front of a monitor
trying to look at these transactions. Now, we can think about,
okay, how can we leverage artificial intelligence, for
instance, or machine learning. Obviously, there can be biases
in those as well, but I think there are some opportunities to
be able to leverage this technology to add security components.
Mr. Luetkemeyer. Thank you for that.
Ms. Del Rio, you talked a little bit about some of the
concerns with folks who can't work with a bank because of the
costs that are involved there, and they have to go to a
strictly cash way of living. Have you found that because the
banks charge for cashing checks or for having an account or for
a minimum amount that you have to have in there before you get
free checking, is that the kind of problems that you see?
Ms. Del Rio. Yes. Those are some examples. And just to
clarify, not only are people being pushed out of the banking
system and being forced to rely on cash, but then in the vacuum
that banks leave in these neighborhoods is where you see the
pawn shops, rent-to-own stores, and so on.
Mr. Luetkemeyer. Why do you think that the banks are having
to charge those fees?
Ms. Del Rio. I think that the banks have made pretty
clear--well, first of all, there has been a wave of
deregulation of the banks, and there is a weakening of the
Consumer Financial Protection Bureau and other rules that
govern banks. We think the banks have made pretty clear they
are not very interested in serving low-income people. We see
that in a myriad of ways.
And yes, the minimum balances that banks require to avoid
fees is one impediment. Identification requirements that
actually go far beyond what regulations require are another
impediment for millions of Americans.
Mr. Luetkemeyer. Have you talked to any banks and asked
them what it costs to maintain an account?
Ms. Del Rio. Absolutely. I am actually the board chair of a
community-based credit union, and so we are very aware of the
cost of implementing--
Mr. Luetkemeyer. It is difficult to give a service for free
unless you can find another way to subsidize that within your
institution, right?
Ms. Del Rio. I think one of the problems is that in terms
of checking accounts, it is low-income people, through
overdraft fees, who are subsidizing the free checking of more
affluent people. And so, yes, we believe there are costs, and
there are ways to manage the costs, but right now, the costs
are not being borne fairly among banks' customers. You can look
at who pays overdraft fees. It is a very small percentage of
people, and it is the lower-income segment.
Mr. Luetkemeyer. Those are loans, by the way. Thank you
very much.
Chairman Lynch. The gentleman yields back.
The Chair now recognizes the gentlewoman from Iowa, Mrs.
Axne, for 5 minutes.
Mrs. Axne. Thank you, Mr. Chairman. And thank you to the
witnesses for being here today. I really appreciate it.
Obviously, we are hearing a lot of discussion about the
benefits that mobile payments can provide. As the co-owner with
my husband of a digital design firm, who uses PayPal literally
every day, nationally and internationally, for payments, I am
certainly familiar with the benefits. And I think there is
absolutely so much opportunity to help people with better
services, and, hopefully, we will see more of that down the
road.
However, I am concerned that we are leaving some people
behind. We have been talking about it today with smartphone and
internet access. People can't use these wonderful services, as
we well know, and the FCC estimates that approximately 20
million Americans lack broadband service, and I certainly know
that in the State of Iowa.
Also, due to the issues with mapping, we know that that
number is probably far greater than just 20 million. In fact,
Microsoft estimated that 150 million Americans aren't actually
using the internet at broadband speeds, which they would need
to be able to perform these functions, and a lot of these
people are, unfortunately, in my district. That kind of
difficulty is why Iowa is one of the top five States, as Mr.
Klein pointed out, in terms of use of cash.
So, Mr. Klein, I am worried that moving too quickly to
mobile payments will risk exacerbating what we are already
seeing with rural communities absolutely being left behind. I
am trying to fight to keep them getting the opportunities that
we need. Are you seeing that moving to mobile too quickly and
risking the opportunities for rural communities is something
that your research shows to be a problem?
Mr. Klein. Yes, Congresswoman. It is very important to
appreciate that, as the economy digitizes, there are huge
benefits, and those benefits then are not accessible to people
without the ability to transact in that.
I think a lot of the conversation about preference for cash
that we have seen, if you dig into the data, what you really
see is a rise in online purchases, particularly for that age
category between 30 and 60.
Now, whether that is consumer preference or choice, or
whether that is just the changing nature of our economy,
because you can get these goods better, cheaper, faster, can be
debated. But what does that mean for people who don't have the
ability either to access that material online and to have the
ability to make payment online in a convenient and low-cost
fashion?
