▶ 0:22:54The Committee on Financial Services will come to order. Without objection, the Chair is authorized to declare a recess of the committee at any time. Today's hearing is titled future of payments promoting innovation and fair markets. Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. I now recognize myself for 5 minutes for an opening statement. Good morning.
▶ 0:23:24The American payments system is a critical component of our financial infrastructure. It supports everything from payroll and commerce to lending and investment allowing money to move throughout the economy efficiently, securely, and reliably. For generations, the United States has benefited from having one of the strongest and most trusted financial systems in the world. That success rests on a foundation of innovation, competition, and confidence.
▶ 0:23:53And a modern economy depends on a payment system capable of supporting all Today, new technologies, business models, and market participants are reshaping the payments landscape creating new opportunities to improve efficiency, expand access, and strengthen competition. This market-driven evolution, in turn, raises important questions about the future of our regulatory framework.
▶ 0:24:20Mobile payment applications, digital wallets, real-time payments, and other emerging financial services technologies are becoming increasingly common changing the way consumers, businesses, and all Americans interact with our financial system. As new entrants seek to provide payment services, questions regarding chartering, supervision, and access to payment infrastructure have become increasingly important.
▶ 0:24:46As our financial landscape has evolved, we have seen the emergence of specialized institutions operating under different legal and regulatory frameworks, including industrial loan companies, trust banks, money transmitters, and other special purpose entities designed to provide specific financial services.
▶ 0:25:06Today's discussion will provide members an opportunity to examine the latest developments in payment innovation and explore the role that banks and financial technology firms play in facilitating payments. Members will examine the history and purpose of various bank and non-bank charters. We will also review the regulatory and compliance obligations associated with these different structures.
▶ 0:25:29These developments raise important questions about regulation, risk management, competition, and access to critical financial infrastructure. As innovation continues to transform financial services, it is the responsibility of Congress to assess how existing regulatory and chartering frameworks are adapting to new technologies and business models.
▶ 0:25:53We must ask whether existing frameworks provide sufficient clarity for firms seeking to offer innovative payment services, whether regulation is being applied consistently across institutions, and whether there are opportunities to reduce unnecessary complexity while maintaining strong safeguards for consumers and businesses.
▶ 0:26:13Committee Republicans remain committed to advancing policies that provide greater regulatory certainty, consistency, and transparency to support innovation while maintaining the strong safeguards that underpin confidence in the US financial system.
▶ 0:26:31We must ensure that the United States maintains a payments system that is dynamic and capable of supporting a 21st century Achieving that goal requires fostering innovation, entrepreneurship, and competition while preserving the safety, stability, and trust that have long been the foundation of our financial system. I look forward to hearing from our witnesses today and I yield back. I now recognize the ranking member of the subcommittee on financial institutions, Dr.
▶ 0:27:01Foster, for 5 minutes for an opening statement.
▶ 0:27:04Thank you, Mr. Chair, and into our witnesses. I'm going to focus my opening statement really on on two subjects. The first one is meeting the challenges of agentic financial services and the second one is the rise of the super apps that I think is really the the competitive threat that we have to be that will be facing over the next decade. First, our financial system is about to be transformed by agentic AI. Many business transactions will occur at the agent to agent level.
▶ 0:27:33Consumer-facing operations will be no longer facing a consumer but a customer but facing a customer's AI agent. This change will be generally positive. Personal AI agents will be able to evaluate more options, investigate more products more deeply, and bargain more effectively than the human principles that they work for. This should result in a more efficient financial services marketplace.
▶ 0:27:56Consumer protection may be simplified since there will be fewer unsophisticated consumers to take advantage of and agentic interactions can be logged under well-defined privacy regimes. Agentic AI also introduces major challenges for our financial regulation and so I'll be bringing these up in my detailed questions later on. But the main challenges are first the increased speed and 24/7 operations.
▶ 0:28:21They're going to create new risk for banking systems like AI-driven bank runs, the trading app-driven flash crashes. Mitigating these risks will require real-time regulatory reporting and dashboards, real-time regulatory response mechanisms, and real-time payment rails accessible to players of all sizes. The vertical integration and scale of big banks, big tech big banks, super apps will make it difficult for small players and startups to survive.
▶ 0:28:49This can be mitigated, I believe best by providing small players or players large and small access to a high-quality open source back office and competitive software compliance software at nominal cost and uniform access to markets and data. Uh there's threats from business models being driven by brand loyalty and friction being upended. Um AI-driven identity fraud.
▶ 0:29:13And um and the the one perhaps the biggest issue is a personal AI financial advisors that will make advisors conflicts of interest um really endemic and very hard to detect. AI advisors will optimize for engagement or revenue rather than for the consumer's financial well-being and the AI misalignment or conflicted financial advisor problem, which is well recognized in financial services, is going to come up um not only in financial services, but everywhere when people are um
▶ 0:29:43so dependent on their AI And so that the the detection of this sort of conflict of interest will be very difficult uh since conflicted advice can be very subtly embedded into the ranking and presentation of options. And so that there's related to that is the concern I have about the rise of the super apps.
▶ 0:30:04If you look at what has happened in China, you have these two super apps, one of which came in through communications and one of them came in through e-commerce, but they both merged to these vertically integrated uh well, it's not a monopoly, it's a duopoly basically. Um if you look what what WeChat and Alipay represent. And I I think we ought to think seriously because these these uh super apps, once they get established, are very hard to dislodge.
▶ 0:30:30It is hard for a normal bank to compete against uh business loans being made by a super app where the super app has access to all of the cell phone location data for all all the customers for whatever business you're thinking of underwriting their loan. Um these super apps find that they can squeeze the manufacturers at one end and the consumers at the other end because they have data market data that's unavailable to ordinary banks.
▶ 0:30:54And so we have to think carefully the free market will deliver our economy in into the hands of the super apps if we're not careful. And it's happening at breakneck speed. You probably all saw that that um that uh Facebook recently acquired a a payment super app with I think more customers than there are people in the United States.
▶ 0:31:13And and Elon Musk is going to use his one and a half trillion dollar IPO to set up turn X into a super app that does everything from being your your financial advisor to your chatbot lover to your um you know to the platform on which you do your commerce. And so we have to and these will be hard to dislodge if we let them get going. So we have to we have to understand what our our what Congress and what regulators have to do if we do not want our economy to look like a mirror image of where China is today.
▶ 0:31:43So um those are my concerns. I'll be bringing them up and thank you for having this hearing.
▶ 0:31:49Gentleman yields. Today we welcome the testimony of David Portilla, a partner and co-head of Davis Polk's financial institutions practice. Um Ms. Um Paige Pardoned, the executive vice president and co-head of regulatory affairs for the Bank Policy Ms. Eileen O'Mara uh O'Mara, the vice chair of Stripe.
▶ 0:32:16Uh Rachel uh Andarika, the head of global operations at Anchorage Digital. And Ms. Tara Flynn, a policy director director at the National Community Reinvestment Coalition. Uh we thank each of you for taking time to be here. Each of you will be recognized for 5 minutes to give an oral presentation of your Uh without objection, your written statements will be made part of the Uh, Mr. Portilla, you are now recognized for 5 minutes for your oral remarks.
▶ 0:32:47Thank you, Mr. Chairman, ranking member, all other honorable members of the committee. Uh, I'm glad to have the privilege to speak before you today. as you noted, I'm a partner in the law firm of Davis Polk, where my practice includes a focus on the intersection of financial services laws with innovation and the future of banking and payments. Today, I'm presenting my own views and not those of my firm or any client of the firm. I'm grateful for the opportunity to discuss a foundational set of questions.
▶ 0:33:14How do firms obtain authority to conduct banking and payments activities in the United States? And where do the agencies and Congress have opportunities to consider policy approaches around the relevant The business of banking has historically comprised three core functions: taking deposits, extending credit, and providing payments. A defining feature of our market today is that these once bundled features have, to a considerable degree, been unbundled.
▶ 0:33:41Each component can be conducted separately under a distinct legal authority with distinct regulatory authorization due to technological developments enabling the rapid movement of money. Despite the ability to unbundle these activities, the federal chartering framework has historically centered around the bundled whole in the national bank charter. This status quo does not fit today's markets and consumer behaviors.
▶ 0:34:07A bank charter, nevertheless, is a powerful tool, and there are several charter options available. A bank may be chartered and supervised either by a state or by the federal Within that dual system, the menu of charters is varied. At the state level, an institution may choose among a range of charters, but at the federal level, we essentially have only two. The choice of charter matters because different charters carry materially different consequences.
▶ 0:34:33I will highlight First, different charters convert different authorities or permitted activities, such as whether the institution may take insured, retail, or commercial deposits, lend, or confine itself to some limited set of Importantly, a national bank charter provides the benefit of federal preemption over certain state laws, even if the scope of that preemption is a dynamic legal question.
▶ 0:34:59Second, different charters have different primary regulators and supervisory regimes. And third, different charters provide different levels of access to services supported by the federal government, specifically Federal Reserve master accounts and underlying payment rails. These themes come to a head in payments. On the one hand, the use of a federal charter for a limited payments-related activity is now expressly permitted for the first time.
▶ 0:35:27Under the Genius Act, an uninsured national bank chartered by the OCC, once approved, may serve as a permitted payment stablecoin issuer. On the other hand, this approach is the There is otherwise no general federal payments legislation and no federal payments license. Two consequences follow.
▶ 0:35:48First, because there is no federal payments charter, there is no federal preemption for payment activity conducted outside of a national bank Thus, a non-bank payments firm must instead navigate a patchwork of state licensing requirements. Second, a firm's access to Federal Reserve master accounts and therefore to the underlying payment rails remain uncertain because this matter is determined primarily by and at the discretion of the Federal Reserve, not the chartering agency for the bank.
▶ 0:36:18That second problem is not confined to payments firms. Master account access is uncertain more generally, even for those with bank charters. Further clarity in this area may be coming. This May, a presidential executive order, directed the Federal Reserve to evaluate issues related to master account access.
▶ 0:36:35Also, the Federal Reserve proposed to establish a special purpose payment account for legally eligible Each of these problems surrounding authorities and access is amenable to a legislative solution, and those solutions need not be binary. For example, Congress could consider establishing a new type of charter or license, such as a federal payments authorization, within or outside the context of the national bank framework. In addition, Congress could address the issues raised by the current framework for access to Federal Reserve services.
▶ 0:37:07For example, Congress could revisit which firms are eligible and on what terms and pursuant to what procedures access is granted. Importantly, any legislation about charters or licensing would benefit from corresponding certainty about master account access, because a new charter or license is inherently of relatively limited value if the question of payment system access is left unresolved. To conclude, the recurring difficulty across chartering, payments licensing, and access to Federal Reserve services is the same.
