Written by Ricardo Piñeres, Regulatory Compliance Counsel
My name is Ricardo Piñeres, and I am the new Regulatory Compliance Counsel here at NAFCU. I know what you’re thinking: “Did I somehow trip into a time machine and get propelled into the future? Aren’t Alicia and Brandy the new Regulatory Compliance Counsels?” Well, things move pretty fast here at NAFCU, and in an effort to better help our members navigate the crazy world of compliance, I have also been added to the team. I truly look forward to sharing my thoughts on compliance issues on this blog.
While you may not have time traveled, I do want you to spend some time thinking about the future. What will our payment systems look like as we continue boldly pushing forward into the 21st Century? While cash, checks, ACHs, and other forms of payment have served us well for many years, our industry is at an interesting crossroads. Consumers are demanding more real-time transactions that do not compromise security. Consumer electronics and the technology that powers them are getting more powerful with every passing second. It’s only a matter of time before our current payment systems become obsolete.
So, why should you care? Isn’t this a discussion for the technocrats, market researchers, and product development teams both within and outside of the financial services industry? While they may be the driving forces behind much of the changes that will inevitably be coming, compliance specialists absolutely need to take an active role in the discussions. It is you who will be tasked with ensuring that these payment systems and the processes that our institutions use in making them work are fully compliant with both current and future laws. Therefore, you need to be thinking of what you want these systems to look like and how you think they should be regulated.
Back in September, the Federal Reserve Banks released a white paper that outlined what they preliminarily view as the goals of payment systems evolution and the hurdles that lie ahead. In this white paper the Federal Reserve Banks have identified five desired outcomes that they want to be accomplished within ten years. They are:
- Key improvements to the future state of the payment system have been collectively identified and embraced by payment participants, and material progress has been made in implementing them.
- A ubiquitous electronic solution(s) for making retail payments exists that does not require the sender to know the bank account number of the recipient. Confirmation of good funds will be made at the initiation of the payment. The sender and receiver will receive timely notification that the payment has been made. Funds will be debited from the payer and made available in near real time to the payee.
- Over the long run, greater electronification and process improvements have reduced the average end-to-end (societal) costs of payment transactions and resulted in innovative payment services that deliver improved value to consumers, businesses, and governments.
- Consumers and businesses have better choice in making convenient, cost-effective, and timely cross-border payments from and to the United States.
- The Federal Reserve Banks have collaborated, as appropriate, with the industry to promote the security of the payment system from end-to-end amid a rapidly evolving technology and threat environment. In addition, public confidence in the security of Federal Reserve financial services has remained high.
While it is great that the Federal Reserve Banks are proactively working towards the modernization of the U.S. payment system, it needs to be industry leaders that are the driving force behind any changes to the payment system. It would be akin to the government having stepped in and mandated a winner in the VHS/BETA Max and Blu-Ray/HD-DVD wars. The industry standards were set by consumer choice, and the same needs to happen with the evolution of payment systems. The growth of a modern payment system must happen naturally with tech companies, financial services institutions, payment networks, consumer groups, and other interested parties coming together to see what are the best solutions to this complex puzzle. The Federal Reserve Banks’ role should be akin to a moderator working to ensure that all interested parties are a part of the developmental process. That being said, the various industries must be allowed enough autonomy from the Federal Reserve Banks to find real and practical solutions that address the various issues in creating a safe and modern payment system.
NAFCU’s Regulatory Alert (13-EA-31) on the Federal Reserve Banks’ white paper on improving payment systems is available here (NAFCU log-in required). Also, take a look at this CU Insight post – written by Carrie Hunt: Let Industry Lead the Way for Payment System Reform.
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Programming Note. NAFCU’s offices will close today at noon for the Martin Luther King, Jr. holiday and will reopen on Tuesday, January 21. We will be back to blogging on Wednesday, January 22.
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Free Kick. As you get to better know me, you will learn about my love for football (soccer), and with each one of my blog posts, I’ll be adding a short thought on the world of football. Today’s thought:
What better way to mentally fight the cold of this winter than by being transported to Brazil through the sounds of Gaby Amarantos and Monobloco’s Todo Mundo, Coca-Cola’s anthem for this year’s World Cup (an English version was recently released by David Correy and a Spanish version has been released by Carlos Vives – my favorite musician). It’s got a great beat and reminds me that there are only 145 days until the tournament begins!
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Last Day for Early Bird Savings - NAFCU's Regulatory Compliance School. Before you leave for the weekend, lock in your $100 in early-bird savings for NAFCU’s Regulatory Compliance School March 10-15 in National Harbor, Md. Today is the last day to save! You’ll get credit union regulatory compliance from A to Z, plus the chance to take the exams to earn the respected title of NAFCU Certified Compliance Officer.
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