If you risk an overdraft to buy something that is $5
cheaper online, it may end up costing you $30 more, and part of
the problem why there are so many overdrafts is, ``I don't know
when my paycheck has cleared.'' If I get paid tomorrow on the
31st of the month--10 percent of Americans get paid monthly; 38
percent get paid biweekly. A lot of people get paid tomorrow.
Do not mistake direct deposit for immediate deposit. You
are not certain if your payment is going to be available for
your funds the very next day, and this makes life incredibly
challenging for people in rural America and for people who are
living paycheck to paycheck.
The sad reality is we had the tools to fix that 10, 15, 20
years ago. The United Kingdom went to real-time payments in
2008, and Mexico in 2004.
And so I think for your constituents in rural America, you
are facing a double whammy: You have this access problem, and
you have a means-of-payment problem, and, particularly for
those living paycheck to paycheck--and older people, for
example, who may be relying on Social Security--it becomes
incredibly challenging for consumers to be empowered enough to
be able to solve these problems and access all of these online
benefits.
Mrs. Axne. Thank you for that. I appreciate that. And, as
the State who has the fourth-oldest population in the country,
I appreciate your concern for them being able to get their
Social Security that they need.
Moving on, Mr. Ahmed, you mentioned in your opening
statement that PayPal is committed to serving every American,
or something to that effect. Bringing broadband access to all
Iowans is a major priority for me. As a matter of fact, I'm on
the Whip's Rural Broadband Task Force. We want to make this
happen. And I think it needs to be really a priority for all of
the American economy, or we will leave parts of this country
behind.
So I want to ask you specifically, since you work for
PayPal, and I'm really asking all of the mobile payment
community to get behind this priority so that everyone can
actually benefit from what you have to offer. As a recipient of
your product that I know works well, we need everybody to have
access to this. My small business owners in Iowa need to be
able to utilize services like yours.
Are there steps you are able to take to help us spread the
access more quickly than we are doing right now?
Mr. Ahmed. I think we can be supportive, of course, of your
efforts, and I think we can also add in kind of our perspective
on the benefits that access provides in terms of increased
growth and increased payments, and I would also point out that
you highlight access as such a key issue, but it is also cost
and kind of driving down the cost for individuals, in
particular, in rural areas and making sure that the data is not
so expensive that, yes, you have access, but you can't actually
use it.
And so, I think we can be supportive of your efforts, and I
would love to kind of partner with you on that and figure out
how we can be helpful.
Mrs. Axne. We will be in contact, because we need your
help. I yield back. Thank you.
Chairman Lynch. The gentlelady yields back. The Chair now
recognizes the gentleman from Arkansas, Mr. Hill, for 5
minutes.
Mr. Hill. Thank you, Chairman Lynch.
It's great to be here with you, and it's great to have a
broad payments hearing today. Thank you for making those
arrangements. We are having a great discussion. I have enjoyed
hearing everybody's presentation.
Mr. Ahmed, I was interested in your testimony that 40
million users and 28 percent of PayPal's total volume is Venmo.
I take it from looking at your--and I, too, like my friend from
Massachusetts, have a regular Venmo user in my family.
My question for you is, of those 40 million people, how
many of those users have an account balance with Venmo or
PayPal, meaning there is cash left in their name out on the
system, would you guess?
Mr. Ahmed. I don't have the exact number, but I would be
happy to follow up in writing and--
Mr. Hill. I would be interested in that exact number and
what the average balance is because, of course, everybody knows
those are not FDIC-insured deposits, and it reminds me of the
old American Express traveler's checks, from the 1960s, where
you have this money that PayPal gets to use, but people may or
may know they have it. So, if you would follow up with me on
that, I would appreciate it.
Mr. Ahmed. Okay.
Mr. Hill. Also, I was pleased to read about your being
involved in the Faster ID Alliance, and I assume, Ms. Ford, you
are also involved in the Faster ID Alliance?
Ms. Ford. I am not, personally. Some of our members are,
yes.
Mr. Hill. Yes. I think that's important because, in this
Fintech Task Force, we have talked about these foundational
building blocks of a digital future. Authentication is
fundamental to get away from name and password, and so, if you
could send me some follow-up information on that, who the
members are, and what is being done there, that would be of
interest.
