[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]






 
                    THE FUTURE OF REAL-TIME PAYMENTS

=======================================================================

                                HEARING

                               BEFORE THE

                   TASK FORCE ON FINANCIAL TECHNOLOGY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 26, 2019

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 116-55
                           
                           
                           
                           
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                   
 
 
 
 
 
                            ______                      


              U.S. GOVERNMENT PUBLISHING OFFICE 
42-355 PDF             WASHINGTON : 2020                            
                           

                 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             PETER T. KING, New York
GREGORY W. MEEKS, New York           FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri              BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado              STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut            ANN WAGNER, Missouri
BILL FOSTER, Illinois                ANDY BARR, Kentucky
JOYCE BEATTY, Ohio                   SCOTT TIPTON, Colorado
DENNY HECK, Washington               ROGER WILLIAMS, Texas
JUAN VARGAS, California              FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey          TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas              LEE M. ZELDIN, New York
AL LAWSON, Florida                   BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam            ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan              WARREN DAVIDSON, Ohio
KATIE PORTER, California             TED BUDD, North Carolina
CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah                    JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York   BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia            LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts      DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
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                 FRENCH HILL, Arkansas, Ranking 
JOSH GOTTHEIMER, New Jersey              Member
AL LAWSON, Florida                   BLAINE LUETKEMEYER, Missouri
CINDY AXNE, Iowa                     TOM EMMER, Minnesota
BEN McADAMS, Utah                    WARREN DAVIDSON, Ohio
JENNIFER WEXTON, Virginia            BRYAN STEIL, Wisconsin


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 26, 2019...........................................     1
Appendix:
    September 26, 2019...........................................    29

                               WITNESSES
                      Thursday, September 26, 2019

Benson, Carol, Founding Partner, Glenbrook Partners..............    10
George, Esther L., President and Chief Executive Officer, Federal 
  Reserve Bank of Kansas City....................................     4
Sinha, Harsh, Chief Technology Officer, TransferWise.............     6
Steen, Bob, Chairman and Chief Executive Officer, Bridge 
  Community Bank, on behalf of the Independent Community Bankers 
  of America (ICBA)..............................................     7
Williams, Rodney, Co-Founder and Chief Commercial Officer, LISNR.     9

                                APPENDIX

Prepared statements:
    Benson, Carol................................................    30
    George, Esther L.............................................    32
    Sinha, Harsh.................................................    49
    Steen, Bob...................................................    55
    Williams, Rodney.............................................    62

              Additional Material Submitted for the Record

Lynch, Hon. Stephen:
    Written statement of the American Bankers Association........    64
    Written statement of Americans for Financial Reform and 
      various undersigned organizations..........................    70
    Written statement of Consumer Reports........................    73
    Written statement of Financial Innovation Now................    78
    Written statement of Food Marketing Institute................    79
    Written statement of Main Street Alliance....................    82
    Written statement of Nacha...................................    84
    Written statement of the National Association of Federally-
      Insured Credit Unions......................................    88
    Written statement of the Retail Industry Leaders Association.    90
    Written statement of The Clearing House Payments Company.....    92
Axne, Hon. Cindy:
    Written responses to questions submitted to Bob Steen........   108
Hill, Hon. French:
    Written responses to questions submitted to Carol Benson.....   109
    Written responses to questions submitted to Harsh Sinha......   111
    Written responses to questions submitted to Bob Steen........   113


                    THE FUTURE OF REAL-TIME PAYMENTS

                              ----------                              


                      Thursday, September 26, 2019

             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 2:05 p.m., in 
room 2128, Rayburn House Office Building, Hon. Stephen F. Lynch 
[chairman of the task force] presiding.
    Members present: Representatives Lynch, Scott, Gottheimer, 
Lawson, Axne; Hill, Luetkemeyer, Emmer, Davidson, and Steil.
    Ex officio present: Representatives Waters and McHenry.
    Also present: Representatives Pressley, Hollingsworth, and 
Riggleman.
    Chairman Lynch. Good afternoon. The Task Force on Financial 
Technology will now come to order. 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.
    Today's hearing is entitled, ``The Future of Real-Time 
Payments.'' I now recognize myself for an opening statement.
    Thank you for being here. I want to thank our esteemed 
panel of witnesses as we discuss the future of real-time 
payments in America.
    Today, we will examine how the nearly instantaneous 
clearing and settlement of payments stands to benefit consumers 
and small businesses, as well as the challenges it presents to 
both operations and security. This is a timely conversation. 
Both consumers' and institutions' expectations have demanded 
innovation. And, in fact, just a few days after we announced 
this hearing, the Federal Reserve announced their intent to 
roll out a 24-hours-a-day, 7-days-a-week, 365-days-a-year 
wholesale real-time payment system called FedNow.
    Much of the wider discussion surrounding FinTech is focused 
on consumer-facing applications like digital banking or 
applying for a loan on your smartphone. Along with these other 
applications, payments technology has seen a similar 
revolution. Every day, consumers use apps on their phone to 
split the check at restaurants or the utility bill at their 
apartment.
    But unlike other FinTech applications, payment technology 
is still largely dependent on old infrastructure that only 
allows settlement to occur intermittently. For example, if you 
make a transaction or transfer money on a weekend, it might 
take up to 3 days for your account to reflect that transaction.
    Americans have come to expect that they can make a payment 
with the tap of a button, and now our financial system is 
racing to catch up. For families living paycheck to paycheck, 
real-time payments mean that payday actually means payday, 
without having to resort to payday loans or other predatory 
alternatives while waiting for a check to clear. For gig 
workers, it means the option to get paid immediately after a 
job, something that can be the difference between paying a 
couple of dollars for a cup of coffee or paying $35 for a cup 
of coffee and an overdraft fee.
    For small businesses, it means having instant access to the 
money customers pay, reducing the need for short-term borrowing 
to pay employees or finance the purchase of goods. This will 
allow our businesses to cut down on the cost of borrowing 
capital and spend that money on growing their businesses.
    There is a wide array of benefits to be gained from moving 
to a real-time payment system, but it is not without some risk. 
Faster payments can mean a faster way for scammers to rip off 
unsuspecting victims, and the additional data used to track a 
real-time payment can serve as an inviting target for cyber 
criminals.
    We are faced with the meeting of two cultures: the rules-
based cultures of banking; and the move-fast-and-break-things 
culture of tech, which sometimes burns through investor cash 
early on, and that is a philosophy that has not worked well in 
banking.
    Today's panel has a wide array of expertise from 
government, financial institutions, and financial technology 
firms. I am looking forward to hearing the testimony of our 
witnesses on the benefits and the risks of real-time payments, 
the hurdles that we still face on our way to universal 
adoption, and what lessons we can learn from other countries.
    With that, I would like to recognize my friend and 
colleague, the gentleman from Arkansas and ranking member of 
the task force, Mr. Hill of Arkansas, for an opening statement 
of 5 minutes.
    Mr. Hill. Thank you, Mr. Chairman. Thank you for having 
another good hearing in our FinTech Task Force to talk about 
another critical element in our research on how best to propose 
policy changes, both regulatorily and legislatively, to enhance 
innovation in the United States, to make sure the United States 
remains a global leader in FinTech on the credit side, the 
payment side, and the depository side, both among incumbent 
financial institutions as well as nonbank innovators.
    It is going to be good to have this conversation about the 
payments arena, because it is completely evolving and 
transforming as new technology, as you have noted, is brought 
on board. And throughout my over 40 years in finance, I have 
certainly seen every innovation that has happened since the 
mid-1970s, whether you are talking about checks or debit cards 
or credit cards, wires, or now paying through Apple Pay or from 
your watch.
    And that payment space has been a big, important part of my 
personal career. I was a founder of the Southwest's largest 
shared ATM EFT network, PULSE, back in 1980, which is now owned 
by Discover. At the time, that was the cutting-age technology 
for retail banking, and it was interesting to see that. And 
then when I was a community banker in Little Rock, before 
coming to Congress, when Google AdWords first was created, we 
built an entire digital bank online through Google AdWords, 
specializing in health savings accounts. So, I have sort of 
seen this emerging technology as an incumbent player.
    But during the first half of 2019, we have seen the 
extraordinary change globally in this with the venture capital 
business looking at payments, and then some of the biggest 
transactions on the world stage are in payments. First, 
Fiserv's acquisition of First Data, and then, Global Payments 
acquisition of Total System Services (TSYS), and those were $20 
billion transactions. And then finally, recently, just a few 
months ago, Fidelity's agreement to merge with Worldpay at $43 
billion. So, payments is a hot topic.
    And real-time payments is a gateway for further FinTech 
innovation. We don't have the future of digital banking without 
real-time payments, just like we don't have any of that if we 
don't have real private authentication and have a real national 
privacy standard and real individual identification. Those are 
the building blocks, the foundational blocks, whether you are 
doing a credit product, a payment, or opening up a new way to 
do banking.
    We have rudimentary innovation there. Visa Direct, 
Mastercard Send, these are real-time payments sort of, right? 
We have experiments there. If you have a person in college, you 
know all about Venmo, PayPal's Venmo. I thought for a while 
this was the best friend of my daughter in college, because 
Venmo kept getting money every week, and I figured out, no, of 
course not.
    But these are our payments working around the existing 
system, which is why we need real-time payments that are 
broader, and more innovative, with a bigger reach. And so, I 
look forward to talking today about the payment space that we 
have. I look forward to talking to our friends at the Federal 
Reserve about their operations in this space, learning more 
about what is being proposed by The Clearing House, to offer 
their real-time payments network, and also the timing of all 
that, because that is important. Because America has a long 
history of being a leader and an innovator in this space, and 
we don't want to delay that. And as I say, if you want a future 
that is digital, that is blockchain digital, then privacy, 
personal identification, and this issue of real-time payments 
that have fraud protections are essential.
    I look forward to the conversation today. And I would like 
to yield some time to my good friend, the ranking member of the 
full Financial Services Committee, Mr. McHenry.
    Mr. McHenry. Thank you, Mr. Hill, for your leadership on 
this, and I appreciate the testimony today.
    While we spent the last few years ``updating'' from swipe 
to PIN--which is not a newer technology, it is an older one--
China created entire new world payments that connect consumers 
directly with their banks and merchants, where payments can be 
made at the click of a button. So, it is happening in real time 
there. It is happening on a very different scale there than 
here in the United States. And I don't know how we get it there 
in the United States. I don't know how we choose to get there, 
but what I do know is we have to get there. And if we don't, if 
we don't build our real-time payments here in the United 
States, rest assured, China will. Let's get on with it, let's 
be aggressive, let's be bipartisan, and let's get this thing 
done.
    I yield back.
    Chairman Lynch. Today, we welcome a panel of esteemed 
witnesses. First, the Honorable Esther George, president and 
chief executive officer at the Federal Reserve Bank of Kansas 
City. President George also chairs the Financial Services 
Policy Committee which oversees payment services in the United 
States. I thank you for being here, President George.
    Second, Mr. Harsh Sinha, the chief technology officer at 
TransferWise, one of Europe's largest FinTech companies, which 
focuses on helping customers cheaply transfer money 
internationally.
    Third, Mr. Bob Steen, chairman and CEO of Bridge Community 
Bank in Iowa. He serves as a member of the Iowa Bankers 
Association Payments Council, and on the Independent Community 
Bankers of America's Technology and Payments Committee.
    Fourth, Mr. Rodney Williams, co-founder and chief 
commercial officer of LISNR, a company that has developed 
technology to use inaudible tones to transmit payment data 
between retailers and mobile devices.
    And finally, we have Ms. Carol Benson, founding partner of 
the consulting firm Glenbrook Partners. Ms. Benson has 
significant experience in the payments field, having also 
worked at Visa. And she co-authored the book, ``Payment Systems 
in the U.S.''
    Thank you all for being here.
    Our 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.
    President George, you are now recognized for 5 minutes for 
an opening statement.