▶ 0:37:36A framework organized around a bundled conception of banking has not fully adapted to a world in which the core banking functions have been become increasingly unbundled. The remedy should not be to force new business models into ill-fitting categories. Rather, innovation is often best favored by updated and clear legal standards that match today's markets. Thank you. I look forward to your questions.
▶ 0:37:56Thank you. Ms. [clears throat] Perdon, you are now recognized for 5 minutes.
▶ 0:38:01Thank you, Mr. Chairman, ranking member, and honorable members of the committee. Thank you for the opportunity to testify today. My name is Paige Panono Perdon with the Bank Policy Institute. BPI is a non-partisan policy, research, and advocacy organization representing the nation's leading banks. Thanks to decades of innovation and investment by the regulated banking sector, American consumers have a wealth of safe and secure options when it comes to paying one another or a business.
▶ 0:38:32Credit cards, ACH transfers, and debit card transactions continue to attract significant consumer usage. Businesses can use wire and ACH, both of which are offered by the Federal Reserve and by private sector providers. Technological innovation within the banking sector has further increased the speed of payments, clearing, and settlement.
▶ 0:38:53For example, Zelle, a bank-owned peer-to-peer payment service offered by participating banks and credit unions, allows consumers to send and receive funds directly from their FDIC-insured bank accounts with near instant funds availability. And the RTP network, operated by The Clearing House, has brought instant 24/7 payment capabilities to millions of Americans and businesses.
▶ 0:39:17Banks are also using blockchain technology to develop deposit tokens and tokenized asset platforms to enable instant commercial payments and atomic settlement. And they are creating networks to allow for interoperability. Banks embrace innovation and welcome competition when it is based on products and services, not the ability to evade regulation and supervision.
▶ 0:39:40Banks are subject to prudential requirements designed to ensure safety and soundness, such as capital requirements, deposit insurance, and discount window access. Cybersecurity, which is perhaps the biggest risk to the payments ecosystem currently, is an area where banks invest heavily. Banks' protections and safeguards are not barriers to progress.
▶ 0:40:01They protect customers and secure the While banks offer innovative payments products within a robust regulatory framework, in recent years limited purpose or novel charters have been offered at both the state and federal These charters have allowed digital asset firms and other non-banks to perform perform bank-like activities without full bank regulation.
▶ 0:40:26At the federal level, the OCC has recently granted several national trust bank charters to digital asset companies seeking to engage in activities beyond those authorized by Congress. National trust banks are authorized to and have historically engaged in limited trust activities. They are not subject to the same prudential requirements as commercial banks, the same obligations under the Community Reinvestment Act, or the same activity restrictions under the Bank Holding Company Act.
▶ 0:40:55Digital assets present a categorically different risk profile than trust banks' traditional activities. We have urged the OCC to ensure that entities seeking novel trust charters are engaged in permissible activities and that the prudential and supervisory framework for such entities will appropriately address the risks Some entities seeking novel charters are doing so to obtain a Federal Reserve master account and access to the Fed's payment services.
▶ 0:41:24But central bank account access can also pose considerable risk to individual reserve banks, to the US payment system and its participants, and to financial The Federal Reserve recently proposed to establish a payment account, a special purpose limited Federal Reserve account intended to serve institutions focused primarily on payment activity. Most, if not all, institutions seeking this account would likely be uninsured.
▶ 0:41:51Even with the Federal Reserve's proposed limitations, the payment account proposal represents a fundamental shift in policy that could accelerate deposit migration to uninsured institutions and introduce new risks into the financial system. For example, uninsured institutions are more susceptible to runs, especially during times of stress.
▶ 0:42:11Further, payment accounts would pose as high, if not higher, illicit finance, operational, cyber secure and cyber security risks as a full master account holder would. The Fed must adopt strong risk controls for payment accounts and apply those controls consistently across Reserve Institutions seeking novel charters seek access to the Federal Reserve payment infrastructure and the implicit imprimatur of federal oversight without accepting the full scope of those obligations.
▶ 0:42:41That is not a formula for innovation. It is a formula for regulatory arbitrage and for the gradual erosion of the safety and soundness standards that protect the American public. Thank you, and I look forward to your questions.
▶ 0:43:00Thank you. Um Ms. O'Mara, you're now recognized for 5
▶ 0:43:05Thank you, Mr. Chairman, ranking members, and members of the committee for the opportunity to testify. I'm Eileen O'Mara, vice chair at Stripe. Stripe was founded in the United States in 2011 with a very simple idea. It should be easier for small businesses to do business online. Prior to Stripe, accepting payments was challenging. It meant negotiating with banks, wrestling with legacy systems, and weeks of paperwork.
▶ 0:43:27That barrier put the internet economy out of reach for far too many Today, we provide financial infrastructure that powers the modern economy. We process nearly $1.9 trillion in annual payment volume and work with millions of companies at every stage. The solo startup finding their first Main Street businesses across every congressional district, and global A large part of my job is to be the voice of those users.
▶ 0:43:55Over the past 7 years, I spent my time listening to businesses, learning what's slowing them down, and what we need to do to build in order for them to be more We see the results of this infrastructure from businesses across the country. From iconic brands like Hertz and Ford modernizing their businesses for the internet economy to platforms like Mindbody that power local fitness and wellness businesses. To companies like Housecall Pro that help tradespeople get paid the moment the work is done.
▶ 0:44:24These are very different businesses, but they all depend on modern payment infrastructure that can handle complexity at scale. The question this committee is examining how best to modernize payments is not a narrow technical one. Whether a business hires their next employee, makes their next investment, or weathers a downturn often depends on how quickly and reliably they get paid. As more of the American economy moves online, businesses need payment infrastructure that keeps pace.
▶ 0:44:54But today, a lack of direct access to our nation's payment system is holding back further innovation that would benefit them. The United States is the only G7 nation that hasn't opened access to its payment The UK did it in 2017, the EU in 2024, and the results are real. Deliveroo, a UK-based company, partnered with Stripe to connect directly to local payment networks. That meant faster checkouts and fewer failed transactions.
▶ 0:45:21Where governments have modernized infrastructure, they've seen payment companies innovate on top. Brazil launched Pix in 2020 and payment companies built mobile checkout and merchant tools that carried it to consumers and small businesses across the country. We saw the very same thing happen with UPI in India on an even larger scale. The US has FedNow, but it lacks a product layer on top, exactly what payment companies like Stripe would build with the direct access that could drive significant adoption.
▶ 0:45:52Beyond missed opportunities for innovation, the current system also creates dependency risk. Stripe operates in an ecosystem. We have deep partnership with banks, networks, and payment method providers, all in service of helping businesses grow and reach their global ambitions. But for payments, routing every transaction through a bank intermediary creates a real vulnerability. We've experienced this firsthand. A few years ago, one of our bank partners decided to step back from processing.
▶ 0:46:21Now, that made a really good rational business decision for them, but the result was that millions of American businesses [clears throat] face potential disruption. We had the scale and reputation to navigate that, but a smaller company might not have had. So, what we're asking for is appropriate oversight, a level playing field for payment regulation. Banks take deposits and make loans. That makes them vulnerable to runs.
▶ 0:46:47Deposit insurance and safety and soundness regulation are necessary to protect depositors and the systems. Payments works differently. We hold funds in transit. We don't lend and we do not invest them. The risks we manage are real, but they require a different kind of regulation.
▶ 0:47:05We support bipartisan efforts like the Payments Act because it enables companies focused on payments to access Fed Rails directly, subject to appropriate rigorous regulation, so we can build a more resilient, innovative system for American businesses. This comes down to real people. The small business owner waiting for a payment to clear. The gig worker waiting for a paycheck that could arrive in minutes, but often takes days to land in their account.
▶ 0:47:32When well-regulated payment companies can access payment infrastructure directly, all of this gets better. Lower costs, faster settlement, and a more resilient system built for how businesses actually operate today. This committee has the opportunity to ensure our financial infrastructure evolves alongside the businesses that will power the economy of the future. Thank you, and I look forward to your
▶ 0:47:55Thank you. Ms. And Erica, you're now
▶ 0:48:00Congressman Barr, Congressman Foster, and distinguished members of this committee, thank you for having me as a witness today. My name is Rachel Andérica, and I'm the head of global operations at Anchorage Digital. I'm honored to be here today to talk about the future of payments, innovation, fair markets, and to share Anchorage Digital's story. I've worked at Anchorage Digital for nearly 5 years. I lead our bank's operations and frequently meet with regulators on digital asset banking and payments matters like stablecoins.
▶ 0:48:26Prior to my time here, I spent over 8 years at Promontory Financial Group, where my work included assisting the state of Wyoming in developing its framework for special purpose depository institutions, and advising Anchorage Digital as it was going through the charter conversion process. But I began my career as a national bank examiner with the OCC, examining both community banks and multinational financial institutions during and after the financial crisis.
▶ 0:48:49One important lesson I have learned is If America is going to continue to be the financial capital of the world, we need regulatory frameworks, federal and state, that allow for innovation. This is how Anchorage Digital has built its business over the last 9 years.
▶ 0:49:03Anchorage Digital was founded in 2017 by security engineers who identified a fundamental gap that institutions had no safe, regulated place to custody digital In 2019, we married a cutting-edge tech cutting-edge custodial solution with a South Dakota trust company charter, and built our services to comply with those Our time as a state trust makes me think of what Justice Brandeis noted, "Courageous states may have served as laboratories of economic experimentation." And thanks to the regulatory leadership of a Midwestern state,
▶ 0:49:34we were able to use a pioneering trust law to jump-start the novel business of crypto custody. However, as a state trust, we still had Number one, it was not clear at the time whether state trusts were qualified custodians under SEC rules. Number two, currently state trusts can lack automatic reciprocity to operate in other states, and some states have no reciprocity framework at all. And three, even now it is unclear if some state trusts are bankruptcy remote, which is a fundamental consumer protection.
▶ 0:50:05For our clients to trust us with their clients' assets, we had to remove all ambiguity and operate seamlessly across 50 states under federal preemption. And so in 2020, we began the process to apply for a national charter. In January of 2021, the OCC granted us that charter, establishing Anchorage Digital Bank as the first and at the time only federally regulated digital asset bank in America.
▶ 0:50:29Today, Anchorage Digital, an American-based global digital asset infrastructure platform, employs 725 people around the world with 549 of those employees residing in 42 states across America. Our clients are institutions, including other banks, venture capital firms, private equity, crypto protocols, wealth management, sovereign wealth funds, and Core to our business is custody and trading. We hold tens of billions of dollars in assets under custody and provide related services such as staking, and governance.