I want to turn to tokenization, and you referenced that,
and also ask Ms. Ford first on that, this idea that banks and
nonbanks have a payment rail out there in the payment system--
we have wire transfers, we have ACH, we have SWIFT, we have
cash, obviously, we have MasterCard Direct. We have all of
these different methodologies, and my question is, can we have
an approved regulatory payment rail that is blockchain-based
that is available to banks and nonbanks equally, where someone
could propose a blockchain effort, and what does that look like
from a regulatory point of view, that rail?
So, it is not a debit rail. It is not a credit rail. It is
a blockchain-available digital rail, whether there is a
cryptocurrency involved or not. Be neutral on that.
What are your thoughts, Ms. Ford, on that?
Ms. Ford. I am not sure how authorized I am to speak on
that issue. I am not an expert on that type of technology, but
I would say that I don't think it would be a limitation of
technology being able to support that rail. I think it would
actually come down to whatever policy implications there are,
and I think Christina has alluded to some of this as well, that
I think there is an inconsistency in the way that blockchain or
distributed ledger is regulated today. It seems to be happening
mainly at the State level, and so that kind of inconsistency
with the regulatory environment might be one of the limitations
that could exist.
Mr. Hill. Right.
Mr. Ahmed, do you want to comment on that?
Mr. Ahmed. I would just note that, for the kind of core
banking architecture, I think there would probably be some
changes needed in terms of the Federal Reserve System, but for
smaller-valuation or smaller-amount payments, I think you
already are seeing some blockchain-based systems being created
that enable the movement of money, and so I think there are
examples out there--we talked about XRP or others--that kind of
offer this.
Mr. Hill. Mr. Klein, for 40 years, I have been in and out
of the banking business, small banks and larger ones, and I
couldn't agree more with your testimony about access to
available funds and the timeliness of that. We thought we were
going to get there in 2004, obviously, and this is a huge
frustration to people, and it leads to higher overdraft usage
because of that 2- or 3-day gap.
I think we do have a financial literacy issue there, too,
and Dr. Foster and I have worked a lot on that. I think people
don't know they can schedule their payments around their payday
by just simply calling the 1-800 number and doing it, and so
they are juggling when they could move everything given that,
but what should the Fed do about making--you suggested up to
$5,000 be available if it is--I get complaints about this from
my constituents.
Mr. Klein. Under the Expedited Funds Availability Act,
that's where it requires the first $100, as you well know, to
be made available immediately, and the Federal Reserve has all
the legal authority--
Mr. Hill. To change that number.
Mr. Klein. --to change that number and to change the amount
of time, up to $5,000 for customers of more than 6 months.
Mr. Hill. Yes. Thank you for that. We will talk more about
that.
I yield back, Mr. Chairman.
Chairman Lynch. The gentleman yields back.
The Chair now recognizes the gentleman from Ohio, Mr.
Davidson, for 5 minutes.
Mr. Davidson. I thank the chairman, and I thank our guests.
Thanks for your expertise in this field. It's safe to say we
don't all agree on all of the issues here, but I am encouraged
by the shared consensus that privacy is such a foundational
principle for sound payment systems.
Data breaches and data arbitrage pose inherent and under-
appreciated risk to consumers, and we do need a new
architecture to protect personally identifiable information,
and Congress needs to set clear parameters on what data can be
collected or transferred. We also need to preserve what has
worked so well for so long with the U.S. dollar.
Cash is an incredibly important tool, and the features of
it were alluded to by Mr. French Hill when he was talking about
a system that could work for banks and for individuals. The
U.S. dollar, if I exchange it, I don't have to go to a bank. I
can transfer it between any one person. It is recognized as
legal tender throughout the United States. And I don't
necessarily have to share all kinds of personally identifiable
information when I get it. Some people hate that.
But the reality is, when you go to a bank, our system of
laws requires the bank to know all sorts of things, and,
frankly, to spy on all their customers in order to continue to
be permitted to operate, and they do that largely to keep us
safe and to protect us from crimes and things like that, but
there is this system of cash that is still permissible for
peer-to-peer.
So, as we talked about blockchain in a--I don't think
everyone would agree in terms of where we are at with
blockchain or crypto-based assets, but I think it is largely a
matter of whether it is understood or rightly understood, in my
opinion, because there is a fear that there is all this abuse.