 STATEMENT OF ESTHER L. GEORGE, PRESIDENT AND CHIEF EXECUTIVE 
          OFFICER, FEDERAL RESERVE BANK OF KANSAS CITY

    Ms. George. Thank you. Ranking Member McHenry, Chairman 
Lynch, Ranking Member Hill, and members of the task force, 
thank you for this opportunity.
    Chair Powell asked me to speak to you today in my role as 
the Federal Reserve Bank leader responsible for our payments 
improvement initiative since its beginning, and as Chair of the 
Financial Services Policy Committee, which oversees the 
provision of payment services to depository institutions and 
the United States Treasury by the 12 Federal Reserve Banks. I 
am pleased to offer my statement for the record, as well as an 
in-depth statement on the role of the Federal Reserve in the 
payment system and the recently announced proposal to support 
faster payments through the development of a new service called 
the FedNow Service.
    Since our founding more than a century ago, the Federal 
Reserve has provided payment and settlement services as part of 
its core function of promoting an accessible, safe, and 
efficient payment system. Today, the Federal Reserve is 
continuing this important operational role and preparing to 
support the modernization of our nation's payment system with 
capabilities that allow payments to move quickly through a safe 
and efficient foundation, on top of which innovation and 
competition can flourish.
    This decision was made only after three criteria were met. 
The first of these criteria is that other providers alone 
cannot be expected to provide the service with reasonable 
effectiveness, scope, and equity. Of notable importance related 
to this criterion is the Federal Reserve's ability to connect 
to more than 10,000 financial institutions. Through these 
connections, our existing payment services allow banks of every 
size to serve the needs of thousands of communities across the 
United States with competitive, fair, and transparent access. 
Providing this comprehensive nationwide reach is something that 
we believe will present significant challenges to other 
providers in the current market landscape. Coming from a region 
of the country with many small community banks serving rural 
areas of the central United States, I can tell you that the 
Board's decision to provide this new service has been very 
well-received.
    The second criterion is that there will be a clear public 
benefit, including promoting the integrity of the payment 
system and reducing payment system risk. The Federal Reserve 
must continue to play an important role in promoting the safety 
of the U.S. payment system by providing liquidity and 
operational continuity in response to financial turmoil, 
terrorist attacks, natural disasters, and other crises. The 
FedNow Service will allow the Federal Reserve to retain its 
ability to provide stability and support to the banking system, 
as well as promote the development and implementation of 
industry-wide fraud-mitigation standards. Development of the 
service will also enhance the safety of the U.S. payment system 
by promoting resiliency through redundancy.
    The third and final criterion is that the Fed be able to 
fully recover its cost over the long run. The U.S. payments 
infrastructure today includes alternative payment choices and 
providers. The Federal Reserve and The Clearing House currently 
operate competing and interoperable services which bring 
important benefits for resiliency and for competition.
    In all of our services, we have been able to meet the 
requirements of the Monetary Control Act for cost recovery that 
ensures competitive fairness while fulfilling our public policy 
goals. We fully expect this will be the case with the FedNow 
Service.
    As was explained in a 2016 GAO study, the Federal Reserve's 
role as an operator has long been judged as effective in 
promoting accessibility, safety, and efficiency for the 
nation's payment system and its customers. Last summer, the 
U.S. Treasury recommended that the Federal Reserve move quickly 
to facilitate a faster real-time payments system. We are in the 
process now of engaging with stakeholders for their input on 
features of the FedNow Service through a Federal Register 
notice which was issued last month. I am confident that 
together, we can achieve our public policy objectives for 
broadly accessible, safe, and efficient, faster payments.
    Thank you, and I will be happy to respond to your 
questions.
    [The prepared statement of Ms. George can be found on page 
32 of the appendix.]
    Chairman Lynch. Thank you.
    Mr. Sinha, you are now recognized for 5 minutes.

