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Nellie Liang, under secretary for domestic finance at the US Treasury, has called for a reboot of the rules and regulations governing the entire domestic payments system, citing the need for a federal framework to address the potential risks and benefits of emergent new technologies. 

Speaking at the , Liang outlined the need to introduce national level regulation as the landscape continues to change rapidly in light of the rise in non bank payment providers, digital payments and electronic money systems. 

Unregulated, these technologies pose a threat to the American consumer and to financial stability, she said. 

Liang suggested that three main changes to the industry have led to the increased need for regulatory action: consumers are choosing to make payments electronically rather than use cash; payments infrastructure is advancing and the potential for a faster and more efficient payments system is growing; and new types of private money or money-like instruments are growing. 

This comes in addition to stablecoins and non-bank payment apps like Apple Pay or CashApp, which are growing in significance and add to the need for action.

The existing ruleset governing these companies is accordingly not fit for purpose, the Treasury official said.

“The regulatory framework for money transmitters was developed for retail customers to send physical cash, often to family in a different state or country,” she said, adding that because money transmitters only hold customer funds only for short periods customer exposure is limited. “It also meant that money transmitters were prevented from engaging in significant maturity transformation. The current regulatory framework for e-money issuers reflects this limited business model.” 

Liang pointed to weaknesses in risk management, the lack of access to federal payment rails and the divergence between state investment limits.

“The result is a growing segment of payments that has duplicative and overlapping regulations, but that doesn’t address important risks," she said. “E-money issuers must navigate dozens of state-level licences with varying requirements, increasing compliance costs and raising barriers to entry.” 

A new framework

In her speech, Liang called for a new federal payments framework that will address risks to the system and increase confidence, help to nurture innovation and competition, support US-backed firms and generally inspire trust. 

“A federal payments framework… can both simplify our domestic regulatory patchwork and make the regulatory framework more robust,” she added. “We can promote innovation and competition, while better protecting consumers, the payment system and the financial system.  We can create a more level playing field domestically and also support U.S. global financial leadership.” 

The call has been supported by industry. Penny Lee, President and CEO of the Financial Technology Association, a trade group representing fintech companies in Washington DC, was encouraged to see an acknowledgment of the benefits of payment companies to consumers, small businesses and entrepreneurs in the Treasury announcement. 

“More than 82 percent of Americans use digital payments, and strong majorities (71 percent) are comfortable moving to a nearly cashless society,” she said in a statement. “Yet leading payment companies still lack access to the Federal Reserve’s payment rails, a missed opportunity to speed up payments and save people valuable time and money. 

“We look forward to working with the Treasury Department and Congress to allow for the optionality of accessing FedNow and other Fed services for leading payments companies.”  

Liang concluded with an invitation to continue the discussion, indicating it is likely that this topic will continue to rise to the surface of the US payments arena.