▶ 0:51:00Recently, we also became the first federally regulated bank to issue stablecoins, and to date we have issued five white-label stablecoins. We are also developing Argentic payments capabilities using our technology and controls built within our OCC trust. Our regulator, the OCC, is focused on safety and soundness, fair access, consumer protections, and compliance with laws and regulations, and its work is ongoing.
▶ 0:51:23From my experience with the OCC, the agency has been rigorous in its supervision and steadfast in its obligation to apply laws and regulations to crypto banking. We are regulated on the same footing as any other bank in the OCC's portfolio, and the agency is diligently investing resources to responsibly regulate digital asset activity as this industry While the demand for faster and lower cost payment systems have never been greater, even great progress requires marrying cutting-edge technology with rigorous compliance
▶ 0:51:54and appropriate state and federal frameworks. Anchorage Digital is committed to leading the way and serving as a trusted resource for the industry, demonstrating how this innovation can be achieved safely, responsibly, and at scale. We are proud to be building that future inside the US regulatory perimeter. Thank you again for this opportunity to testify, and I look forward to answering your questions.
▶ 0:52:15Thank you. Mrs. Flynn, you are now recognized for 5 minutes.
▶ 0:52:21Thank you for inviting me to speak My name is Tara Flynn, and I am the National Community Reinvestment Coalition's Policy Director. Prior to joining NCRC, I spent over 20 years as a consumer protection attorney for the federal government. NCRC is a coalition of more than 700 community-based organizations fighting for a just economy. Today's topic is very broad, and time is limited, so I do direct folks to my written statement.
▶ 0:52:51But, NCRC believes that regardless of the payment method or type of access, believes regardless of the method of or type of access, when a non-bank receives access to the banking and payments infrastructure, it should come with responsibilities, including first, to adhere to strong consumer protections. Second, to meet the responsibilities that come with banking, including requirements to meet community needs and invest in communities.
▶ 0:53:21Third, to be subject to robust robust supervision and enforcement on behalf of consumers. So, first and foremost, strong and enforceable consumer protections are necessary. As been has been noted, many consumers now use payment products for numerous aspects of their financial life. It's how they receive wages, pay rent, or send money to family. But scams are very prevalent in the payment space, including transactions using payment apps and cryptocurrency and stablecoins.
▶ 0:53:52Often consumers are out funds because a scammer tricked them into making a Current payment protections that limit liability for unauthorized transactions and confer error resolution rights are effective, but they may need to be enhanced and clarified to ensure coverage of all types of electronic and digital transactions.
▶ 0:54:14Consumers must have the right to reverse whether it's because it was the result of a scam or because the product they received was defective. Our bottom line is that functionally equivalent payment products should be subject to equivalent consumer protections and rules. With consistent safeguards across payment methods, consumers will be protected regardless of how they choose to move, spend, or store their money.
▶ 0:54:42Second, in exchange for such access to the public payment and banking systems, companies authorized to act like banks must provide community benefits. This means that fintech companies and crypto companies that receive special charters or banking system access should be required to help meet the needs of communities they serve through the Community Reinvestment Act or comparable obligations.
▶ 0:55:07The CRA is designed to ensure financial institutions help meet household, small business, and community credit needs and serve low- and moderate- income communities. Recently, the OCC conditionally approved national trust bank charters for several firms, including crypto and stablecoin companies. But a national trust bank charter holder is not subject to the Community Reinvestment Act and thus are not required to reinvest in communities.
▶ 0:55:34This creates a gap in accountability for these institutions. They benefit from the access to the banking system and the credibility and legal status associated with the banking system, but they don't share in the responsibility to help community needs. Third, regulators must have the capacity to engage in robust supervision and enforcement.
▶ 0:55:55The expansion of non-bank access to federal payment and banking systems is taking place in the backdrop against the backdrop of a contracting federal government. This calls into question the federal regulators capacity to conduct the necessary supervision and enforcement.
▶ 0:56:12Also of concern are proposed rules that relate to non-bank access to federal banking and payment systems that deem an application approved if the approving agency does not act within a certain number of days. Regulators should be required to review and act on all applications. Approval should not be the default.
▶ 0:56:34The risk is that a regulator's lack of sufficient funding or staffing to complete timely reviews could result in rubber stamp approvals, and that would potentially expose the system to unnecessary risk. And after access is approved, regulators and law enforcement have to have the capacity to ensure companies are held accountable if they fail to meet regulatory requirements or otherwise put consumers and the system at risk.
▶ 0:56:59NCRC welcomes innovation that benefits consumers, expands economic opportunity, and strengthens communities. But access to the payments and banking systems must come with clear responsibilities to consumers, communities, and regulators. Thank you.
▶ 0:57:21Thank you for your testimony. We'll now turn to member questions. I now recognize myself for 5 minutes. Uh first to Mr. Portilla, uh as the chairman of the Financial Institutions Subcommittee, um who's also been working on this issue with my friend from Wisconsin. One of our core responsibilities is overseeing our nation's banking system and ensuring that the regulatory framework keeps pace with innovation.
▶ 0:57:43For more than 150 years, our dual banking system has allowed states to serve as laboratories for innovation, testing new ideas while maintaining prudential oversight. From your experience, Mr. Portillo, what advantages do state bank charters in fostering responsible innovation in the payment space?
▶ 0:58:03And are there examples where state the state chartering process allowed new technologies or business models to develop more quickly than would have been possible under a one-size-fits-all regulatory approach?
▶ 0:58:15It's It's a great question and great I think, as you suggest, state charters and state regulators have, in fact, provided that, you know, laboratory for experiment, as the phrase is used, for regulatory innovation and commercial innovation.
▶ 0:58:33There are more types of state charters than there are federal charters that are focused on a narrower set of activities in some cases, and that allows a entrepreneur to start a business, use that charter type, and be subject to supervision that is tailored to that limited set of activities.
▶ 0:58:52Well, we we all at least a lot of us are supportive of that federalism and that innovation that that fosters. At the same time, speak to where there are areas where we we do need a uniform national framework, where that is preferable.
▶ 0:59:09For example, there are there aspects of payment regulation, such as interoperability, nationwide market access, or regulatory certainty, where greater consistency across jurisdictions would better support innovation and competition while still preserving the benefits of our dual banking system. Obviously, when we're talking about payments in a modern world, we're talking about interstate
▶ 0:59:30Yeah, that's right. And I think that highlights the limitation of the state system, which is that at a certain scale, a business needs to operate nationwide under a uniform set of standards. As I noted in my remarks earlier, there is no federal preemption for payments outside of the national bank charter.
▶ 0:59:50And so, right now, when a firm that's focused on payments activity would like to operate nationally, their options are to operate under a multi-state framework that is not fully interoperable, or to apply for a national bank charter that is not really fit for purpose.
▶ 1:00:10And so, I think that's an opportunity for Congress, for the OCC, to think about ways to provide an option that allows nation- nationwide operations under a single set of
▶ 1:00:25Um, let me ask you, uh, Ms. why should non-banks have access to a master account?
▶ 1:00:37So, the current framework is defined as you're a bank or you're not a bank, and you know, our point of view is that is not fit for purpose for a company like Stripe. So, we support 5 million businesses, small businesses in every district and every corner of the United States who are really trying to innovate on a platform. In order for us to do that, obviously, we're subject to and have to have this patchwork quilt of licenses across every state.
▶ 1:01:01Um, we are advocating that we are regulated for the business and activity that we do, which is payment processing, as opposed to, um, a banking. Banks, obviously, are very focused on maturity transformation, taking deposits and lending them out. That's not the business that we're in.
▶ 1:01:18And what we're advocating for is that every small business owner, every entrepreneur who has a great idea and needs to build a business on a platform that is a reliable, that is trustworthy, they can do that on a platform like Stripe that is regularly regulated appropriately for the business that we
▶ 1:01:35Uh Ms. Andrika, um as an innovative as innovative payment companies continue to grow, what factors should determine whether a firm should seek a bank charter? And is a bank charter the solution or giving non-banks access to a master account the solution? Compare the two
▶ 1:01:54Yeah, what's not in a non-bank is a resolution authority and some of the laws, rules, and regulations that do apply to banks. As a national bank I am regardless of what it the activity is, I have to comply with information security rules, BSA AML, very similar to money transmission. I do have capital requirements, liquidity requirements. I have I'm examined on my operations.
▶ 1:02:20And so, when we think about access to the payment system, making sure that we have that institutions that have that access can comply with all of those is fundamentally important.
▶ 1:02:30Thanks for the answers to those questions. The chair now recognizes the ranking member of our subcommittee on capital markets, Mr. Sherman of
▶ 1:02:39Thank you. This is about our 400th hearing on crypto and stablecoin. The va- Today we're talking about 99% of the payments out there do not involve stablecoin.
▶ 1:02:59But this instead of having a hearing on how to give consumers a better deal with their debit cards and credit cards, we're having a hearing as to how we can make people in the crypto world even Seems logical in that crypto provides far more impact money and political money than all the other institutions involved in financial services times five, perhaps times
▶ 1:03:2910. But we should instead have a hearing about credit cards, debit cards, and helping Americans buy a sandwich rather uh now now now we're told that these companies are innovative.
▶ 1:03:44These companies use their political power to prevent innovation at the Fed where they do everything possible to lobby against a central bank digital And so instead we see the stable coin which is an oxymoron. Look at Terra USD, a disaster. People lost an awful lot of money. You we saw uh an unstable coins with USD coin and Tether.
▶ 1:04:12We could have an absolutely stable central bank digital currency. But there is no PAC supporting that. we clearly need the CFPB not only revived, but regulating this space because you have Zelle and other institutions that are subject to substantial regulation because they're owned by or part of banks, and then you have this unregulated world.
▶ 1:04:41And then we're told, well, let's look at state regulation. Yeah, that's absolutely outrageous. A lot of companies would pay a thousand dollars per person to everyone in the state of Wyoming to get a charter that would allow them to steal a hundred dollars from every We cannot allow a small state to sell out and hurt the consumers of
▶ 1:05:11what concerns me also is hurting the banking system. That system finances the vast majority of small businesses in our And as pointed out by Ms. Flynn, we have a Community Reinvestment Act so that everything in the banking system is subject to a requirement that at least some of it is spent to help disadvantaged communities.
▶ 1:05:38Party on uh Some have argued that crypto and stable coins could divert deposits from the banking system, especially if they're able to maneuver their way around the compromise they agreed to that there wouldn't be interest payment paid on these stable coins. As you know, bank deposits community development. Banks are required to require comply with the Community Reinvestment Act.
▶ 1:06:08And every small business in my district has a loan from a bank. None of them have a loan from crypto world. Could you discuss the potential loss inability to finance small business and the Community Investment Act uh as as a result of stable coin or so-called stable coin pushing reducing bank deposits?