      STATEMENT OF HARSH SINHA, CHIEF TECHNOLOGY OFFICER, 
                          TRANSFERWISE

    Mr. Sinha. Chairman Lynch, Ranking Member Hill, and members 
of the task force, thank you for the invitation to testify 
today. My name is Harsh Sinha, and I am the chief technology 
officer at TransferWise, a global technology company with the 
mission to build the best way to move money around the world. I 
have spent the last 4 years scaling the technology and product 
teams in TransferWise. Before that, I was working in Silicon 
Valley for more than a decade leading and developing e-commerce 
and payment products for companies like PayPal and eBay.
    TransferWise was founded in 2011, and now has more than 6 
million customers moving $5 billion every month. It is one of 
the fastest-growing financial technology startups in the world, 
and offers international money transfer service, a multi-
currency stored value product that can be linked to a debit 
card, and an application programming interface that can be 
integrated directly into large enterprises and banks.
    Our company is attempting to solve the problem of cross-
border payments. It is really hard to move money between 
different currencies and countries. The corresponding banking 
infrastructure is expensive, slow, inconvenient, and lacks 
transparency. That is why we have created our own cross-border 
payments network that serves 71 countries, including the United 
States.
    The technology that powers our product relies on technical 
and regulatory understanding of local payment systems around 
the world. We connect directly to local payment systems as in 
the U.K., where we became the first nonbank to gain direct 
access to the Faster Payments scheme.
    We strongly agree that the Federal Reserve should create a 
real-time payment system. Specifically, it should be a real-
time, gross settlement system based on ISO 20022 standards, and 
the Federal Reserve should extend Fedwire hours to enable 24/7, 
365 settlement.
    There are four main reasons I believe the Fed should build 
the system. First, ubiquity and reach. The Federal Reserve 
already connects to over 10,000 financial institutions in the 
United States.
    Second, pricing. FedNow should have a lower cost structure 
longer term, given their price recovery approach taken by the 
Fed.
    Third, competition. Having multiple systems promotes market 
competition.
    And fourth, a longer-term strategy. Real-time payment 
systems are here to stay. It would be prudent to not have a 
single system run by a single provider.
    Hence, there is a clear public interest in the Federal 
Reserve building a fair and ubiquitous system accessible to 
every financial institution and payments provider that operates 
at low margins over time.
    But as we talk about real-time payments, it is important to 
cover the rules that govern its access. In the U.S., to access 
a domestic payments infrastructure, a nonbank financial 
institution must partner with a bank to settle payment 
transactions. That results in added costs and complexity and 
partner dependence. In order to facilitate competition and 
ensure that the benefits of faster payments are passed on to 
the consumers, the U.S. should prioritize the accessibility and 
inclusion of nonbanks in the faster payment system. 
Additionally, diversification will reduce systemic risks that 
arise from a handful of banks hosting all indirect nonbank 
participants.
    Finally, as we talk about payments, we should not only 
think about domestic payments but global payments. To make 
cross-border payments cheaper and faster for all Americans, we 
need to address two main areas.
    First, transparency in fees. Every year, people and small 
businesses transfer $10 trillion internationally and lose $200 
billion in bank fees, mostly hidden in inflated exchange rates. 
The average global remittance cost is 7 percent, and the World 
Bank says the lack of transparency is the major reason for the 
high fees. Governments around the world are working to make 
sure customers see what they are really charged, and we believe 
the U.S. should do so, too, as the largest originator of cross-
border payments worldwide.
    Second, implementing to international standards. With the 
U.S. lagging behind other major markets on faster payments, we 
can use this timing to our advantage and learn from other 
countries. The U.S. has the opportunity to leapfrog from having 
limited real-time payments domestically to having all payments, 
including international, being instant.
    In conclusion, I believe there should be more than one 
real-time payment system in the United States, and the Fed is 
best positioned to deliver this and unlock the benefits for 
consumers, businesses, and the economy at large.
    Thank you for the opportunity to testify today. I am happy 
to answer any questions.
    [The prepared statement of Mr. Sinha can be found on page 
49 of the appendix.]
    Chairman Lynch. Thank you.
    Mr. Steen, you are now recognized for 5 minutes.

 STATEMENT OF BOB STEEN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, 
 BRIDGE COMMUNITY BANK, ON BEHALF OF THE INDEPENDENT COMMUNITY 
                   BANKERS OF AMERICA (ICBA)

    Mr. Steen. Chairman Lynch, Ranking Member Hill, Ranking 
Member McHenry, and members of the task force, I am Bob Steen, 
chairman and CEO of Bridge Community Bank in Mount Vernon, 
Iowa. I am testifying today on behalf of the Independent 
Community Bankers of America, where I have played an active 
role over the years, including service on the payments 
committee. Thank you for the opportunity to testify today.
    I believe it is imperative that the U.S. develop a robust, 
real-time payment system to meet consumer and business demand 
and stay competitive with the rest of the world. This system 
must create access for customers of all financial institutions, 
regardless of size, in every American community.
    How we achieve the goal is critical. A real-time payment 
system is too important to be entrusted to a private monopoly. 
The two dozen largest banks simply cannot own and operate the 
U.S. payment system. ICBA strongly supports the Federal 
Reserve's decision to build FedNow, a real-time payment system 
that will give direct access to all financial institutions and 
our customers.
    Bridge Community Bank is a $96 million community bank 
founded in 1903 and owned by our 20 employees. We serve real 
communities in growth markets in and around Cedar Rapids and 
Iowa City with small business, agriculture, and consumer 
banking. Our business model is relationship banking, in which 
we serve the totality of a family's business and personal 
banking needs, both deposits and lending. The transaction 
account is the key to the customer relationship and is at the 
heart of community banking. We have long recognized that 
payment innovation is critical to the long-term prosperity and 
independence of our bank and our community banking. This is why 
I have invested so much of my career in payment innovation and 
have developed multiple payments in our small bank.
    Only the Fed can guarantee competition and choice. The U.S. 
does not need another closed-loop payment system in which some 
financial institutions can participate and others are excluded. 
All financial institutions and all customers must have access 
to real-time payments. And even those who live in small or 
rural communities are exclusively served by community banks. I 
firmly believe this simply cannot happen without the Fed's role 
in real-time settlement.
    The Fed is uniquely positioned to provide access to all 
11,000 financial institutions, because all of those 
institutions have access to a settlement account and a service 
connection with the Fed. The Fed already operates a universally 
accessible check, Automated Clearing House (ACH), and wire 
transfer service. If history is any guide, the Fed will 
maintain an affordable as well as universal access to faster 
payments. The Fed offers a fair and affordable pricing 
structure today, even to the smallest of the small financial 
institutions, like our bank.
    The Fed is trusted among community banks. Each community 
bank has a relationship manager, and the opportunity for direct 
access to the payment system. I know our representative's name, 
I know his cell number, and he answers the phone. As a 
community bank, I know that I have direct and easy access to 
Fed support services, even after our banking hours. I place a 
high value on that access.
    As I stated at the outset, payments innovation, offering 
customers what they want, when they want it, is critical to the 
prosperity and continued independence of community banks. As a 
neutral, real-time settlement network, FedNow will be critical 
to our ability to continue to innovate. For example, my bank, 
in partnership with another community bank, developed a mobile 
app we call ExcheQ, which allows a user to send money to anyone 
in the U.S. who has an account at any financial institution 
without a payment application on the receiver's end. Once 
FedNow is fully operational, ExcheQ will allow real-time 
transactions without being dependent on a core system. That, in 
and of itself, is transformational. Once ubiquity is achieved 
through FedNow, new use cases and new opportunities for 
innovation will emerge.
    The Fed's entry into real-time payments is part of a 
natural evolution from its involvement in check clearing, ACH 
payments, and wire transfers. The Fed has strengthened the 
payment system by providing safety, integrity, choice, and 
equitable access to all financial institutions. I am confident 
the Fed will bring the same critical benefits to real-time 
payments.
    Thank you again for convening this hearing. I be happy to 
answer any questions you may have.
    [The prepared statement of Mr. Steen can be found on page 
55 of the appendix.]
    Chairman Lynch. Thank you, Mr. Steen.
    Mr. Williams, you are now recognized for 5 minutes.

 STATEMENT OF RODNEY WILLIAMS, CO-FOUNDER AND CHIEF COMMERCIAL 
                         OFFICER, LISNR

    Mr. Williams. Chairman Lynch, Ranking Member Hill, members 
of the task force, thank you for the opportunity to testify 
today. My name is Rodney Williams. I am the co-founder and 
chief commercial officer at LISNR, an ultrasonic proximity 
company that enables a universal and secure proximity mobile 
payment method. I am pleased to participate in this hearing 
panel alongside my esteemed colleagues.
    As a financial technology founder, I have spent the past 7 
years creating technology around the inefficiencies of how we 
pay and how we access funds for individuals in discretionary 
need. Both innovations were driven by the limitations of our 
current payment infrastructure and my experience growing up 
disenfranchised.
    LISNR was founded in 2012 with a simple idea: A way to 
transmit data between two devices using software and a mobile 
device's speaker and microphone. Since then, LISNR has advanced 
the security and flexibility of our transmission method to 
support proximity-based payments and checkout experiences. 
Today, LISNR is actively working with the world's leading 
merchants and card networks on what will become a better way to 
pay.
    LISNR's premise in payments has always been 
straightforward: Anyone with a mobile phone should be able to 
pay in proximity securely and universally. Today, secure mobile 
payments in a store are driven by card networks and mobile 
device manufacturers' use of near-field communication (NFC). 
This control limits the use of NFC only to mobile device 
manufacturer services, as all third-party mobile applications 
are restricted from using NFC for payment services. This 
significantly restricts what is considered a safe and secure 
way to pay as it is limited to the mobile device manufacturer's 
branded application.
    This has driven many of our top retailers towards QR codes 
and barcodes as a method to pay in their mobile applications, 
incurring additional transaction costs and risks, which 
ultimately hurts the value that these merchants can give to the 
end consumer. Our company is addressing this core problem as 
LISNR allows a universal and secure way to pay for any mobile 
device or merchant at a better cost structure than today's 
alternatives.
    We provide software that is inserted into a mobile 
application. Within these applications, we enable the speaker 
and microphone as a method to wirelessly send and receive 
proximity noncloud-based data. Merchants can leverage this 
method to transmit any series of proximity-based and 
verification data points to initiate and complete a 
transaction. A transaction can happen safely within a few 
inches or even up to 10 feet, powering more payment and 
checkout experiences than ever before.
    Today's consumers expect to pay wherever they are 
instantly. These experiences are expected to happen on every 
device in every retail environment. We see a world where 
ultrasonic proximity verification will live across all payment 
scenarios globally. As we think about the future real-time 
payment system, it must democratize the proximity payment 
method at the edge of the mobile device securely so that anyone 
with a phone can pay with whatever source their mobile wallet 
holds.
    Our technology relies heavily on financial regulatory 
infrastructure, an infrastructure that is due for innovation in 
real-time payments. We strongly agree that all payments should 
be instant and universal at proximity.
    I grew up in Baltimore, Maryland, as an offspring of 
hardworking Jamaican parents. I personally experienced 
challenges of being underbanked and costs associated with being 
poor, as cash is expensive. As a kid, I can remember counting 
down to my parents' payday, as the electricity could be turned 
off. In this simple scenario, we were being taken advantage of 
as the fees, delays in funds availability, and the manual task 
associated with checking, or cash checking, became significant. 
My childhood was filled with many such memories as my parents 
tried to ensure proper cash flow to run the household. Walking 
to the ATM or money transfer services, paying bills in cash, 
and taking predatory cash advances were far too normal 
experiences. Looking back, even where I grew up, I believe that 
there was a genuine desire for advancement, to play by the 
rules, except the rules were not written for them.
    This situation highlights the silent cost of payments and 
its unfair transfer to the poor and certain segments of our 
population. There is a social cost that many pay in the form of 
invisible tax. It is time that we use data networks and 
technology to eliminate delays and reduce costs. The time is 
now. The global widespread use of real-time payment systems 
lends compelling evidence to a discussion that is needed in the 
United States. The Federal Reserve must take the lead in 
building this vital social, commerce infrastructure with a 
heightened sense of urgency.
    Thank you again for this opportunity.
    [The prepared statement of Mr. Williams can be found on 
page 62 of the appendix.]
    Chairman Lynch. Thank you, Mr. Williams.
    And Ms. Benson, you are now recognized for 5 minutes.