There has been some fraud in the cryptospace, and the solution
isn't to just avoid that space altogether. It is the exact
opposite. It is to provide regulatory certainty and legislative
clarity that does not exist currently.
Blockchain broadly protects personally identifiable
information, and, done correctly, it eliminates or can
eliminate intermediaries, true distributed ledger technology.
So how could we do this? It is not a partisan issue, as I
said. I have cosponsors for legislation that include people who
support Bernie Sanders, and cosponsors who support Donald
Trump, cosponsors from the North, South, East, and West,
Republicans and Democrats. The real issue is whether we will
confront the innovator's dilemma. Will we continue the broken
status quo that protects incumbents at all costs, or will we
embrace innovation that will inherently disrupt the current
system?
When confronted with this opportunity in the 1990s,
Congress got it right, and the internet flourished. Congress
did not try to understand everything about the architecture of
the internet, and, clearly, any time there is a hearing on the
topic, Congress still does not understand everything about the
internet. In fact, no one has yet envisioned all the use cases
for the internet or internet technology.
How does all this relate to payments? Innovators and
payment systems are flourishing, but, unfortunately, they are
often launching projects outside of the United States, not to
avoid our regulations, but to find legislative clarity in
places like Switzerland or Singapore.
So, will we unleash the power of our innovative economy?
Will we provide legislative certainty where it is absent with
bills like the bipartisan Token Taxonomy Act? Will we finally
address the foundational problem of privacy? And, finally, will
we allow all Americans to interact freely and privately without
intermediaries that collect, monetize, and often compromise our
data? They slow the payment system, charge fees, and do make
banking less accessible to some people.
So I think, if we are talking about this--and, Mr. Ahmed,
perhaps as the bridge between the old economy and the new
economy, what are your thoughts on the framework that I have
laid out here?
Mr. Ahmed. I completely understand the framework, and I
understand the need for anonymity, and I think it is the
cryptography aspect of cryptocurrencies or payment solutions
that leverage the blockchain that really enables that, and I
think you see that in varying degrees, as I mentioned, with
tokenization technology, reducing the amount of actors that
have access to sensitive financial information.
So I think it is certainly is something that people demand.
I think it is certainly something that there are technological
fixes for, but, as you also acknowledge, there are real
concerns from a government perspective about terrorist
financing and money laundering and figuring out a balance
between those two and how to resolve those, I think is the key
question that you are raising.
Mr. Davidson. Yes. Good points, and I think I am encouraged
by things like the technology on a distributed ledger that lets
you follow it, so you do have privacy, but you don't truly have
secrecy. You have a much more transparent system with a
distributed ledger than you have with cash. And, so far, I
haven't heard calls to eliminate cash, thankfully.
My time has expired. Thank you, all.
Chairman Lynch. The gentleman yields back.
The Chair now recognizes the gentleman from Ohio, Mr.
Gonzalez, for 5 minutes.
Mr. Gonzalez of Ohio. Thank you, Mr. Chairman, and thank
you to our panel today. I, too, have thoroughly enjoyed this
discussion. We kind of have a lot of different perspectives and
opinions on this, which I think reflects, frankly, some of the
challenges that we have legislatively. It has always seemed to
me that, with respect to fintech, we are not quite sure where
we want to go. We think we kind of have a destination in mind,
but how we get there is always different.
Ms. Del Rio, I want to start with you. I just want to kind
of try to summarize part of your testimony, and just give me a
yes or no as to whether you think I kind of got it.
I saw a lot of claims that seem to be that fintech is
primarily or more about jargon that ultimately is exclusionary
in its application as opposed to providing real innovation that
expands access. Is that a fair characterization?
Ms. Del Rio. Sort of.
Mr. Gonzalez of Ohio. Okay. Can you clean it up for me?
Ms. Del Rio. Sure. So, again, it is not to malign
innovation or technology. They are not intrinsically bad or
good, and that is the point. I think my point is that there has
been a lot of sort of reifying of technology as a solution, and
so it was going to solve the problem of the unbanked and solve
inequality and all of these deeply-entrenched problems that we
have talked about today and that your committee is well aware
of, and so I think that my point was to sort of--this is the
Task Force on FinTech--underscore that our experience and those
of other advocates, community groups, financial institutions as
well that work with low-income people, with immigrants, with
these marginalized communities that don't experience these
benefits of fintech yet, and, in fact, it is often the reverse,
where they promise that this is a stepping stone to greater
access and to a greater opportunity, when it is not.