▶ 1:06:37Sure, thank you. And it's a great question and we spend a lot of time thinking about and looking at this There is concern particularly if stable issuers through affiliate and other third parties are able to pay interest that [clears throat] there could be a flight of deposits out of the out of insured banks to stable coin issuers.
▶ 1:07:02And as you note correctly, bank deposits fund loans to consumers, small businesses, um including uh consumers of all economic levels. And there would be, based on the research we've done, a reduction in uh loans or um at a minimum uh increase in the cost of credit and a reduction in the availability of credit were there to be deposit um flight out of the regulated banking
▶ 1:07:32system. Banks have spent and continue to invest billions of dollars uh consistent with their obligations under the Community Reinvestment Act to fund small businesses and home financing um uh in all communities, including low- and moderate-income communities.
▶ 1:07:52The chair now recognizes the gentleman from Texas, Mr. Sessions, for 5 minutes.
▶ 1:07:56Mr. Chairman, thank you very much, and I want to thank the panel for being here. I find in particular today there was a lot of information being provided to at least uh this group of of members that perhaps were not as far along on understanding all the things that you're talking about. So, uh Mrs. Omara, I'd like to, if I can, uh engage you for just a minute, and I'm looking at your uh record that you have provided as your testimony.
▶ 1:08:26And in drilling down on that, on page uh two and page three, I see where your headline topics "Dependencies Creates Risk." I got your argument, and that is if someone is just doing business with several banks, in this case you mentioned two, and something happens to one of those banks, it creates some bit of a bottleneck.
▶ 1:08:52I then got along with your argument about the volume of of what your company does and how big it is, the movement of money, transactions. Modernization fuels growth with lower cost and rapid adoption, and I get that, too.
▶ 1:09:11And then you go into a conversation about the United States remains the only nation in the G7 to not allow direct access to their payment infrastructure. And the EU has done this, and other countries, including in in the discussion you have, Singapore, and how they developed uh either uh it's hard for me to know more money or it it was uh simply the transactions were were uh
▶ 1:09:42done more uh uh reasonably. It was done faster. Tell me about a customer that you listened to and their needs and the things they want, which is what you said, versus this what I would call inside baseball of you doing business. What does a consumer want that you listened to versus now what you're here arguing?
▶ 1:10:08Thank you for the question. Um the conversation that I have with businesses all over this country uh is focused around two things. One, how can they grow their business reliably, and how can they get access to their funds quickly? So, take a customer like I uh mentioned in my statement, Housecall Pro. They uh send tradespeople out to homes, to consumers, to fix issues in their home, plumbing, washing machine has broken, etc.
▶ 1:10:31The fact that they were able to build on Stripe enables them to fix the problem, uh obviously go on site to a consumer, and take that payment directly on site, either take it through their mobile device or through a hardware device. That ensures that they're able to serve consumers faster, but also more efficiently. It gives a lot of predictability into the cost and the flow of that money. That they're are type of companies that are building on Stripe.
▶ 1:10:57And when the current regulation was founded, these type of business and business models didn't actually exist. So, what you've seen, in particular in the internet economy, is new types of businesses being built.
▶ 1:11:08So, you're talking about direct access, directly. I am on I am on site. I I need an extra $800 to fix whatever it is that might be in your home. I get the money. I don't have to go through a bank that takes a day or two or another way.
▶ 1:11:24right. Yeah, that's exactly it. And you know, uh the 5 million businesses that are on Stripe, most of those are small businesses. Uh tradespeople, small companies that rely on that cash flow in order to pay their wages, to pay their suppliers. So, their access to that money quickly is fundamental to their their ability to plan and to invest.
▶ 1:11:40And that's the access that that you talk about that the United States is not allowed versus uh other countries, perhaps the EU or the G7 countries.
▶ 1:11:49That's exactly right. Uh today, we're operating under a patchwork of different, obviously, licenses. And what we're advocating is that we would have a payment charter that fits the purpose of the business and the money transmission.
▶ 1:12:00more of an advocate, necessarily the way I hear it, for smaller businesses. People who one's or two, we might call them moms and pops in Texas, where I'm from, smaller, but they need the flexibility, the access. And so, they come to you. You then hold the money because you uh do not get into the extension of credit.
▶ 1:12:25We do not get in the extension of credit. But, of course, we need to go through the current system in order to pay the
▶ 1:12:30system and then you do that. Okay. Well, I I completely see it. I was trying to understand your dependency. Where would that dependency You're simply saying, if you had to go to a bank, it would be a transaction that might be delayed. in many cases, banks don't provide that service. You you example in a partnership that we just launched recently is with Lloyd's Bank in the UK.
▶ 1:12:56They wanted to bring payment services to their merchants and small businesses and they're doing that partnering with Stripe. So, we very much uh partner with community banks and
▶ 1:13:05I I completely see that the modernization, efficiency makes uh a difference. Mr. Chairman, thank you for having this. Ms. Mayor, thank you.
▶ 1:13:13Thanks, Mr. Sessions. I now recognize the ranking member of our subcommittee on digital assets, Mr. Lynch from Massachusetts for 5 minutes.
▶ 1:13:20Thank you very much, Mr. Chairman, and I thank the witnesses for your willingness to help the committee with its work. So, Ms. Flynn, uh according to the federal guidance, applicants for a federal master account must be in compliance with relevant laws and regulatory requirements related to to payments, to anti-money anti-money laundering, to sanction protocols, and uh risk management, and they must
▶ 1:13:50not pose a risk to the Federal Reserve or financial stability. As the ranking member on the subcommittee on digital assets, uh we see huge daily fluctuations in the value of cryptocurrency and I and I wonder how the financial system uh can respond to to that in a safe way for the consumer.
▶ 1:14:14it seems like every single scammer out there and ransomware attack uh requires payment in Bitcoin because it it avoids all the legal protections and uh law enforcement. Uh I'll give you an example. So, Synapse was a financial technology institution that promised to be a bridge between non-bank platforms and traditional partners. So, without supervision and regulation, Synapse filed inaccurate documents.
▶ 1:14:45They failed to properly locate and match consumer funds. They failed to disclose the total of funds they had in custody. The company also commingled deposits with uninsured dollars, which bank relate bank regulators estimate led to tens of thousands of Americans exposed to millions in total losses.
▶ 1:15:07given what has happened with Synapse, what should Congress be requiring as a minimum condition or minimum conditions before any fintech or digital asset company gains access to to those bank-like powers, uh and especially uh at a reserve master accounts? one of the thing or what I'm sorry.
▶ 1:15:35In order to gain access to those systems, they should be subject to the same requirements or bank-like requirements. And some of that would be supervision. Right? You said that these were entities that aren't supervised.
▶ 1:15:48That's sort of gray area of where these third parties that are connecting banks and non-banks together, um who supervise that supervises them and ensuring that um there are uh resources and staff available to conduct those kind of reviews is important. Um in terms of your question about um and how to make sure like actually, let me ask you to clarify that.
▶ 1:16:21I was talking about the fluctuation between uh you know, in Bitcoin uh relatively short-term fluctuations and and also I would add to that what happens in periods of stress where there's a flight to safety. Uh you know, what what does what effect does that have in commercial banks where uh people may want to have a some of these fintech banks where people actually want to have that FDIC
▶ 1:16:52Well, certainly one of the concerns is with the fluctuation and volatility of the crypto market that that could create could in fact essentially the banking system and make it so that there are you know bank runs.
▶ 1:17:08There's this 24/7 aspect of stablecoin things happen outside banking hours and all of a sudden there could be a massive run on a bank and they wouldn't be able you know then then like with synapse the problem would be that the communities would be I mean sorry the government would be essentially bailing them out.
▶ 1:17:37That with synapse what ultimately happened is that the bankruptcy took place and the CFPB got involved and sought to use the civil money penalty fund in order to try to make those consumers whole. So somebody ends up holding the bag.
▶ 1:17:58Right. What what's the what's the impact of the dismantling and and defunding of of the Consumer Financial Protection Board and also the downsizing you mentioned the the contraction in our you know protocols. What does that have on on what effect does that have on consumer
▶ 1:18:19The gentleman's time has expired. I'd ask the gentle lady lady to answer in writing. I now recognize the chairman of the House Small Business Committee Mr. Williams of Texas for five
▶ 1:18:31Thank you Mr. Chairman. Thank all of you for being here today. I'm from Texas as you heard and 57th year of owning my small business in Texas. And small business is the backbone of our economy, whether it's a family-owned restaurant, a local retailer, startup trying to grow, every dollar matters. New payment technologies have the potential to lower costs, improve cash flow, and make it easier for businesses to serve their customers. So, Ms. or Ms. Omar, I'm sorry.
▶ 1:18:57From your perspective, how are innovations in the payment space helping small businesses like mine operate more efficiently? And what additional opportunities do you say see to reduce costs and strengthen Main Street businesses?
▶ 1:19:11Thank you for the question. Um as I mentioned, the 5 million businesses on Stripe are mainly made up of small businesses. Um the types of um small restaurants and, you know, local shops in every community. And the whole premise of Stripe was to ensure that companies, small businesses have access to this technology, that it is available to anyone, especially small businesses, that they can build on payment rails, and Stripe infrastructure in order for them to run a more efficient business.
▶ 1:19:39So, some, you know, obvious use cases that we're all familiar with now, the ability to order food online from your local restaurants, to go and pick it up, or have it be collected. The ability to pay your suppliers and to have fast access to the flow of money that is on the Stripe network and on the Stripe platform is critically important to small businesses. And at the moment, obviously, we are working with a patchwork quilt of different licenses.
▶ 1:20:05And why we're advocating for access to a payment charter at the federal level is that we can actually serve these small businesses even better. And there's three components to that is that we will enable them to get faster access to their funds. So, speed, obviously, is very important to them in cash flow. Two, that they will have more predictability on the business plans that they want to um implement in terms of like hiring or reinvesting into their business. And three, that we can work with them in the community and ensure that we're supporting their ambitions.
▶ 1:20:35A lot of the small businesses have big ambitions. So, they might be in the community, but they're looking to go cross state and sometimes go global. And they're the type of conversations that we have with small businesses and small companies across every corner of the United States.
▶ 1:20:47Thank you. Uh the United States financial system is the strongest and most trusted in the world because it's built on foundation of safety, soundness, and consumer confidence. As a new financial technology payment providers into the marketplace, we want to encourage innovation while preserving the trust that consumers and businesses have in the banking system. So, Ms.
▶ 1:21:07uh how can we promote a greater competition and innovation payments while ensuring uh that all participants meet the standard necessary to maintain the stability and trust that long defined American banking.