STATEMENT OF CAROL BENSON, FOUNDING PARTNER, GLENBROOK PARTNERS

    Ms. Benson. Hello, Chairman Lynch, Representative Hill, and 
members of the task force. We are in the midst of a once-in-a-
generation shift in how payment systems work. The United States 
is joining countries around the world in bringing to its people 
a new class of payment systems. These systems work just the way 
you would want them to work, just the way you think they should 
work: You tell your bank you want to make a payment, and the 
money shows up in the receiver's account.
    My firm, Glenbrook Partners, is working with the payments 
industry, both here and around the world, on the introduction 
of these new systems. Some countries are introducing these 
systems to improve efficiency and user experience. Others are 
primarily concerned with financial inclusion, ensuring that 
underbanked and unbanked people can use financial products. The 
same real-time payment systems support both goals.
    Our objective, I believe, is to ensure that these systems 
are accessible, affordable, and secure. These are universal 
goals for such systems. But a real-time payment system must 
also be ubiquitous, that is, it must allow someone to pay 
anyone and be paid by anyone, regardless of where their funds 
are being held--a credit union, a community bank, a large 
national bank, or some other licensed financial services 
provider. This ubiquity is key to the vision put forth by the 
Faster Payments Task Force.
    When we look around the world, most countries are meeting 
this goal by having a single, national faster payments 
platform, which all banks access. With the announcement of 
FedNow, it is clear that the United States is choosing a 
different model, with two or more providers of real-time 
payment systems. This mirrors our ACH system, which has two 
operators.
    To achieve the goal of ubiquity in a multiple network 
model, these systems must connect. In the terminology of our 
industry, they must interoperate. That is what our ACH system 
does. That means that I can send you money even if my bank and 
your bank are using different systems. The only alternative is 
to have each financial institution implement every system, a 
daunting concept.
    Let me be clear that there is no real technical challenge 
to interoperability; rather, it is a question of governance. 
The various systems should live underneath a common rule set, 
as is the case with our ACH. A common governance structure 
would also help to ensure that the industry works together, 
rather than in separate and fractious groups, on issues such as 
transaction security, payments addressing, and the ability to 
eventually connect to other countries.
    Payments addressing is important. Today, when you use a 
debit card or write a check, you are giving your account 
information to someone who uses that to pull funds out of your 
account. We all know how that can go wrong. Faster payment 
systems, in contrast, can be designed so that an alias, a 
payment address, your mobile phone number, or ``Carol 123'', 
can be used to push money into your account. This address can 
never be used to pull funds from your account. That is a huge 
security benefit. The directory of these aliases, which is a 
critical piece of infrastructure, needs, in my opinion, to be a 
central utility, not separate directories for every service. 
Australia has moved in this direction with the establishment of 
what they call PayID. India is doing the same thing.
    The industry's establishment of the U.S. Faster Payments 
Council is a good move in this direction, but the imperative is 
interoperability. Cooperation without that will be of little 
utility.
    Last week, Glenbrook Partners launched an online survey 
with the Faster Payments Council to gain further insight from 
the industry on this. Findings of that will be available in 
November.
    Other countries are already ahead of us on this journey. We 
have a large economy and a sophisticated infrastructure. I hope 
that we can cooperate and connect going forward.
    Thank you.
    [The prepared statement of Ms. Benson can be found on page 
30 of the appendix.]
    Chairman Lynch. Thank you, Ms. Benson.
    I now yield myself 5 minutes for questions.
    President George, I think everyone was encouraged when we 
heard that the Fed was going to move to a real-time payment 
system. I know that the initial announcement, which only came 
recently, laid out a timeframe of perhaps late 2023 or 2024. 
With the velocity of change that we see in technology around 
the globe, can we wait that long? And is that something that--
do you think that timeframe works or is there some way we could 
expedite that?
    Ms. George. We are now beginning the process of getting the 
input for the design and features of this system which we think 
are critical to laying the foundation for that system. It was 
important to me that we have the dates and the Federal Register 
notice as a way to set expectations to talk about what the 
timeline might be. But I think we are very interested in moving 
as quickly as possible, and I believe we have the right team to 
be able to do that.
    Chairman Lynch. Okay. Now, do we have--obviously, we have 
outside help, we have our contractors involved on that. I know 
that The Clearing House is already involved in a parallel 
system. Are we learning from other countries in terms of how 
they have proceeded? Are we using the best practices that are 
out there?
    Ms. George. Yes, Chairman Lynch. This was a very important 
part of our effort the last few years through the Faster 
Payments Task Force, was to bring together a broad range of 
stakeholders in that payment system that include innovators, 
the FinTech, all the way through the banking system. We looked 
carefully at what other countries were doing to inform the work 
that we will be undertaking now. So, we have looked broadly, 
and I feel good that those inputs will position us to be able 
to move forward with a design that we can serve as a foundation 
to the country for.
    Chairman Lynch. Great, thank you.
    Mr. Sinha, when the U.K. adopted their system, at least 
initially, we did see a spike in fraud; it jumped about 132 
percent. Since then, though, it has modulated, it has come 
down. What were some of the reasons for that, and is there some 
way we could avoid the same occurrence?
    Mr. Sinha. Yes. I think we can learn a lot from the 
implementation that was done in the U.K. around security 
measures. Over time, the U.K. system and the banks who give 
access to customer funds implemented more checks and balances 
to confirm you are who you say you are, and that means not just 
having you sign into your online banking account with a user 
name and password, because we know customers, we use passwords 
all over the place, but actually requiring a unique code being 
sent either to your mobile device or your email to authenticate 
that you have the device and sanctioned the payment. That, I 
think, reduced fraud a lot.
    And then from there, they have gone on to put in a 
regulation which recently came into effect on September 15th, 
which was called the Secure Customer Authentication regulation. 
And I think that is a step change which requires customers to 
verify themselves before initiating any payments. I think that 
is a very important part of the implementation in the United 
States that we can learn from other countries.
    Instant payments and security go hand-in-hand, but the 
security should be moved into verifying the customer before the 
payment is initiated.
    Chairman Lynch. Great, thank you.
    Mr. Steen, as a community banker, there are some of your 
colleagues from around the country who are a bit concerned 
about how competition for customers might occur where you have 
a traditional banking system with the rule of law and a whole 
menu of regulation competing with a stripped down, bare-bones 
operation that might not even have a storefront in terms of 
competing for banking business. Do you feel comfortable that at 
least with FedNow, it would help you to compete in that world?
    Mr. Steen. Yes, Chairman. It gives us a chance to be 
relevant in the payment space. What you described is a battle 
we are fighting as we speak. A number of nonbank payments 
systems are being used by my customers. They believe they are 
real-time. They are not. But as long as they have the money 
when they want it, it seems real-time to them. There is credit 
risks in those circumstances, and I think that we can solve a 
lot of those problems for our own industry, plus our consumers, 
with FedNow.
    Chairman Lynch. All right. Very good, thank you.
    I now yield to the ranking member, Mr. Hill, for 5 minutes.
    Mr. Hill. Thank you, Mr. Chairman. It was a great panel, 
and I thank everybody for being here today.
    Mr. Williams, I really enjoyed your discussion about your 
family cash management issues growing up, and that is so 
important as a part of this. If we have the privacy, if we have 
authentication and security, both businesses and families will 
have more control over that cash management situation at a 
lower cost, ultimately. There are a lot of building blocks to 
get there, but I thought you made some very good points, and 
you can envision a world with no accounts payable and no 
accounts receivable, and that is going to affect bank lending 
to some degree, but lowering those agency costs for both small 
businesses and for families is an ultimate objective of 
FinTech, in my view.
    I am interested, Ms. Benson, you mentioned this famous buzz 
word of all the testimony I have read: interoperability. And in 
The Clearing House letter that they have submitted here for the 
record, they really talk specifically about not just rules as 
being the key to that, so really the definitions of it, and it 
is not really bound by technology. Do you agree with that 
assessment?
    Not to say that it is not technological, but the 
interoperability is more about definitions, rules of the road, 
than it is purely a technical issue. How do you feel about 
that?
    Ms. Benson. Yes, Mr. Hill. I agree that they are separate 
things. I am not sure I would say one is more important than 