Mr. Gonzalez of Ohio. Okay.
Ms. Del Rio. It is reinforcing the segregation.
Mr. Gonzalez of Ohio. Thank you.
I want to turn to Mr. Ahmed. Can you talk specifically
about the work that you all have been able to do by being in
the digital payment space specifically with respect to
expanding access to affordable credit for small businesses,
minority businesses? I hear about this from folks in my
district, frankly, that they love products like yours because
now they have the ability to access credit in a way that they
otherwise would not have.
Mr. Ahmed. Certainly. Thank you for the opportunity.
We have a product called PayPal Working Capital, and it
leverages the merchant payments data that we secure. We partner
with a bank and then offer a loan, and what we find is that 70
percent of these loans are going to the counties that lost 10
or more banks, as Ms. Del Rio mentioned, since the financial
crisis. So, kind of going and filling in that gap, we found
that 32 percent of these loans go to women-owned businesses
whereas, in traditional financial institutions, it is 16
percent. And, actually, in the U.S. statistics, women-owned
businesses are 32 percent of the economy.
So it is the ability to offer that loan to the individual
who needs it anywhere in the country very, very quickly, in a
secure manner and in a convenient manner that I think is really
the distinctive part of the product.
Mr. Gonzalez of Ohio. And of course it is because you have
access to that proprietary data for those businesses, right?
You can see dollars coming in and out, and that allows you to
price credit more effectively?
Ms. Del Rio. Absolutely, yes.
Mr. Gonzalez of Ohio. Great. So in your experience, at
least with that product, the innovation has been working? It
has been expanding opportunity, which completely mirrors the
feedback that I get. I am sensitive to the comments of Ms. Del
Rio. I think it is absolutely legitimate that we need to, as we
are thinking through the regulatory environment, making sure
that access is a central component of what we are doing, right?
Ms. Del Rio. Yes.
Mr. Gonzalez of Ohio. But I do think, if we are in a world
where we are going to try to stop all innovation in advance
because of a fear of something that may or may not happen, I
think that is a dangerous place to be.
And then, with respect to--you also mentioned--we have 50
seconds--AML/BSA compliance. As we transition or potentially
hopefully transition to more of a blockchain system, that is
one concern that everybody raises.
Can you just provide your perspective on that? Is that a
tech challenge? Is that a regulatory challenge? How can we be
comfortable in that world?
Mr. Ahmed. I think, as we heard, there are technological
solutions to be able to track transactions even with
cryptography, depending on the type of cryptography, and it is
quite a prism and quite a range depending on what the solution
is that is being offered, and then there is a regulatory
challenge of how you actually go after the types of things that
you are worried about, but ensure that legitimate transactions
are getting through, so I think it is probably a little bit of
both.
Mr. Gonzalez of Ohio. Great. Thank you.
And I yield back.
Chairman Lynch. The gentleman yields back.
The Chair now recognizes the gentleman from New Jersey, Mr.
Payne, for 5 minutes.
Mr. Payne. Thank you, Mr. Chairman, and let me thank you
for allowing me to sit in today with the task force.
Being a guest here, and allowing the members on the task
force to go before me, my thunder kind of gets stolen, but I
would just like to associate myself with the comments Mr.
Davidson of Ohio made in terms of cash.
For me, it is about choice, and I will ask Ms. Del Rio and
Mr. Klein: What happens to that segment of the country that
does not come along with this move towards other currencies?
What happens to the grandmother who just can't learn all of
this rigamarole on the phone? What happens to the child that
their dad gives a dollar to go get candy?
What, you have to carry a card now, or say, ``Here, son,
here is a credit card; go get yourself a lollipop?'' It is
about choice, and that is--when the issue is raised, is cash
still king, I don't know if it is king or not, but in the
United States of America, there should be a choice, and there
are underserved, underbanked communities that are not going to
ride.
I still, unfortunately, don't use PayPal because I have not
learned to use it yet, and I would consider myself fairly--
well, fairly savvy, but there are just communities that I am
concerned about that I represent that are just not going to
ride this change.