▶ 1:21:19Banks support innovation and competition, but as um as we all know, it's extremely important that consumers uh remain protected and that the financial system remains protected and safe and sound. Um
▶ 1:21:32one way in which uh innovation and competition can be promoted um is for banks themselves to be able to use novel technologies uh to innovate in the payment space in particular um and for the regulators to allow them to do that without seeking special permission or having to jump through um hoops that require endless waiting and uh engagement with the regulators.
▶ 1:21:59Banks are experts at managing uh the risks of new technologies, and we have long advocated for the regulators to take a technology neutral approach to bank Uh banks have as I noted earlier in my remarks, they have innovated to bring instant payments to consumers and businesses, and they are developing tokenized deposits and platforms to allow for atomic settlement.
▶ 1:22:25Uh under um prior regulatory regimes uh, among the banking agencies, the banks were essentially um, not allowed to experiment or um, uh, attempt to use novel technologies to innovate. And that um, is uh, caused um, a harm ultimately to the ability uh, for the US financial services system um, to to innovate and to remain competitive on a global scale.
▶ 1:22:53Innovation is safest uh, within the regulated banking sector. And to the extent that uh, new entrants want to enter the marketplace, we welcome that. But the risks that uh, the activities um, provide and produce have to be recognized and have to be comparably regulated and managed.
▶ 1:23:13Uh, Mr. Chairman, my time is up. I yield
▶ 1:23:16Uh, thank you, Mr. Williams. Uh, I now recognize the ranking member of the Intelligence Committee, Mr. Himes of Connecticut for 5 minutes.
▶ 1:23:23Uh, thank you, Mr. Chairman. And thank you to our witnesses. Um, I've got two questions, so I'm going to ask you to be fairly snappy in the response. Uh, this one's for Mr. Portillo and Ms. Flynn. Um, you know, historically we've viewed payments policy through the lens of consumer protection and financial regulation. But as we see more and more options here, innovation, etc., should we increasingly be thinking about payments infrastructure uh, as critical national infrastructure? And if so, what policy changes should we be thinking about? Let me start with Mr.
▶ 1:23:55Yeah, I think the resilience of the payment system is critically important. Uh, I think thinking of scale, volume, the regulatory standards applicable to participants that have access to the payment system are the types of things to consider. Um, and I think that's something that's baked into the law today. There's something in Title 8 of the Dodd-Frank Act called a systemically important financial market utility, which can be designated for heightened supervision.
▶ 1:24:21There are eight such SIFMUs, as they're called, designated today, and I think continuing to evaluate the use of that tool is
▶ 1:24:30Thank you. Ms. Flood, do you have thoughts on that?
▶ 1:24:32Well, I'd just say that we think of the payments infrastructure as a public good, and to have access to that public good, there need to be responsibilities that come along with it. So
▶ 1:24:45Help help me with that though, right? I mean, the payment infrastructure are bank-owned rails. It's not a public It's not a publicly owned public good.
▶ 1:24:51Well, it it In terms of the fact that the um access to it, and um the implications to the systemic uh safety of our economy are implicated. I think it is in in a sense a public good.
▶ 1:25:09And what I'm saying is that it in order to have access to those payment rails that are um you know, the Fed payment system, we would expect that entities would also um be expected to invest in communities um as well.
▶ 1:25:28Okay, thanks. Um this question is directed actually to Ms. O'Mara and Ms. Andrica, cuz you're in the business. Um I'm sort of bewildered by what appears to be the kind of the fragmentation of payment options. I'm excited about it on the one hand. Um you know, I'm so tired of the Durbin Amendment wars and the fights between the banks and the retailers. Uh and I mean, my bank folks won't love to hear this, but you know, swipe fees and credit card fees are a result of oligopolistic pricing.
▶ 1:25:57So, I actually really welcome the competition that I hope will drive down those costs for the consumers. But, you know, Zelle, PayPal, Apple Pay, Stripe, every variety of stable coins, the fragmentation worries me because of consumer confusion, and therefore an inability to really judge quality. So, I'd love to hear in my remaining 2 minutes from you, where is this going? Are we going to have 12 stable coins to choose from? Is it going to collapse into a couple of payment mechanisms?
▶ 1:26:26What does the industry look like 5, 10 years from now?
▶ 1:26:31Uh, it's a great question and I think with regard to stable coins, what we're trying to to talk about it here is uh, a piece of regulated infrastructure. And we're not talking about those as replacing, we're talking about these as an option to run alongside. There isn't a bank or a payment provider or a credit card company today that isn't looking at a stable coin as an option to be able to build on top of.
▶ 1:26:55Uh, and so what we were we're what we're seeing here is not necessarily a replacement, but we're seeing infrastructure being provided in a regulated manner to be able to take out some of those costs that you're talking about.
▶ 1:27:08Um, what I would say, we absolutely are fully supportive of consumer protection and we think that's critically important. The majority of businesses in the United States are talking about moving dollars. It's fiat. When we talk about the 1.9 trillion dollars on Stripe, that is dollars that most businesses in the US are concerned about. So, Stripe is an infrastructure company and people build on top of Stripe. What we do want to ensure is that consumer has choice.
▶ 1:27:32So, if they want to pay with a payment method, a debit card, a Visa, and an American Express, they should have that choice available to them on the platform. In terms of the evolution and where this is going in the future, I think obviously discussions like this will help inform what that looks like. I think what we're advocating for is that the current situation is very much still uh, not serving today's needs, which is access to a federal charter for payments for fiat payments in the US.
▶ 1:27:57So, Brad Sherman pointed out that we spend a lot of time on crypto and I know this isn't crypto, but you know, there's this there's a dozen plus stable coin companies out there. Is someday am I going to walk into a 7-Eleven and choose between Bill's stable coin and Joe's stable coin and American Express stablecoin. Is that the future of fragmentation or is this going to collapse down into a couple of payment mechanisms?
▶ 1:28:22I think that if we get this right, we're not going to know that we're paying with stablecoins. It's going to be a rail. Um, and there's going to be liquidity on a rail just the way that we have a stablecoin or a credit card uh being attracted to a network and we have several of those.
▶ 1:28:36Chairwoman's time is expired. Thank you. Yield. Uh, thanks Chairwoman Waters. And now I recognize myself for 5 minutes for questions. Um, you know, I want to think back to um, maybe maybe the opening quote for me to start my questions is uh summed up in Amity Shlaes' book Forgotten Man.
▶ 1:28:56It's a quote from William Graham uh And in in 1883, he said, "As soon as A observes something which seems to him to be wrong from which X is suffering, A talks it over with B and A and B then propose to get a law passed to remedy the evil and help X. Their all their law always proposes to determine what C shall do for X or in the better case what A, B, and C shall do for X." What I want to do is look up C.
▶ 1:29:25I want to show you what manner of man he is. I call him the forgotten man. Perhaps the appellation is not strictly correct. He is the man who is never thought of. He works. He votes. Generally, he prays. But he always pays. I think the forgotten man here is the If you think about fundamentally the right to transact predates any government.
▶ 1:29:49If you go back to a state of nature, I can imagine one person catching fish and another one gathering fruit and they arrange a trade for things they need. And to be a little nosy for their neighbor to come and insert themselves and say, "Hey, what are you guys doing over here?" But the reality is certainly since 1970 and the passage of the Bank Secrecy Act and probably well before that, there's always someone between you and your transaction unless it's in cash.
▶ 1:30:17And generally while cash isn't illegal, we've made it very hard to use. And to address some of these things, we saw a rise of cryptocurrency made famous by Bitcoin in the Bitcoin white And the thing it sought to pre- preserve was the characteristic of cash, that it was a permissionless, peer-to-peer payment system. But we're not here talking about peer-to-peer payment systems.
▶ 1:30:45We're in fact coming up with a regulatory scheme to guarantee that C has no access to such a future. The C goes through a permissioned, transaction system. To get access to his own money, he needs to be in good standing with his country, with his and whomever the next regulator might come in to do. got Ms. Flynn, you said that every transaction should be reversed.
▶ 1:31:15If the bank sends the money where the customer told them to send it, why is that the bank's fault? The bank performed the service that they were asked to perform. Credit cards are interesting because they do provide that risk insurance, and you look at the innovation that's out there's a lot in it. But I guess my question is, how do we preserve a permissionless, peer-to-peer future? How do we do that? Um and and I guess I I I'll turn to you, Ms. O'Mara, and you look at Stripe.
▶ 1:31:44I think the innovation that you've come in really reached a need for a more competitive framework, and I think you've laid out, along with Mr. Portillo, um a a system where you could regulate payments differently. Uh that you don't necessarily have to be a bank and have fractional reserve banking and lending and everything else to be able to process payments. So, how do you see the future where we could preserve a permissionless future for
▶ 1:32:15Yeah, I think that is the right question. It's like what type of environment do we want to build to ensure that commerce happens in a frictionless way and that small business owners everywhere have trust in that system. At the moment, the only option is to be considered a bank or a non-bank under the current regulation and that's why we're advocating to take out that middleman and actually level the playing field for companies like Stripe that we can better serve businesses that build on Stripe and want to bring economic advantage to their areas and to their communities.
▶ 1:32:46And we see a future ideally where, you know, we continue to protect the consumer. We're big supporters
▶ 1:32:53Thanks. And I think for account-based, most people don't want to hold all their cash. They like the service. Vendors uh some some uh businesses like it so much they won't even take cash anymore. But Ms. Andrika, uh congratulations. Uh I I wish Brian Brooks had stayed at the OCC and more could make it. It served as a narrow window uh for Anchorage, but um obviously there was this big war on crypto. You look at innovation.
▶ 1:33:18What are your thoughts and how do we have a permissionless future uh and people being able to use an account when they want to?
▶ 1:33:26Yeah, thanks for the question. So, at Anchorage Digital and you met you talked about the middleman. The way that our technology operates is that you are moving those assets and you're directing that through our platform. It's not the the bank actually moving the assets. And so, I think that's important to understand. The other thing that is really important is where banks are able to um transact with unhosted wallets. Yeah. And that's been something that has been a
▶ 1:33:53Thank you for getting to that. Self-custody is important and I'd I'd ask anyone to respond further in writing. My time's expired, and I now recognize the ranking member of our task force on monetary policy, Mr. Vargas of California, for 5 minutes.
▶ 1:34:07Thank you very much, Mr. Chairman. I appreciate uh all of the witnesses being here today, and I'm glad that you brought up the state of nature. As I recall, Thomas Hobbes, in his Leviathan, said that life is short, brutish, and mean. Of course, um Locke had a different opinion about that, and I hope that we're more Locke-ish than Hobbesian, but we'll see. What uh what I do think is when we talk about stablecoin, I wish we had a more stable administration.
