[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

                              ----------                              
                                                                   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

                              ----------                              


                       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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