And privacy issues. Cash is still the only way that you
have total privacy in this country. Wawa, the convenience
store, was just hacked several days ago; 30 million people's
information--30 million Americans' information. Forget about
Target several years ago.
So, cash is really America. It is the American way--a legal
dollar, George Washington's face on the dollar, and we are
talking about doing away with that. You are doing away with a
segment of the country. The statistics are right behind you: 34
percent of African Americans use cash. That is a major segment
of the country.
What do you say to making sure that there is a choice in
this country? That is what this nation was built on, having a
choice. Not that we aren't going down that road, but to not
have a choice in the matter is my concern.
Ms. Del Rio?
Ms. Del Rio. Yes. Thank you.
I appreciate your comments very much. I want to say that I
have been doing this work since the mid-1990s, and, at that
point, I remember people were predicting the demise of cash,
and there were going to be no more bank branches anywhere.
Everything was digital and technology-based, and that hasn't
borne out.
So I appreciate your comments, and I just want to note also
that, in New York City, our city council, just last week,
passed a ban on cashless businesses for all the sort of reasons
you outlined, the impact that would have, the racially-
exclusionary impact it would have of keeping people out of
certain storefronts, which is just fundamentally problematic.
When I started doing this work is when public benefits were
starting to be transferred to electronic benefits cards. And,
at that point, our organization and many others raised some of
the concerns that you are mentioning. How would that impact
people who don't have easy access to bank branches or ATMs in
order to access their food stamps? And what we have warned
about and have seen bear out is that people end up paying huge
amounts of their public benefits in fees to access their cash
benefit, or publicly-subsidized benefits. They have to take
buses to use their benefits cards and things like that. That is
just one small example, but it bears out in many other ways.
So I think we absolutely agree, and I think this panel
agrees that cash shouldn't disappear, that people should have
their choice preserved and protected, and that stronger action
by Congress to make sure that people are protected no matter
what choice they make, these are just fundamentally key things
if we are going to build infrastructure that allows for greater
options for people.
Mr. Payne. Thank you, and I see my time is up.
I yield back.
Chairman Lynch. The gentleman yields back, and the Chair
now recognizes the gentleman from Wisconsin, Mr. Steil, for 5
minutes.
Mr. Steil. Thank you very much.
Thank you, Mr. Chairman, for holding today's hearing.
I think we have heard a lot of discussion today that is
focused on the idea that innovation and the adoption of mobile
payment technology can lead to financial exclusion. There are
people in this country who are unbanked and lack access to
smartphones, but we should be working, I think, to ensure that
the public policy creates an environment where everybody
benefits from innovation that we are creating.
I think there is an opportunity here to talk a little bit
about how we can use this technology to improve financial
inclusion. I look to Mr. Ahmed, and I think, for us, it is
important to step back maybe and just put a little bit of
context to this. And so, if I can, I dug up some numbers from
Pugh research: 96 percent of Americans own a cell phone. Ten
years ago, it was about 85 percent. The same study found that
81 percent of adults owned a smartphone. Back in 2011, it was
about 35 percent. The numbers for smartphone ownership rates by
White, Black, and Hispanic adults, this study found, was nearly
identical: 82, 80, and 79 percent respectively, reasonably
identical rates.
And, while lower-income adults are less likely than those
with higher incomes to own a smartphone, the overwhelming
majority of respondents earning less than $50,000 per year did
own a smartphone. Some interesting data: 71 percent of those
earning less than $30,000 have a smartphone; 78 percent of
those earning between $30,000 and $50,000 do. And we are seeing
this trend not only in the United States, but globally: 60
percent of adults in Brazil, 52 percent in Mexico, and 41
percent in Kenya have smartphones, and the numbers are
continuing to rise at a very aggressive rate.
And so, given the adoption of smartphones and the near
total market penetration, I think we should be having a
conversation about how mobile payments can foster financial
inclusion rather than simply identify the risks of financial
exclusion. We should identify the risks, but I think we should
spend some more time on how this could actually help us moving
forward and how technology can actually help those who are
unbanked.
Mr. Ahmed, in your testimony, you mentioned that the most
significant barrier to mobile payments for underbanked
consumers is their poor compatibility with the way in which
unbanked consumers often earn and use money.
Can you elaborate on that comment just a bit?