▶ 1:34:36And we're supposed to have a signing ceremony today. At the last moment, the president decides that he doesn't want to sign it. Everybody's excited about this bill. It's a good bill. It's a compromise And he decides not to. So, right now, I think they're trying to figure out how to get that tent, or whatever that thing was that was covering up the John F.
▶ 1:34:56Kennedy um you know, Trump sign over there at the cultural center, and bring it over here so they can cover up the place where they were going to have their um their signing ceremony. So, I wish we get a a little more stable. Instead of stablecoin, a little more stable administration. But um Mr. Portilla, when you spoke, you said that we need to update the legal and regulatory standards to meet the innovations of today.
▶ 1:35:25And I agree, but at the same time, when we see these innovations, we also see the potential downfalls, you know, more of the Thomas Hobbes sort of mean, brutish, and you know, the short stuff. So, that's why we have regulations, and that's why we have safety, and that's why we try to protect the consumer. Um what about that?
▶ 1:35:46Because I mean, you know, I I I think we've not not necessarily gotten it right with banking, but we've gotten And now with this innovation, I think more danger is in the system. How how do we cure that?
▶ 1:36:00Yeah, it's a great question. Safety, soundness, consumer protection are critical parts of any regulatory framework. I think the dynamic we face today is that markets and consumer preferences have moved faster than the regulatory framework. So, you see instances where business models are fitting themselves into a licensing or chartering regime that is not really made for that type of business.
▶ 1:36:27Um and in sometime in some cases, you see um workarounds to the existing framework where institutions have to rely on other parties to conduct parts of their And those dependencies do create risks.
▶ 1:36:44And I think what I was proposing in my remarks and in my written statement is that it's an opportunity for Congress and the agencies to examine if a more particularized framework is warranted so that the particular risks of a payments business model, for example, could be addressed in a more tailored framework.
▶ 1:37:02Okay, but into that, let me then throw in requirements like the CRA, other things to say, "Okay, we you know, we believe in markets. I do. I think they're good." But at the same time, not necessarily a market failure, but one of the things that we see in markets, unfortunately, is that some areas do get divested. What about that?
▶ 1:37:21I think that's a policy choice for Congress. Historically, the applicability of the Community Reinvestment Act has been triggered based on an institution taking deposits. I think on the theory that when an institution takes deposits, it benefits from federal deposit insurance, the federal safety net, and is
▶ 1:37:39But not all of them, just to correct you. I mean, the the banks would say, "Well, well, hell yeah, it applies to us, but it doesn't apply to the credit unions, right?" They take deposits,
▶ 1:37:49Like as technically they don't take insured deposits. They're credit unions, but yes, that's an area where
▶ 1:37:53They're insured in a different way,
▶ 1:37:55Yeah, that's right. That is an area where our laws do not match up based on
▶ 1:38:01I'm not criticizing. I'm just saying that's what they would argue here. I don't want to argue for person on the banking view, but I'm sure that's what you would say, right?
▶ 1:38:08what they would say. Um but I think the question is whether an institution that's not engaged in lending should have some type of obligation to the community. And if the answer is yes, what type of obligation
▶ 1:38:23let me stop you there, Ms. Plan. I know you What What about that? What about the obligation to the community there? Cuz I think there is one. Go ahead.
▶ 1:38:31Well, sure. I think that it would be important for, you know, having bank if they have bank-like functions to have bank-like responsibilities to invest in Um it could take the form of a you know, a variety of different things. I think legislators and regulators are are familiar with tailoring certain requirements to different business models. And so, it would just need That would need to take place.
▶ 1:38:59And my time's almost up. So, I think we when we modernize, I think that's one of the things we have to do. Make sure that it's in there. Thank you, Mr. Chairman.
▶ 1:39:07Thank you, Mr. Vargas. I now recognize the gentlewoman from California, Ms. Kim, for 5 minutes.
▶ 1:39:12Thank you, Chairman, and ranking member for holding today's hearing. I want to thank all of our witnesses for joining us today. You know, I represent the counties of Orange, Riverside, and San Bernardino counties in Southern And I've heard from so many of my constituents working in healthcare, retail, and other industries about how payments modernization is pivotal in helping small business owners make their payroll and get the workers their paychecks on time.
▶ 1:39:42And I know Stripe is very proud to have a mission that is in line with what I just mentioned. So, when businesses approach you, Amara, what are they looking for in the partnership with Stripe?
▶ 1:39:57Thank you for the question. So, businesses typically are looking for a partnership with Stripe and a foundational platform that they can reliably run and scale their business on. And whether that is a small healthcare provider, a medical clinic, a fitness center, the requirements are generally the same. There are a couple of fundamental things that they seek from the partnership with Stripe. One that the platform is reliable. Moving money, taking payments, and receiving payments from those who have paid you needs to hit your account.
▶ 1:40:26So, reliability is incredibly important. We take great pride in the trust platform that we've built with of time, and that is critically important that it is a stable The second area is transparency and reliability on the receiving the receiving of those funds.
▶ 1:40:48So, ensuring that they have funds to make payroll, to hire that next employee, or to invest in their business is critically important. And the third area is fraud. Fraud is an ongoing conversation with every business owner that I speak to. And fraud is obviously on the rise. We at Stripe prevent $14 billion of fraud every month. So, part of what they're looking for with Stripe is an infrastructure player who has a broad network and is investing deeply in fraud prevention.
▶ 1:41:18And that's one of the critical conversations that we have with these business owners.
▶ 1:41:21Thank you so much. You know, so you know, I introduced the Payment Access and Consumer Efficiency Act, the PACE Act. Um and I want to thank my colleague Sam Liccardo for you know, working on this bill with me. I I our regulatory system can do more. As you mentioned, they're looking to have a faster payment system. We want to help unlock innovation, balance consumer protection, and provide regulatory clarity for payments modernization.
▶ 1:41:52And this bill, hopefully we can get through the process quickly, will ensure American working families can benefit from faster, more secure, and cheaper payments by unlocking that federal reserve payment system for a sophisticated non-bank fintech institutions. So, Mr. O'Mara, if a business processes a transaction on Friday, for example, how long does it typically take for businesses to actually have access to those funds?
▶ 1:42:23I mean, the short answer is it depends, but typically it is what we call like T+3, three business days. Now, we're coming up to a holiday next week. I will be in on data recall that will say, when will the money hit my account when there is a public holiday next Friday? I need to make payroll and I need to make my employees." So, this is the ongoing conversation.
▶ 1:42:43If there was a federal charter for payments companies like Stripe, we would be in a much stronger position to give a lot more confidence and ensure that those payments happen happen quickly, happen in the same day, in the way that the federal charter was intended, but unfortunately, we do not have direct access to that
▶ 1:43:03You know, at the end of the day, as working families face, they have to pay rent, they have to pay utilities, they have to pay groceries. So, if the funds is not directly accessible to them, they can end up waiting for maybe over a week, especially with the holidays. Uh you know, so if the PACE Act were to become law, what could you build for American small businesses and gig workers?
▶ 1:43:30If the PACE Act were enacted, it would provide a framework for us to work with small businesses and give them a lot more confidence and credibility on the flow of funds and on their ability to make a solid plan on when and how they can extend their business models, who they can hire, but most importantly it will give them confidence in the system.
▶ 1:43:52Today with a patchwork quilt that we have to operate in, a lot of small businesses are challenged with just knowing when that money will clear and then will they have access to it for the services that they have already
▶ 1:44:02You know, it's incomprehensible that um United States is the only G7 country without the faster payments regulations. So, if we do not act now and take steps to pass this legislation like my PACE Act, we are at risk of falling behind at the cost of our working families and small businesses. I want to thank you so much for your support on that and
▶ 1:44:24lady's time has expired. Uh thanks, Ms. Kim. I now recognize the ranking member of the full committee, Ms. Waters of California, for 5 minutes.
▶ 1:44:33Uh thank you very much. Um Ms. Flynn, I thank you for your public service at both the Consumer uh Financial Protection Bureau and the Federal Trade Commission. I understand you worked more than 10 years at the Consumer Financial Protection Bureau, including supervision and most recently as CFPB's Assistant Deputy Enforcement Director.
▶ 1:45:00Times are tough for consumers with the price of groceries and gas and other basic necessities still going up thanks to Trump's failed economic and international policies. It has gotten so bad one in 10 Americans are skipping meals uh to get by and consumers continue to be ripped off by some financial institutions or be funded through payments scams.
▶ 1:45:30We used to have a strong federal watchdog looking out for consumers, but unfortunately, the Trump administration has relentlessly attacked it and its mission. Trump's lackeys have dropped dozens of enforcement actions that would have secured consumer relief, including actions related to payment scams.
▶ 1:45:54That's money that would have gone to harmed consumers, but instead, it's staying in the pockets of crooks. And with the agency largely shut down, the CFPB has not been supervising large banks or big tech payment providers to make sure they're following consumer protection laws.
▶ 1:46:16Meanwhile, consumer complaints about financial products and services have exploded with more complaints filed in the last 14 months uh than consumers filed with the CFPB in the agency's first 14 months. So, as we consider the state of payments and how innovations could benefit consumers, Ms.
▶ 1:46:39Flynn, can we all trust financial companies to do the right thing with little or no supervision? Or do we need a strong, functioning CFPB doing its job to hold large payment providers accountable, whether they're banks or fintechs or crypto companies, and enforce our consumer protection laws for the benefit of consumers? I could answer that question without asking you.
▶ 1:47:08I was one of those who sat on the final committee that determined that the CFPB would be a part of law, and I'm shocked, and I am just perplexed as to why the members of the opposite side of the aisle have allowed the president under his leadership to try and destroy the Consumer Financial Protection Bureau. What else is left to say?
▶ 1:47:39Well, I would agree with you that having anything less than a fully functioning CFPB, fully staffed and funded is terrible for consumers. And I appreciate your kind words.
▶ 1:47:54I would say, you know, there are lots of problems with the potential lack of supervision and enforcement and that would mean that, you know, it can create an unequal playing field between banks and non-banks. It can create incentives companies to not invest in their compliance management systems or to invest in compliance.
▶ 1:48:21So, yes, I strongly appreciate your support of my former employer. Thank you.
▶ 1:48:28Well, I want to thank you for your work and I know how the CFPB was so instrumental in helping those who had nowhere to turn prior to the Consumer Financial Protection Bureau and I appreciate the hard work that has been done. But, of course, we can expect almost anything from this administration.
▶ 1:48:50We had a wonderful bill, a housing bill supported by both sides of the aisle and by both the House and the Senate that was canceled today. Someone asked me if I was surprised. Really, I'm not. I expect this president can do anything that he wants. He has no opposition from, you know, MAGA. He has no opposition from the members on the opposite side of the aisle. He is acting like a dictator, which is what he wants to be.
