Smarter Faster Payments in New Orleans saw representatives from the Federal Reserve Bank, Citizens, EPCOR and Nacha come together to share their personal views on the potential of blockchain for cross-border transactions and financial inclusion - amid a need for better understanding of digital assets, as well as concerns around anonymity and regulatory uncertainty.
Underlying all sentiment expressed in this session was Nacha Payments Innovation Alliance’s recently published report on ‘Diving into the Fundamentals of Cryptocurrency as a Form of Digital Payment’ and the survey results that allowed the group to put the report together.
The survey on ‘FI Business Decisions and Governance in the Crypto Space Survey’ asked eight questions to 63 individuals across payments within banks. The results revealed that understanding of cryptocurrencies and other digital assets was at a 5 out of 10. However, 90% of respondents said that their organisations were involved in cryptocurrencies or closed loop digital currency. When asked in what ways are banks identifying crypto activity, it was evident that there is little sophistication and it remains a manual process.
Sharon Hallmark, director, payments education, Epcor, shared another noteworthy statistic and explained that one question asked “simply that if you knew that a client is active in processing cryptocurrency, would you take them on as a client? 80% stated that they wouldn’t.”
The panel agreed that educational resources must be provided to financial institutions, but also regulatory developments around cryptocurrencies such as the FIT 21 Act (Financial Innovation and Technology for the 21st Century Act), Stablecoin Act (Guiding and Establishing National Innovation for US Stablecoins Act, or GENIUS Act), and the RFIA (Lummis-Gillibrand Responsible Financial Innovation Act) should be monitored.
James Maimone, senior vice president, payment solutions consultant, Citizens Financial Group, stated that there needs to be increased education on how processing payments with cryptocurrency is more complicated than “seamlessly sending money to participants anywhere in the world, without borders, without exchange rates.
“You still have to worry about going from a digital currency back to a fiat currency, the exchange rate in the country and how that is impacted from a legislative standpoint.” Maimone believes that the focus should be on instant payment methods and connecting global initiatives, rather than working towards transactions that can be made anonymously.
Mark Dixon, senior consultant, Nacha Consulting Services, Nacha, agreed that transactions that occur on blockchain are anonymous, but there is substantial “transparency in blockchain technology using crypto. It’s all housed within one environment that all of the records associated with that asset movement are going to be tied together.”
Dixon sees potential in interconnecting multiple blockchains and creating a seamless experience, with the belief that funds could be moved much faster than they are at present. However, while these characteristics can be found in a CBDC, there is minimal appetite for it in the US.
In Federal Reserve Bank of Atlanta payment expert Chris Colson’s view, there will be a reluctance to leveraging digital assets without better education and better user experience. “Early adopters are doing it, but it’s too confusing. That’s why I harp back on the education piece of it. I think once a better UI experience comes along, the education piece will follow,” Colson said.
When considering adoption and financial inclusion, Dixon expressed that cryptocurrency and blockchain technology does enable consumers and businesses to transact without a bank or a banking ecosystem, but Maimone thinks that “financial inclusion is an elusive goal.
“The person that doesn’t want to be banked is not going to have a CBDC with the US Treasury. They’re not going to go through that process, so it doesn't address [inclusion]. There are real situations where people need to improve their financial literacy, for example, those who use cash as a budgeting tool with envelopes for rent, grocery, etc. I think this is where we swing and we miss on this.”
On this, Colson advised that if a consumer used this method to allocate funds for particular reasons, with digital assets being programmable, they wouldn’t be able to dip in and out of the funds as they would be able to with cash. “With programmability, it’s literally locked for its intended purpose.”
Maimone went on to ask: “And where are the financial protections for consumers? What happens when someone loses the piece of paper that had the password for their [crypto wallet] on it? We spend a lot of money on sheeting checks [collecting physical cheques payments and converting them into electronic payments through ACH], so we need some instruction around cryptocurrency. We need to make sure that those are taken account of.
“Selling a digital monkey [Bored Ape NFT] for millions of dollars does not say to me that this is a working class opportunity.”