the other, that technical interoperability is relatively 
simple, switch kind of mechanism exists in payment systems 
around the world. Frankly, the the role that the National 
Automated Clearing House Association (NACHA) plays, of having 
one rule umbrella over different operators is more challenging 
to put in place. And where we have seen situations where that 
doesn't happen--and I would note that the bill payment process 
in the United States is like that--there is no coordinated way 
in which that happens.
    Mr. Hill. Right. It just flows haphazardly through the ACH 
system.
    Ms. Benson. And you look at another country that has put 
the rules in place for that, and it all works very--
    Mr. Hill. Yes, thank you for that.
    President George, the Fed has certainly been, for a hundred 
years, engaged in the payments process, no doubt. And in all 
the principal payment arenas, both wholesale and retail, the 
Fed is a player in some way. We have talked about ACH and we 
have talked about Fedwire. But I noticed in a 2015 study that 
there were recommendations made that both the National 
Settlement System and Fedwire stay open longer and make it more 
convenient for innovators and for banks, and yet you really 
haven't done that.
    And yet, we are now looking to you to very quickly--you say 
in 5 years, I agree with my chairman, that seems like a 
lifetime in this business--have real-time payments. What is the 
Fed doing to extend customer service now with the products that 
you have now and Fedwire and the National Settlement System?
    Ms. George. Across all of our current payment services, we 
are focused on improvements that would help with speed and 
security. In the most recent Federal Register notice, even as 
we are going out to look for the features of the FedNow system, 
we have agreed to explore how extending Fedwire hours can help 
facilitate private sector operations in this space.
    Mr. Hill. I think that is important, whether you are in Mr. 
Steen's bank or over in London doing a transaction. We are the 
biggest economy in the world, and it seems like we are all 
bragging that we are faster and better and it's going to be 
wonderful in 5 years, when we have fantastic systems now, that 
if you were just open on the weekends and Federal holidays, it 
would be pretty nice for everybody, in my life. So, I encourage 
you to do that. And I hope you will make that a priority for 
the Fed.
    Mr. Steen, in your testimony, on page 3, you talk at length 
about the Fed having fair, flat prices, but President George, 
doesn't the Fed, because of the Monetary Control Act, actually 
require to earn a return on all Fed investments and 
infrastructure, and, therefore, you do offer volume discounts 
and differential pricing for your products, don't you?
    Ms. George. With our ACH, the law requires us to recover 
our costs, and so, yes, we have aligned our pricing relative to 
market practices. We have made that transparent as a way to, 
not only recover our costs, but to lower the cost overall for--
    Mr. Hill. Sure, no, I think it makes sense to me. I am not 
complaining about it, as someone who looks out around here 
occasionally for the taxpayers. I think it is a good idea.
    Would this FedNow process also be subject to that Monetary 
Control Act issue?
    Ms. George. Absolutely.
    Mr. Hill. Yes, I think that is good.
    Well, I just want to make it clear to all of our listeners 
here that the Fed too recaptures its cost of capital and 
attempts to design systems that compete fairly in the private 
sector and that there is not some free lunch in Fed systems 
compared to a system run by one of the private competitors, 
whether it be ACH, or what I understand is proposed from The 
Clearing House, to talk about what they are proposing. They are 
not here today to answer questions about it, so I don't know 
that I can turn to that.
    I yield back, Mr. Chairman. And thank you for the panel.
    Chairman Lynch. The gentleman yields back.
    The Chair now recognizes the gentleman from Georgia, who 
has been a long-time Member with a keen interest in FinTech, 
and is a great member of this task force. The gentleman from 
Georgia, Mr. Scott, is now recognized for 5 minutes.
    Mr. Scott. Thank you very much, Chairman Lynch. And, Mr. 
Chairman, let me also commend you for the outstanding 
leadership that you are providing on FinTechs. As you know, our 
FinTech industry is the new frontier of our great financial 
services industry, and you are certainly providing great 
leadership on it. And also, I am very excited about working 
with you on our FINTECH Act, where we will be dealing with 
harmonization of regulatory agencies as well as privacy, and I 
might mention also, with Ranking Member French Hill. And so we 
are all a team ready to go here, and I am really just proud to 
be a part of this great team. I'm very excited about it.
    Let me just start out by making this very brief statement. 
The development of our faster payments framework in the United 
States, that indeed holds incredible potential for our payment 
system, advanced technological developments in our payment 
space, readily improves access to funds for consumers, and 
increases the convenience of availability of payment process. 
And, of course, this is very important to my State of Georgia. 
Georgia leads the nation: We produce and provide 70 percent of 
all of the electronic transaction payments. We have great 
companies down there like TSYS, Kabbage, and NCR, and we are 
very excited about the role we play in the nation.
    But first I would like to discuss the mechanics of any 
faster payment system. As exciting as this new technological 
development is, it is also increasingly complex. For example, 
under the current payments infrastructure, payments can be 
either initiated by a sender, which is the push payment, or 
required by the recipient, which is the pull payment.
    Now, this flexibility also includes certain protections 
under Reg E to ensure that consumers have some ability to 
recoup funds that were sent out without their authorization. A 
real-time payment system, however, is primarily a push payment 
system, meaning that once I hand over my money, it is going to 
be very difficult to get it back. Now, this is fine when 
considering correctly authorized payments. But as you all know, 
we live in a world where consumers must constantly be guarding 
against fraud and against cyber attacks.
    So, President George, do you see any advantage or 
disadvantage that a real-time payment system may bring with 
regard to a consumer's ability to recoup funds that were 
initiated without authorization?
    Ms. George. You have raised a very important question, 
because consumers will be initiating and the payment will go in 
real time. And this will be an area, as we work with the 
industry, on how education will work. Banks work closely with 
their customers on making sure they understand how their 
systems work, and I expect that will continue. We, of course, 
will be working with the industry more generally on other kinds 
of fraud mitigation standards and things that may help the 
system as a whole.
    I concur with your concern about consumer protection, and 
we will continue to keep that in the forefront as we do the--
    Mr. Scott. Tell me, Madam President, what about payments 
that were sent erroneously, perhaps incorrectly spelling the 
recipient's name, for example?
    Ms. George. We have not designed the features of our 
system. Banks are dealing with this issue today and are 
operating within the legal structures to serve their customers, 
including with their own agreements with those deposit 
accounts. So I agree with you, it is an important issue, and 
one, as we provide the foundation here, we will engage with the 
industry on.
    Mr. Scott. Mr. Sinha, very quickly, how are consumers and 
recipients notified of a real-time fraudulent payment, and what 
is the dispute process like for such a payment?
    Mr. Sinha. Congressman, there are multiple ways we can 
notify the consumer. One is when they initiate the payment, 
they should be authorizing the payment with a separate code 
that only belongs to them. And that is done--sent to them in 
real time once, for one-time use. The second one is, in some 
faster payments networks now, we are seeing the regulation 
coming in to check for beneficiary name, confirmation of pay to 
be matching the actual name of the payment recipient with the 
name of the account.
    And then, I think as President George said, there is quite 
a bit of work that still needs to be done in this space, but I 
think the crucial part is to make sure we give the control to 
the consumer and make them understand and educate them that 
they should authorize the payment, and once payments are sent, 
they are final.
    Mr. Scott. Thank you very much.
    And thank you, Mr. Chairman, for that extra time. Thank 
you.
    Chairman Lynch. The gentleman yields back.
    The gentleman from Ohio, Mr. Davidson, is now recognized 
for 5 minutes.
    Mr. Davidson. Thank you, Mr. Chairman.
    Witnesses, thank you for being here and for talking about 
an incredibly important feature of America's economy.
    Ms. George, initially, the Federal Reserve had signaled to 
the market that the Fed wasn't going to take this payment 
system over as they have in a number of other things. So, there 
was all this investment in R&D in the space, and then the Fed 
decided that they wanted a do-over and they were going to take 
it over. What do you say to them about all the billions of 
dollars they invested in the space only to have you guys 
capitalize on it with somewhat less investment?
    Ms. George. The Federal Reserve has a history of working 
alongside the private sector. Every payment system we have 
today, the Fed is involved, alongside a private sector 
operator. Since the start of our work in this area, we have 
supported the private sector solution, first by providing an 
account, a special account at the Fed, where they would be able 
to set up their particular real-time solution. The next step in 
that process is for the Board of Governors to determine whether 