Mr. Ahmed. Certainly. So, if your employer pays you in cash
and then if you are living in a community where most of the
options available for you to get your groceries or to take
transportation--if the common method of acceptance or the
preferred method of acceptance is going to be cash, then it
makes a lot of sense for you to be using cash.
But I appreciate you highlighting the point about financial
inclusion in the way that we are thinking about it--PayPal is
really about financial health--can we create value propositions
using the full suite of financial services to say, actually,
there is a better option here if the digital payment is
accepted by the merchant, whether you are offering credit to
the merchant as an incentive or lower cost, or on the consumer
side. So that is really where we are trying to focus, and to do
it in partnership with a lot of the entities on the ground.
Mr. Steil. Thank you. And, as we go back and look at the
widespread adoption of smartphones and the continuing trend
lines across the United States and across different demographic
groups, can you comment on how that is allowing PayPal to serve
some of these individuals who were previously unbanked?
Mr. Ahmed. We are riding a very strong trend in this space,
in the mobile access space, and we are seeing mobile payments
grow as a result of that, so certainly a lot of the core focus
of our company, whether it is in Venmo or in our core PayPal
product, is to create better and more experiences using the
mobile device for people to be able to use, again, everywhere
they go.
Mr. Steil. I appreciate your comments. And I appreciate
your time here today. I do think, as we spent a lot of time
today identifying some of the risks, I think it is important
that we also identify a lot of the positives in how some of
these mobile-payment technologies can assist those who are
currently unbanked in our system.
Thank you very much. I yield back.
Chairman Lynch. The gentleman yields back. The Chair will
now recognize the ranking member for 5 minutes for closing
remarks.
Mr. Emmer. Thank you, Mr. Chairman, and, again, thank you
to the panel for this interesting discussion.
I really appreciate my colleague from Wisconsin, I think,
pushing the reset button and getting us to refocus, because a
lot of what I hear when we talk about technology reminds me of
what humans have dealt with since the beginning of time: We
fear what we don't understand.
And by acting before we really understand what we are
dealing with, we have a tendency to drive innovation and, more
importantly, the entrepreneurs responsible for the great
science, everything else, out. We should lead when it comes to
these technology advances.
Frankly, I was listening to the comment by--when you said
that we banned cashless businesses. That is actually kind of
sad, because--and the next follow-up was, we need government to
give us more solutions. If you think back to 2007, I believe we
had roughly 9,000 community banks on Main Streets across this
country. We had roughly 9,000 credit unions like the one that
you Chair.
A year later, after the crash, we still had roughly--
between 2008 to 2010 or 2011, we still had roughly 9,000 of
each. And then Congress rushed in to help, like Congress did
with the savings and loan crisis and every other crisis,
because the government has to save us from ourselves.
And, ever since, it has accelerated the pressures on small
community banks and credit unions to the extent that we now
have roughly, I think, less than 6,000 of each, and we are
losing more every day, rather than trying to create an
environment where we are creating more Main Street banking
opportunities.
So the idea that government is going to solve it by banning
it, I just want to give you something, because I think it is
funny when I hear from even one of my own colleagues that
crypto is the preferred method of laundering money. Well, my
colleague, Mr. Payne, just pointed out the only truly private
thing left is cash. We can identify people on the internet. You
can't necessarily identify somebody who is carrying around
suitcases of cash, and I think the comment was that El Chapo
had $200 million in cash on his property. I had my guys check.
I don't think he had any cryptocurrency, by the way. His son
might have, but he didn't.
I would suggest to anybody who is interested, again,
because I think the rhetoric really is, this is dangerous,
technology is going to disenfranchise because we don't learn
it. And, by the way, to my colleague who says: What about the
grandmother who doesn't know, or the child? I agree with him,
but I am one of those people that, when I go through the
checkout line in the grocery store and they say, ``Sir, the
self-serve is open.'' No, no. I'm going to the person. I want
to talk to somebody. The young people are going through--
besides, if I go through the self-serve, I want the employee
discount, because I am doing the job, right? I should get the
discount.
But I think, while we should be concerned always, and I
respect and am very sensitive to the fact that we are all
thinking, I hope, in the same vein: We want people to have
access. We want people to be empowered and to grow and be able
to lift themselves up. We just look at it a little differently.
I suggest, if you haven't, to take a look at the book, ``The
Age of Cryptocurrency.''