▶ 1:49:20But, while he's doing that, housing bill that was designed to help, you know, families have secure and safe housing, all of that's going out of the window. All of the creative work that we worked on and negotiated for over a year is now being undermined by the President of the United States. I yield back. Thank you.
▶ 1:49:40Thanks, Ms. Waters. The chairman I now The gentleman from Montana, Mr. Downing, for 5 minutes.
▶ 1:49:48Well, thank you, Mr. Chairman, and thank you to the panelists for being here for the witnesses. I'm happy that this committee has spent so much time on what Congress and the federal government can do to provoke to promote technologies that, you know, really better the lives of everyday Americans.
▶ 1:50:05You know, as a former securities and insurance regulator for Montana, you know, I'm proud of how my state has been a leader in fostering this I would really like to drill down on the role of states. And 49 states, except for my home state of Montana, have money transmitter laws. I'm going to start with the Mrs. O'Mara. Does the patchwork of state money transmitter frameworks prevent firms from offering services nationwide or are the frameworks generally
▶ 1:50:37Thank you for your question. Under the current regulation, you need to be regulated and have a state license in every state that you operate in. And listen, we are tremendously proud of the deep partnerships we have with obviously every state that we operate in, but it is a patchwork system and that there is no overarching obviously federal regulatory payment charter that we can operate under. But, the current situation ensures that, you know, there's friction in the system. We need to resource obviously in all those relationships.
▶ 1:51:04We have different obviously rules and regulations around how we operate. So, while it works today, it is very challenging for the types of businesses and the activity that Stripe does in the US.
▶ 1:51:15Thank you. I'll move to Ms. Inderika. Does selecting a charter or license at the state level offer businesses more flexibility in the offerings they're able to provide to consumers and
▶ 1:51:29It's a great question, and our history is that we started our business with a South Dakota trust charter. And we got that charter, we had no clients whatsoever. And so it was really important for us to seek regulatory licensure to be able to operate our business and to be able to hold those funds. It was a necessity for day-one operation. As we started to grow and as we knew that we were going to grow and go after more sophisticated multi-state licensure, it was imperative that we had that we sought a national charter.
▶ 1:51:58And so when that opportunity opened up for us, we went for it.
▶ 1:52:02Thank you. I'm I'm going to zoom out a little bit. You know, we've talked a lot about firms seeking charters for digital assets. Uh I'm going to move to Mr. Porteous on this one. Outside of digital assets, what else are you seeing firms seeking charters for? at the federal level, the options are relatively limited. You can seek a full-service national bank charter. I have clients that are doing that, becoming a bank holding company.
▶ 1:52:29Uh you can seek a limited purpose national bank charter, for example, to offer trust services and related activities. And people are doing that even outside of the digital asset context. In terms of payments, there is no federal payments charter, so that's not an option. And so people are looking at state charters like there's a uninsured innovation charter in Connecticut that clients uh or entrepreneurs pursue when they want to do a payments business.
▶ 1:52:56I think you really think you see the full range. Right, thank you. So, how do the services that national trust companies offer compared to the services provided by state money transmitters?
▶ 1:53:10Well, I think they're similar and different. Money transmission is obviously just that, receiving money from one party and sending it to Uh a trust company under the OCC's current approach engages in some form of custodial activities, some form of fiduciary activities, and then activities related to that. So, for example, a money transmitter is not required to engage in any fiduciary
▶ 1:53:34Um so, I think of them as, you know, a Venn diagram. There is overlap, but you cannot under the current framework and the OCC's current approach have a trust bank that is a pure-play payments company.
▶ 1:53:46All right, thank you. I'm going to shift gears in my remaining time here uh to combating fraud. As the former securities regulator for the state of Montana, my primary responsibilities were protecting investors and going after bad actors. So, I'm going to go back to Ms. Zenderica. Uh can you discuss how innovation and advancements in pay- in the payment space have made combating fraud more effective?
▶ 1:54:09Yeah, I mean, I'll give you an example of how we combat fraud. Fraud prevention is um built into our into our product layer. And so, really, we have the capability to confirm institutional intent, confirm the intent of the money mover, and the intent of where to move that asset. And that And something like that can be easily applied to the payment space.
▶ 1:54:31In fact, uh we are trying to apply that right now to uh agentic payments, which are actually not very well suited to the existing payment structure and was talked about early on in this committee. It's something that we really need to think about, and it's something that Anchorage Digital is thinking about uh quite a bit, and we have a um a proof of concept already. Um so, these are the things like fraud is actually built into the product layer.
▶ 1:54:53the gentleman's time is expired.
▶ 1:54:54I I I yield, Mr. Chairman. thank you. I now recognize the The member of our subcommittee on financial institutions, Dr. Foster of Illinois for 5 minutes.
▶ 1:55:04Uh thank you, Mr. Chair, and and to our witnesses. And maybe I'll just pick up and and talk about the the pending transition to agentic finances. And maybe just go down the line with with basically the two questions I raised there. The first one, you know, how do you think we should we should be thinking about the transition to agentic finances where most transactions happen not between consumers and businesses or business to businesses, but through agents.
▶ 1:55:31And you know, the choice of the exact payment rails may be sort of a side issue to these two agents that have already negotiated identity and authorization and all these other things that you struggle with all the time, but that will sort of be built in automatically to the agent to agent interaction. And then And and so, you know, I I I worry about that, whether we've we're ready with the legal certainty for what happens when an payment goes off the rails because an agent has done something unauthorized.
▶ 1:55:58And do you you see any problems there that that Congress should be addressing? And the other one is just facing the problem with the super apps. I mean, we probably all saw a couple days ago Facebook just bought a financial super app with 3 billion customers, like 10 times the population of the United States, that does everything. You know, that does payments, it does loans, it does you know, business loans, the whole thing.
▶ 1:56:22And so, I'm very worried that we are going to be facing this sort of vertical monopoly in the United States in a way that will really crush competition. So, we just go down the line and then sort of tell me your thoughts briefly on on those two issues.
▶ 1:56:38Yeah, maybe I'll start with the super apps. I think it raises part of our regulatory system that's been in place for a long time, which is to separate banking and commerce. That's embodied in the Bank Holding Company Act. Uh we have typically used that restriction with respect to insured depository institutions.
▶ 1:56:58Uh and then I think one of the notable aspects of the genius act is where you had a licensed company like a permitted payment stablecoin issuer that's engaged in a narrower range of activities than an insured depository institution. Congress found a different way to apply this principle of the separation of banking and commerce, not as stringent as under the Bank Holding Company Act, but still uh interpose some of those restrictions.
▶ 1:57:21And so I think if there is further policy developments around payments licensing, having that debate again uh is a worthwhile endeavor.
▶ 1:57:32All right. Yeah, thank you, Ms. Periton.
▶ 1:57:36Uh sure. On um agentic payments, I'll start with that. I I agree. I think um the advent of that technology and capability raises a lot of questions that um are just beginning to be investigated and considered.
▶ 1:57:52And I do think regulators and the Congress should carefully consider all of the possible including as you note, you know, what happens if um an agent uh um executes a transaction or makes a payment that it wasn't authorized to do. Um you know, and who is the consumer in that situation? Who Who has um Who is the uh institution serving?
▶ 1:58:18Um and in the, you know, investment advisor space, who Who are the fiduciary duties owed to, etc.
▶ 1:58:24Okay, and I I'd like to just keep moving. I have limited time here. Ms. Amara, do you want to
▶ 1:58:29Thank you for the question. Um as it relates to agentic fraud, we think this a a topic that we should be discussing and it is on the rise. The approach today in, you know, our position on Stripe is to engage in uh open protocols and ensure that working with the right, including government, to ensure that the, you know, the right standards are in place. The reality is for agentic commerce today on Stripe, you are prohibited.
▶ 1:58:54It would be impossible for an agent to go rogue today on an agentic transaction because it's the same a human has to authorize that. That being said, we think this is a very topical conversation and we'd welcome an opportunity to to obviously be in that discussion. And I'm probably not well placed to have a point of view on super apps, but I would say is that any regulated company should be to the highest standards and you know, that's what we would advocate for especially as we talk about you know, a payment charter that could be at the federal
▶ 1:59:22Ms. Andruska.
▶ 1:59:23With regard to agentic payments, this is really where the future of commerce is going. Um, Anchorage Digital is thinking about this as I mentioned, building um, you know, fraud detection into the technology layer. But what I want to say here is that the regulatory perimeter is a national asset. And when the greater value you have when you expand that regulatory perimeter to responsible actors in this space who can develop technological innovation that can keep up with market demand and where the future is going.
▶ 1:59:50Yeah, thank you. And I now have to apologize for Ms. Flynn because of having almost no time and because the CFPB was the cop on the beat, the only agency that was actually dealing with these problems that has been gutted by this administration. And we're going to regret that for for you know, the rest of this decade. And I just want to thank you for your work and and I hope that we can actually resume the CFPB's mission to be the the main cop on the beat here. Thank you.
▶ 2:00:15Thank you, Mr. Foster. I now recognize the gentleman from Tennessee, Mr. Rose for 5 minutes.
▶ 2:00:22Thank you, Chairman. Thanks to Chairman Hill and Ranking Member Waters for holding this important hearing and thank you to our witnesses for being here today. The United States stands at a critical inflection point in the future of payments. We are living through an era of rapid financial technology advancement. New firms are reimagining how families, workers, and small businesses send, receive, and store value. If our chartering framework does not evolve alongside this innovation, we risk falling behind.
▶ 2:00:50America's long-standing role as the global hub for fintechs and the preferred destination for startups is not guaranteed. You do not have to look far to see this tension. The House of Representatives Office of Payroll and Benefits regularly reminds staff and members that personal money transfer applications and digital wallet accounts cannot be used for direct deposit because they are not financial institutions.
▶ 2:01:16It sites platforms that millions of Americans use Many House employees and members would likely welcome the option to receive their pay through these services. Yet, employers, including the House, are understandably cautious, in part because our system does not yet offer clear, modern, payment-specific charters with strong safeguards. We have to get this right.
▶ 2:01:39We cannot put at risk America's standing as the destination of choice for fintech At the same time, we must preserve our strong dual banking system, recognizing the essential role that community banks and credit unions play in their towns and in meeting local needs. Mr.
▶ 2:01:59Portela, how do we balance the need to remain the world's preeminent home for fintech startups while designing innovative payment charters and also ensure that we preserve the local deposit base that our community banks and credit unions rely on to serve their customers?
▶ 2:02:20Yeah, those are great questions. Uh one thing I will say is after the enactment of the Genius Act, the amount of institutional interest in forming and supporting and investing in permitted payment stablecoin issuers was remarkable. And in my mind, what that shows is the power of having purpose-fit legislation to foster investment and innovation.