a single private sector operator is able to achieve the public 
policy goals of having broad access in the United States of an 
efficient payment system and--
    Mr. Davidson. Why would we want a single operator? Why 
wouldn't we want multiple operators to be able to use whatever 
you want to use as a system?
    Ms. George. Multiple operators, I think, are desirable, and 
the competition that comes from having the Fed move into an 
operator role is one of the objectives.
    Mr. Davidson. When you can come in and take over a market, 
is that partially because you serve as regulator, the 
dominant--I mean, you pay out the interest rate on excess 
reserves (IOER) and all kinds of other things. So, if you 
choose to be in a space, does anyone have a vote? You guys just 
decide. It is not really optional, is it?
    Ms. George. Under the authorities of Congress, we are 
required to be very transparent--
    Mr. Davidson. Of course, Congress could tell you that you 
are not going to do it. That could potentially happen. But 
short of that, the market isn't going to tell you that you 
can't do it, right?
    Ms. George. Actually, in working with the market through 
our Faster Payments Task Force, we were looking for the private 
sector to step up and respond. This is a business of 
considerable scale and network effects.
    Mr. Davidson. Of course. Why it is a big deal, why the Fed 
takes it over and continues to serve as regulator. One of the 
criteria that the Fed has to meet is to recover their cost in 
the long run.
    During your testimony yesterday at the Senate Banking 
Committee hearing, you stated that the Fed has historically 
done this, and you expect it to continue to be the case under 
the FedNow proposal. By ``historically done this,'' I assume 
that you mean such as Fedwire and the Fed's automated clearing 
services, correct?
    Ms. George. Yes, sir.
    Mr. Davidson. And these fees associated with these 
services, are they based on volume, or do you have effectively 
high volume discounts where you pay a lower price if you 
deliver a lot of volume and a higher price if you have less 
volume?
    Ms. George. We publish our pricing schedules each year so 
that customers can see, and those prices are set to allow us to 
recover fully our costs.
    Mr. Davidson. But they are based--there is a different 
schedule based on your volume, correct?
    Ms. George. Those are priced--there are fee structures per 
item charges, there may be volumes, discounts involved in--
    Mr. Davidson. Right. But fundamentally, JPMorgan Chase is 
paying lower per transaction than, say, Osgood Bank in Osgood, 
Ohio?
    Ms. George. Actually, our smallest banks are benefiting 
from the volumes that come through the Federal Reserve--
    Mr. Davidson. Because they couldn't set it up on their own; 
I got it. So, why does the Fed charge the--I guess, in the 
assumption that you make that the FedNow takeover of the 
private capital invested here, do you assume that you pay for 
that based off being able to do volume discounts?
    Ms. George. We have not set our pricing yet, but as soon 
as--
    Mr. Davidson. Well, you haven't set the pricing, but you 
had to model it, right? You are saying it is going to break 
even. Is that just, you are hoping it is going to break even, 
or you are confident that you can charge whatever you want 
because the market doesn't really have a vote in it?
    Ms. George. No, sir. Our pricing requires us to recover our 
costs, which means we have to compete with the private sector 
to do so. Sso in a FedNow Service, we will be required to 
demonstrate what those costs will be, and as soon as the system 
is designed, before it is launched, the Board of Governors will 
go out with public comment showing that--
    Mr. Davidson. In the dialogue, I would like to associate 
myself with Mr. Quarles' public remarks in your hearing, which 
is skeptical. You are crowding out private investment. In the 
meantime, frankly, the fact that you can't launch this anytime 
soon, is killing the market. And when you talk about people 
being able to pay right now, Uber is paying their drivers up to 
5 times a day in the current payment system. This, to me, seems 
like a step back, and it is crowding out, in a monopolistic 
way, private capital that has already been invested.
    I wish I had more time to get to Mr. Williams, and 
hopefully you will come back to Cincinnati. I would love to see 
you there, come back home from L.A., and it's just great to see 
a local company doing well. So, thanks for that.
    I yield back.
    Chairman Lynch. The gentleman yields back.
    The Chair now recognizes the gentleman from Florida, Mr. 
Lawson, for 5 minutes.
    Mr. Lawson. Thank you, Mr. Chairman. And witnesses, welcome 
to the task force.
    I am trying to understand the consumer aspect of this. 
There are many issues that are important in the payment space, 
but I would like to focus in on the consumer aspect. Can you 
all speak to what challenges you have seen in the payment space 
with regards to access to immediate funds by those who are 
underbanked, those in an emergency situation?
    Howard University said that they were doing a 6-week course 
on how to use FinTechs. What happens if there is no money? How 
does this affect the consumer when they are trying to go 
through, when things are recorded in their account at a later 
date? What do you do? What do they do? Anyone can respond to 
that.
    Ms. George. I will start by saying the Federal Reserve has 
looked carefully at the issues affecting the underbanked and 
unbanked in this country and through some of our community 
development work have raised these issues.
    In the case of real-time payments, we see that having the 
ability to manage your money more directly is a benefit that 
will benefit the country. Economically, it certainly benefits 
individuals in being able to have the flexibility to control 
their finances. So, we see it as a positive move forward for 
those individuals who most need this kind of finance 
flexibility.
    Mr. Lawson. Go ahead, Mr. Sinha.
    Mr. Sinha. Congressman, I think one of the big things that 
we see with slower payment systems and when things are delayed 
is people who are underbanked, they have the biggest impact on 
access to funds and they end up going to more expensive 
options, like check cashing or having to go into overdraft, 
which are very high-cost services. I think having real-time 
payments where you know when your payroll is going to hit your 
account and then you can set up that, if your pay hits on 
Friday morning, you know it is going to come Friday afternoon, 
you pay your bills, and you know it is going to get shipped so 
that it will be there and hit the utility bill so the 
electricity is not being turned off on the weekend.
    I think that is imperative. It is very, very important to 
remove that doubt of whether my money will make it from one 
place to the other. So, I think that is a very big advantage 
for real-time payments.
    Mr. Lawson. Mr. Steen?
    Mr. Steen. I would use a couple of examples. In our case, 
we are a small bank. We are working with several different 
FinTechs trying to deliver payments faster. We are still 
dealing with the current infrastructure.
    In the example of the Uber drivers able to get their 
payment 5 times a day, they actually pay for each one of those, 
and the employer is actually providing them availability of 
funds they don't yet have and so, hopefully, with immediate 
settlement, they can bring that cost down for those Uber 
drivers. That would be one example.
    Mr. Lawson. Mr. Williams?
    Mr. Williams. One example, Congressman, is a company called 
SoLo Funds, of which I am a co-founder. The premise of it was 
to actually provide cash in real time to individuals in need. 
In building that product, we had to work around and through so 
many different infrastructure challenges. But what I want to 
say is, what we have allowed is individuals to actually lend to 
other individuals in real time, and the individuals actually 
received the benefit, providing the capital, while the person 
in need gets the capital immediately. That is called SoLo 
Funds, but that is how we are addressing that issue.
    Mr. Lawson. Okay. Ms. Benson?
    Ms. Benson. I would like to address two parts of this and 
say that in emerging economies in Asia and Africa, there is 
overwhelming evidence that the availability of real-time mobile 
payments is bringing people into the formal financial 
ecosystem. They are opening bank accounts and other forms of 
transaction accounts and are able to participate in digital 
commerce and things like that as a result. So, that is a good 
thing.
    I would also say that, although I think these faster 
payments are immune to certain types of fraud that exist, say, 
in our card payment systems, there are other kinds of fraud 
that will rear their heads. And, again, I would like just to 
emphasize how important it is that we take a collective view on 
managing these frauds and not have every little system and 
company doing it separately.
    Mr. Lawson. Okay. My time has run out.
    Mr. Chairman, I yield back.
    Chairman Lynch. The gentleman yields back.
    The Chair now recognizes the gentleman from Wisconsin, Mr. 
Steil, for 5 minutes.
    Mr. Steil. Thank you very much. I appreciate that.
    President George, we have had a lot of conversation today 
about the pricing. I know you discussed that yesterday, 
particularly with Senator Toomey asking you about some of that. 
So, I want to part that conversation a little bit because I 
think we have heard kind of the broad picture of how you are 
looking at it.
    I want to dive in, if I can, Mr. Steen, and get the 
perspective of local banks, your bank in particular, or other 
community banks, what the impact of that pricing would be if 
the Fed deviated away from a flat fee structure.
    Mr. Steen. Well, currently, we are not in a flat fee 
structure and so, for example, our bank was very early in check 
imaging and as soon as we started implementing that, our costs 
of check clearing went down 60 percent.
    Mr. Steil. When you implemented what?
    Mr. Steen. Check imaging.