This book begins with a story of Afghani women who are
typically excluded and shunned from partaking in finances. It
is a cultural issue. These Afghani women were using bitcoin to
build up a financial livelihood and to store value that is
solely theirs. This is the kind of empowerment that is not
something that I think we should just be tossing aside, again,
because we can't see all the things out on the horizon. We have
to make sure we are very careful, and this institution, in
particular, has to start moving a little quicker with the
certainty questions that we talked about in the marketplace
because, at the end of the day, that is where we are going.
And I think people need to be very clear. We can either
help facilitate this technology advancement, or it is going to
happen without us, and God forbid it happens somewhere else
where we don't have any say.
So, again, thank you to the witnesses.
And, Mr. Chairman, thank you very much for having this
hearing today.
Chairman Lynch. Absolutely. Thank you. Thank you for your
remarks as well.
In closing, I do want to point out the difficulty here that
we face. I was in Somalia last week. We did a codel there to
the Horn of Africa, and I am keenly aware of the need within
Somalia for a secure banking apparatus to help that country
recover. All of the big banks have left, because of the threat
of reputational damage due to the control of al-Shabaab and
terrorist elements in that country, but you do see the need for
a value-transfer system that is secure and that will allow that
country to recover. So, clearly, there are some advantages to
be had in a digital system that is secure. It is a very
different circumstance, but I clearly see the benefits.
But I also see the benefits that our regulatory system has
secured. Most of our regulatory system on the financial side,
the traditional system, has been created as a result of
responses to calamities in this country, right? We had 9,000
bank failures during the Depression--9,000. So Congress, in
coordination with the SEC and others, created the Federal
Deposit Insurance Corporation (FDIC). So, we have the Federal
Deposit Insurance Corporation, and even though we had a major
catastrophe in the recession in 2007, 2008, we didn't see all
the banks closing down like we did before. So, there are
advantages to having those intermediaries.
And now, I am a bit concerned about the push for blockchain
and a system that eliminates the intermediaries. It is peer-to-
peer ledger. So we go around the Federal Reserve because it is
peer-to-peer. We go around the SEC. We go around Treasury and
the Financial Crimes Enforcement Network (FinCEN). We go around
all these intermediaries that allow us to rebalance and correct
some of the inequities.
So it is a big challenge, but it is extremely interesting.
And I agree; we have to try to tackle this and get the best out
of a system like that while protecting against the worst
aspects of what some of this new, untested technology might
present.
I want to thank you all for the wonderful testimony. All of
you brought your ``A game'' here today and really helped us
work through some of these issues that are extremely
complicated, but we want to understand how this affects
everyone. The banking industry has tended to gravitate toward
the needs of the wealthy, right?
I remember when I was an ironworker. I was an ironworker
for 20 years, and I became union president, and we had accounts
so that the men and women on the jobs could go cash their
checks at the end of the workday, and I remember a bank, a big
bank, still around, who told me as union president that they
didn't want to do business with my workers anymore because the
amount of money they were making on their transactions didn't
cover the cleaning of the rug, because my guys and gals were
coming in with muddy boots.
So, that type of elitist attitude that we want to take care
of the rich folks and not the workers so much, and that is
where the money is on the high end of this spectrum. We have to
be careful. We have to be careful when we are designing a
system, that it is inclusive of everyone, and I think we can do
it. I think we can accomplish the goals that have been
articulated up here. We just have just to be smarter about it.
Part of it is the way we engineer this, and part of it is
the way that we not only engineer the architecture, but also
regulate it on behalf of the American people because we are the
only group who can really intercede on behalf of those people
in our economic system and our legal system.
So, thank you very much for your testimony.
Without objection, the following letters will be submitted
for the record: letters from Americans for Common Cents, C-E-N-
T-S; Coinstar; the Electronic Payments Coalition; Nacha; the
Electronic Transactions Association; the Money Services
Business Association; the National Association of Convenience
Stores; the National Association of Federally-Insured Credit
Unions; the payment card industry; the Payment Card Industry
Security Standards Council; Square; the American Bankers
Association; Javelin Advisor Services, and the Honorable Donald
Payne, Jr.
Thank you.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is now adjourned. Thank you.
[Whereupon, at 11:15 a.m., the hearing was adjourned.]
A P P E N D I X
January 30, 2020
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