    Mr. Steil. Okay.
    Mr. Steen. For the Check 21 Act, we were very early. And so 
our check for Check 21 or check clearing went down 60 percent. 
Our ACH transaction is--it is true. Others probably get it less 
than we do, but it is a quarter of a cent, and I can manage 
that. So, I think they bring my costs down as much as they can, 
and we see through with technology advances. I am good with the 
pricing structure that I am living with.
    Mr. Steil. And where you are good is, do you see that also 
with your colleagues across community banks, comfort with the 
Fed's pricing structure? Do you see in that a bit of a 
dialogue? Can you provide flavor to that?
    Mr. Steen. Well, many of my peers deal indirectly with the 
Fed through banker's banks and corporate credit unions, but 
everybody is working off the same base pricing. And so, I don't 
hear a lot of criticism or complaining about the pricing 
structure of payments in the rails that we work with, that 
being Check 21 and ACH.
    Wire, they brought the price of a wire down, since we can 
connect directly to FedLine Advantage. But internally--it would 
be just for security purposes--in our small bank, we have three 
people involved in every wire. So, there are some internal 
costs, but the cost that the Fed is charging me for wire is the 
least of my concerns.
    Mr. Steil. Thank you. I appreciate your insight.
    I want to shift gears a little bit, but go back to you, 
President George. We have discussed a lot of the international 
comparisons in the real-time networking area; I assume you 
spent some time looking at these. Are there examples of 
government-run systems operating parallel to the private sector 
that you have seen internationally? And, if so, are they 
interoperable?
    Ms. George. As Ms. Benson noted earlier, many of these 
countries operate with a single provider. It has long been the 
case in the U.S. that for competition and safety and 
accessibility, we have had dual operators to achieve the 
outcomes we want for the public. The European Central Bank 
(ECB) is a system that is dealing with multiple providers, and 
we have looked closely at how they have developed their real-
time payment system and talked about interoperability.
    Mr. Steil. Thank you very much. I appreciate you all being 
here today.
    I yield back.
    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.
    Mr. Steen, it's always good to see you. Thank you so much 
for being here from Iowa today.
    I would like to start by asking you, what do you think are 
some examples of how Iowans back home could benefit from a 
real-time payment system?
    Mr. Steen. Well, I think the people, our customers, many of 
whom are making what they believe are real-time payments--I 
addressed that a little earlier--but I think that the idea of 
being able to pay somebody in real time, particularly in a late 
payment or a late-immediate payment circumstance is really key, 
and that happens all the time. People forget things. And we 
have seen from experience the value of same-day ACH and missed 
payroll files. It was a nightmare if you missed a payroll file 
prior to the same-day ACH. Today, we may not get it as early in 
the day as they are used to, but we can get them paid, and it 
is huge advance in payments.
    Mrs. Axne. Absolutely. Thank you. We want to make sure that 
we pay people as expeditiously as possible.
    What you just mentioned, those situations are why I was 
happy to cosponsor Representative Pressley's Payments 
Modernization Act, H.R. 3951, and I want to thank her for her 
leadership on this issue. An updated version of the bill, which 
we are considering today, would require the Fed to complete 
that system within 3 years and would require banks to make 
deposits available more quickly.
    I did hear some feedback that the limited hours for the 
National Settlement Service and the Fedwire could cause some 
problems with doing this.
    Ms. George, I know the Fed is considering extending those 
hours. Is that something that could be done faster than the 
currently proposed 4-year timeline for FedNow?
    Ms. George. Our commitment to explore this issue will be 
handled separately from the timeframe that we have designated 
to build a FedNow Service. The issue about extending our funds 
transfer system is one that will require the Board to do some 
analysis, because this is a system whose operational 
characteristics will require us to engage with the industry to 
understand what the implications are. But the Federal Register 
notice that we issued last month does indicate in there that 
the Board will explore extending those hours.
    Mrs. Axne. Thank you.
    I have spoken to Representative Pressley, and we have 
agreed that expanding NSS and Fedwire hours will also be 
included in the bill. So, thank you for your work on that.
    I want to change topics here a little bit. As I understand 
it, there is some question of if FedNow is going to be 
interoperable with The Clearing House's system or others. We 
have been talking about that throughout the day. Considering 
that the system hasn't even been built yet, claims that these 
systems can't fully work together, to me, seems very premature.
    My husband and I own and run a digital design firm. We deal 
with The Clearing House. We deal with wire payments 
internationally. We are very familiar with setting up payment 
systems for our customers. This is not something that I have 
never used. I am familiar with this to some degree.
    And I certainly recognize the challenge of getting 
different systems to work. We deal with that all the time. But 
solutions, quite honestly, can almost be found almost all the 
time. And so, I really think that shouldn't be anything that 
should be considered to be an obstacle in this.
    Mr. Steen, we know that Iowa has far more small banks than 
most other States per capita, and that those community banks, 
in many cases, are the only banks in our rural communities. Can 
you explain for us how important it is for smaller banks like 
yours that those systems be operable? You touched a little bit 
on it earlier, but especially, I would like to hear about the 
terms of reduced cost in connecting to all of these systems.
    Mr. Steen. Well, the connecting systems is always the 
friction, but I would tell you that it is essential if we are 
going to have a legitimate real-time payment system in the 
United States that extends beyond our borders, that we simply 
have to be interoperable with each other.
    It is challenging because our friends at The Clearing House 
have said that theirs is not interoperable and it is going to 
be very difficult for them. But one of the key desired outcomes 
of the 2015 study was collaboration. We went through that 4-
year task force, and it turns out that there was an 
interoperable system being built.
    Mrs. Axne. Do you think if we are not able to make this 
interoperable, it is really going to limit your ability to 
provide good services for your customers moving forward?
    Mr. Steen. That would be very difficult, but I am operating 
under the belief that the market will force interoperability.
    Mrs. Axne. All right. Thank you so much.
    I yield back.
    Chairman Lynch. The gentlewoman yields back.
    The Chair now recognizes the gentleman from Virginia, Mr. 
Riggleman, for 5 minutes.
    Mr. Riggleman. Thank you, Mr. Chairman, for calling this 
hearing today and for allowing me to participate. I appreciate 
it.
    And I thank all of you for being here today.
    While I am appreciative that you allowed me to join this 
hearing with this esteemed panel, I just heard some things, and 
I have one little gripe. I could not help but notice we do not 
have a representative from The Clearing House Association here 
today, the only institution that has successfully developed a 
real-time payment system in the U.S., and I wanted to ask them 
some questions. Since they are unable to answer questions and 
provide input today, I would like unanimous consent to submit 
into the record a statement from them.
    Chairman Lynch. Without objection, it is so ordered.
    Mr. Riggleman. Thank you.
    Mr. Chairman, I also saw the legislation that was noticed 
with this hearing as Congresswoman Pressley's Payments 
Modernization Act. I also am going to introduce legislation on 
this issue, H.R. 3928, the Federal Reserve Accountability and 
Justification Act. So, my questions will focus on these pieces 
of legislation as well as some other topics.
    I do wish we had more people here. My background was 
interoperability with massive datasets, data sources, and also 
governance. So, I am excited to have some questions here today.
    President George, if Congress passed the Payments 
Modernization Act and the President signed it into law, how 
would the Federal Reserve accomplish real-time settlement today 
as that legislation requires?
    Ms. George. We are proceeding today under the authorities 
that we have under the Federal Reserve Act to begin to design a 
system that will deliver real-time payments as another provider 
here in the United States.
    Mr. Riggleman. Thank you.
    And given that the Board recently announced its FedNow 
system would not be operational until 2023 at the earliest, I 
could take that as an indicator that the Payments Modernization 
Act could be a complete disaster for the United States payment 
system based on the amount of time and cost.
    Ms. Benson, based on what we learned from yesterday's 
Senate Banking Committee hearing, as well as the information in 
the Board's August proposal, not only has the Fed not 
determined how their system will be interoperable with the 
private sector, but apparently, there isn't even an agreed-upon 
definition of ``interoperability.''
    When Chair Powell was testifying before this committee in 
July, I asked him about interoperability, and he admitted it 
was a complex and currently unsolved issue. Your testimony 
addresses this topic and said that interoperability is not a 
technical issue but one of governance. Given that the Fed has 
not yet defined interoperability, what steps should they take 
to address this?
    Ms. Benson. That is a good question. I think that it is a 
matter of working with The Clearing House. And I would also 
like to acknowledge what Mr. Hill said earlier, that there are 
other networks like Visa and Mastercard who have real-time 
payment systems in place today. And how we get to the place of 
having a governance umbrella over these systems, I don't know 
exactly what the path to that is, but I think we did do that 
with the ACH, and with the right will, we should be able to 
accomplish it.
    Mr. Riggleman. What I was interested about when you talked 
about governance, as you know, sometimes governance determines 
the exact data element needs based on what the releasability of 
that data is or who can see that data or even how you target or 
track the data elements in that specific data. That is why I 
was so interested in it.
    But if it is about just governance, which I hope it is, 
and, President George, if the issue of interoperability is 
simply a governance issue, why did the Fed not address it prior 
to the August notice?
    Ms. George. As part of our work with the Faster Payments 
Task Force, that group did conclude that governance would be 
important, and put together a Faster Payments Council. It is 
just coming together, and we are watching that carefully to see 
whether that will be an effective way to go about the 
governance process here.
    Mr. Riggleman. And the reason I am asking this, and I think 
some people might be curious about it, is that governance also 
determines cost. When I was looking at TCH and looking at what 
they talked about cost, they were talking about close to a 
billion dollars. I know that governance and the complexity of 
that governance could actually affect the cost based on data, 
specifically in the sharing and interoperability of that data. 
So, that is why I am asking some of these questions.
    And, Mr. Steen, my district is very rural, and the 
financial institutions that serve many of your constituents are 
small banks and credit unions. I agree with your sentiment and 
your testimony that institutions such as yours provides a very 
critical service to the economy and payments are a vital 
component to that.
    When I talk with my bankers, their number one concern on 
this topic is not who offers the faster payment service, but 
that they are getting a fair deal. My legislation would simply 
codify the Fed's own policy statement into a formal rulemaking 
so that Congress and small banks are given absolutely clarity 
regarding cost recovery which is related to pricing.
    The TCH has committed to a flat fee structure, whereas the 
Fed has not, and the Fed has also announced that cost recovery 
will likely take longer than 10 years. As you support the Fed's 
decision, would you also support transparency, especially on 
pricing and cost recovery, and are you prepared to wait what 
could be 5 to 10 years for the FedNow system to become 
operational?
    Mr. Steen. In my role in the Faster Payments Task Force 
from the beginning, the steering committee, et cetera, I have 
been pounding the table as much as I can for the Fed to move 
faster. So, we all agree on that.
    I think that the pricing is transparent. I think they give 
us a pricing list. We get to make our decisions. But it is 
never fast enough, and I remind them I am old and I want to see 
this happen. So, we have to keep moving. But I am very 
confident that they can move this forward on a timeline, and 
governance evolves. I don't know that we will know exactly 
every rule we need when we start, and I would just suggest that 
we need to launch this. We have an industry that can work 
together when we have to, and we will do that.
    Mr. Riggleman. Sir, I thank you kindly.
    And I thank you all kindly.
    And I yield back the balance of my time.
    Chairman Lynch. The gentleman yields back.
    I thank the gentleman from Virginia for his remarks. And I 
did hear yesterday that the Minority wanted to ask The Clearing 
House to come on in. If I had known in advance--the Minority 
did have an opportunity to pick them as their witness. I think 
they would be a wonderful witness. I think you also chose 
wisely, though, in Ms. Benson, in having her as the Minority 
witness. But I would certainly leave it wide open to having The 
Clearing House in at a later time.
    Mr. Riggleman. Ms. Benson is very capable and intelligent. 
And thank you, sir. I wasn't blaming you, I promise.
    Chairman Lynch. Okay. Thank you.
    The Chair now recognizes the gentlelady from Massachusetts, 
Ms. Pressley, for 5 minutes.
    Ms. Pressley. Thank you, Chairman Lynch. I appreciate the 
opportunity to be able to participate in this hearing, 
especially given the issue.
    Working families should not have to wait days at a time 
just to access their own hard-earned money. As I said to 
Chairman Powell a few months ago, when you are living paycheck 
to paycheck and rent is due the first of the month, there can 
be no room for error.
    After the Federal Reserve's August announcement, this is no 
longer a question of if, but when and how fast--how this faster 
payment system will develop. Unfortunately, the longer it takes 
to build this system, the more families and small businesses 
will suffer. That is why I was proud to introduce the Payments 
Modernization Act in partnership with Representative Chuy 
Garcia and Senators Warren and Van Hollen.
    This is the only legislation that holds the Fed accountable 
for developing a faster payment system that prioritizes 
consumer protection, fraud prevention, and equal access in a 
more reasonable timeframe. My bill requires the Fed to build 
this system in 3 years, allowing the U.S. to remain competitive 
and to not fall further behind in the global payment space.
    There is still more work necessary to ensure a smooth 
payments modernization process. That is why my bill requires a 
GAO study on the U.S. payment system and what regulatory and 
legislative changes are necessary in order to promote consumer 
protection, reduce fraud, and to promote stronger cybersecurity 
practices.
    Now, there are some who believe that this pressing need can 
somehow be met by the private sector alone. However, the 
existence of both ACH and The Clearing House's private 
settlement service suggests otherwise.
    I want to ask each of you a simple yes-or-no question. Can 
The Clearing House alone reach all of the nation's almost 
11,000 financial institutions? We can just start with President 
George and go all the way down the line.
    Ms. George. The Board's analysis concluded that they would 
have significant challenges in doing so.
    Ms. Pressley. Yes or no?
    Mr. Sinha. No.
    Mr. Steen. No.
    Mr. Williams. No.
    Ms. Benson. Not in the timeframe you are indicating, no.
    Ms. Pressley. It is clear that the current system is 
insufficient. Small and local banks and small businesses alike 
do stand to benefit from this proposal.
    Mr. Steen, how does your bank plan to use real-time 
payments, and how will this benefit your customers, 
particularly small businesses and low-income people?
    Mr. Steen. We are currently working with some partners, 
otherwise known as FinTechs, targeting underbanked, underserved 
customers. We structured a virtual branch. We are creating bank 
accounts for these folks. There is a debit card associated with 
it, and we believe that we can bring these folks into the 
system. And we are working with a group, targeting Latino 
churches and Latino church associations.
    But even in our core customer base, which is a rural 
community and we know most of our customers, virtually all of 
our customers, we know they have needs, and many of them live 
paycheck to paycheck. And we have improved things with online 
banking. They can see their account much more readily. We know 
from our own experience that overdraft volume is going down 
significantly year over year. We think that is a good thing. We 
are not trying to make money on overdraft fees. Our overdraft 
fees are relatively low. We don't charge on continual fees. We 
cap overdraft fees. We do everything we can because we know how 
much of an impact that makes.
    Ms. Pressley. Thank you, Mr. Steen.
    And, Mr. Williams, how will the added transparency and 
quicker access to funds protect working people from otherwise 
predatory products such as payday loans or punitive measures 
like overdraft fees?
    Mr. Williams. I think when there is a need for capital and 
it is a gap between what a family or someone needs today versus 
next week, there also needs to be safe resources for that 
capital. But I think that is one part of it. I think the other 
part of it is that if there is transparency and when funds will 
be readily available, families and this group of Americans will 
have a better chance at planning properly. What is causing the 
biggest concern is the emergency. It is the things that were 
unplanned.
    Ms. Pressley. Thank you, Mr. Williams.
    Mr. Chairman, I ask for unanimous consent to submit into 
the record a letter of support for our legislation from the 
Main Street Alliance, a leading voice for small businesses.
    And I just want to thank Representatives Axne and Tlaib, 
and Chairman Meeks, for their support of this effort, and I 
urge the remainder of my colleagues to do the same.
    Thank you, and I yield back.
    Chairman Lynch. The gentlelady yields back.
    And without objection, the letter will be made a part of 
the record.
    Without any further Members, I would like to thank our 
witnesses for their testimony today.
    And without objection, letters from the following 
organizations will be submitted for the record: Consumer 
Reports; the American Bankers Association; Americans for 
Financial Reform; Financial Innovation Now; the Food Marketing 
Institute; NACHA, which is the National Automated Clearing 
House Association; the National Association of Federal Credit 
Unions; and the Retail Industry Leaders Association.
    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 3:29 p.m., the hearing was adjourned.]

                            A P P E N D I X



                           September 26, 2019
                           
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