▶ 2:02:45And so I think if there were to be further development in federal payments licensing and chartering, I think you would see similar interest from companies that were created in the United States and also are entering the United States from outside the United States.
▶ 2:03:01And I think figuring out the details of that framework is obviously critically important and one of the considerations will be the effect it has and the differences between that framework and the effect it has on the banking sector and the differences between that framework and a banking framework so that you can, you know, address those differences and those effects.
▶ 2:03:22Thank you. Uh Ms. O'Mara, I'd like to ask you the same question. As we look at innovative payment charters, how do we ensure the United States remains the leading destination for fintech startups while also preserving the local deposit base that community banks and credit unions need to continue serving their local
▶ 2:03:42Thank you for the question. Um I think there's no shortage of very ambitious founders and startups and small businesses in the United States. I think the failing we have at the moment is the infrastructure doesn't meet their ambitions. What we've seen in other jurisdictions like the EU and the UK that have already obviously implemented direct access is a wave of innovation that's happened on the back of that.
▶ 2:04:06And I think, you know, if we were to move forward with something like the PACE Act, we would very quickly see, you know, innovative solutions and companies that want to build and serve the American people with solutions that are difficult to do today. In terms of the question on supporting the communities, we very much support community engagement. And the PACE Act and any regulation similar to that we would be delighted to be engaged in a conversation how we can do that.
▶ 2:04:33The current situation is that that trying to impose a bank, a banking framework onto non-banking companies, but the communities that we all serve and live in are critically important to the innovation that we're going to see in the evolution of financial services in this country, and we want to be a part of that dialogue and discussion.
▶ 2:04:52Sure, and I and I guess I just would from my recent visits with community financial institutions is that we continue in this innovation to erode the local deposit base of so many of our smaller financial institutions, and I fear a world where we end up with you know, a concentration of that deposit base in a way that essentially erodes access to capital in small
▶ 2:05:22towns and communities across the country. So, that's really what what I'm driving at, and I see that my time is expiring. So, I will yield back.
▶ 2:05:33Gentleman yields. The chair now recognizes the gentleman from Illinois, Mr. Casten for 5 minutes.
▶ 2:05:38Thank you, Mr. Chair. Thank you all for being here today. I want to I want to talk about the the the Fed proposal from May to create these skinny master accounts for for payments firms. Ms. O'Mara, in your testimony, I think you I think you said that Stripe blocks about $14 billion in suspected fraudulent transactions each month.
▶ 2:05:59If you had access to the federal payment how would that enhance or change your ability to monitor fraud, prevent fraud, track track fraud end-to-end?
▶ 2:06:12Yeah, thank you for the question. You know, fraud is a real issue. It is really a issue for every businesses that is operating an online business. Access to a federal charter system would enable us to have earlier access to the signals and the insights. And the reason that we have obviously such such strong fraud prevention at the moment of $14 billion per month is prevented. It's because the size and the scale of the network and the access to those signals. So, we will see bad actors or frauds are very quickly
▶ 2:06:41So, you'll be you'll be able to see deeper if you have
▶ 2:06:44see them faster, see them deeper, and pull the insights and signals and learn from the behaviors.
▶ 2:06:49So, so So, that I I guess then my my next question is counter to that. what is the offsetting penalty? I know, you know, Chair Barr has raised concerns about, you know, our our our fraud our AML system right now depends on a handful of large correspondent banks that the regulators have direct supervision into. Do you see an offsetting loss if if that's a much more diffuse monitoring system from the regulator perspective as opposed to the practitioner who obviously doesn't have the same sort of public interest
▶ 2:07:23Stripe's business is based on moving money for businesses. So, I mean, obviously their current legislation is designed for banks who hold deposits and
▶ 2:07:31I'm just I'm just asking about our ability to monitor fraud in the system. I mean, we
▶ 2:07:35I don't believe so, but I'd be happy to kind of review and see if there's any consequences that we think um would be
▶ 2:07:42Okay. Um Ms. Peredon, would you like to comment on that?
▶ 2:07:47In terms of potentially opening access to payment accounts for um entities that uh traditionally have not had access to Fed master accounts, we um we uh are supportive of the Fed's um careful approach in seeking public input on this because it would uh necessarily reflect a significant shift potentially from uh a system largely where insured institutions, insured
▶ 2:08:17depository institutions have access to the Fed payment payment system to one where um as the Fed acknowledges uh uninsured institutions largely would take advantage of the payment account. We do think the ability for any entity that has an account, whether it's a master account or a payment account, needs to have robust illicit finance risk management controls, fraud monitoring controls, cyber security protections,
▶ 2:08:49and resilience, operational resilience, and operational risk controls, and that they should be subject to federal oversight generally for all of those protections to ensure that a security breach or a cyber event or a data security breach, for example, isn't transmitted to other institutions within the system.
▶ 2:09:11Okay. Welcome to continued engagement beyond this hearing. I know you talked about in your opening remarks about avoiding some sort of regulatory this particular gets raised and I don't want to misquote you, Mr. Portillo, but I heard you say that your clients aren't looking for national don't have the option of national charters. They do, of course, have this this OCC charter, this national trust charter that a number of particular stablecoin companies are coming into.
▶ 2:09:39And my my spidey sense is up on this because when Comptroller Gould was here this month he specifically said that trust applicants may not need to demonstrate compliance with AML rules to obtain So you've got this issue where the head of the OCC is saying that they may not need to have the same AML rules to get an OCC charter, but now all of a sudden you've got access to the payment rails.
▶ 2:10:05And I for one am opposed to money And I get nervous when I'm hearing that our regulators are suggesting that maybe there's a backdoor to get around some of the protections that we've we've historically had. Um Mr. Portillo, I don't know if you want to comment on that. If I missed if I I don't I don't want to misrepresent what you said, but I I do just want to make sure we're flagging that potential barn
▶ 2:10:28No, I don't I I think you're right. There's no federal payments charter. You can have a uninsured national bank charter to be a permitted payment stablecoin issuer, but that's a narrow set of activities.
▶ 2:10:39But if you went in if you got the OCC charter and then use that to get access to the payment rails and the comptroller is saying I don't have to do AML controls as a as a categorical requirement, we've got a hole. Yield back.
▶ 2:10:51Germany yields and I recognize myself for 5 minutes. Access [clears throat] to Federal Reserve's payment system is not a small issue, so we appreciate you all being here. Master accounts, skinny master accounts, and new charter models raise important questions about safety and soundness, consumer protection, competition, and who should be allowed direct access to this critical payment uh these critical payment rails. I do want to commend the Trump administration for taking these issues seriously.
▶ 2:11:16OCC Comptroller Jonathan Gould and Fed Governor Chris Waller have both been willing to examine how our payment system can be modernized and how we can support innovation while maintaining the safety and soundness of the financial system. So, Ms. O'Mara, as you know, the Fed master account allows direct access to the Fed's payment system, including services like clearing, settlement, and moving money through Fedwire or ACH. How would more direct access for Stripe improve speed, reliability, and cost for customers?
▶ 2:11:49Thank you for the question. Um for a company like Stripe, a large payment company who's supporting businesses, 5 million businesses to start a business, to grow a business, and to scale a business, access to the Fed, a regulated Fed payments charter would enable us to serve them better and serve them better in a number of ways.
▶ 2:12:07One, give them faster access to their funds with a more reliable platform determining when payouts will be made with no ambiguity because at the moment we're subject to a uh obviously a state statewide licenses that vary across states. The third area is it will give them confidence in how they build their business and their long-term sustainability.
▶ 2:12:28We also believe that will help them innovate and really drive more innovation in the spirit of this conversation that they'll be able to drive more innovation on the back of a reliable platform where we obviously will be regulated to the highest standards and provide security as well as what is fundamentally important to a lot of small businesses and infrastructure that is operating at the highest standards on AML, on fraud protection, and obviously on consumer protection.
▶ 2:12:56Thank you. [clears throat] Miss Parrott Donn what are the potential risks of expanding Fed master account access to businesses outside the traditional banking system?
▶ 2:13:05It's something that we have spent a lot of time thinking about and we do have concerns that depending on whether the Fed ultimately does open up skinny accounts or payment accounts to entities that have not traditionally had access. Number one, it could potentially fundamentally shift deposits from insured institutions to uninsured institutions.
▶ 2:13:32The Fed itself has acknowledged that the institutions most likely to seek payment a payment account are going to be uninsured institutions. We have concerns of course with uninsured institutions because they of course run and would not have the protection of deposit insurance.
▶ 2:13:50Beyond that, it's critically important as the Fed does acknowledge that an institutions with access to the Fed payment systems and a master account, you know, do not have the ability to present credit risk to the Reserve Bank itself, to present settlement risk to other participants in the payment ecosystem, and that uh they do not serve as a transmission vector for illicit finance risk into the system.
▶ 2:14:18So, we've encouraged we would encourage the Fed to proceed slowly if it does in fact um move to uh implement the payment account as it has proposed, and to study uh this question of whether it would um hasten a shift from insured depository institutions to uninsured, and what the implications would be for that, and whether that would fundamentally change the Fed's role in the economy by expanding its balance sheet, for example.
▶ 2:14:46Uh in addition, we have encouraged the Fed to uh require the strictest BSA and AML and illicit finance controls and risk management requirements, as well as cybersecurity risk management requirements and data protection controls to ensure that consumers' sensitive financial data remains secure.
▶ 2:15:07All right, thank you uh very much. Uh Mr. Portela, the Fed has proposed, of course, the limited skinny master account. Uh what would allow what would it restrict? How's it different from traditional? If you would explain that. As well, are there any gaps Congress should be aware of and understand?
▶ 2:15:24Uh the account is basically, as people have been calling it, a skinny account. It's more limited than a full master account. It doesn't allow uh above a certain limit overnight balances at the Fed. Uh it doesn't pay uh interest on overnight balances, and it doesn't allow any services that provide credit exposure to the Fed or other participants in the system. So, those are the main features. Uh it's limited to uh to institutions that are eligible under the Federal Reserve Act to have a master account.
▶ 2:15:54And so, I think if Congress were to look at anything, it'd be whether that uh range of institutions should be modified.
▶ 2:16:01All right, thank you very much. My time has expired. The chair now recognizes the gentlewoman from Michigan, Mrs. Ms. Tlaib, for 5 minutes.
▶ 2:16:07Thank you so much, Chairman. Before I begin, I would like to recognize one of our fellows who's been with us for 9 months, Anya Akhtar. If she can stand for I'm she has no idea I was going to embarrass her. But she's been working incredibly hard on behalf of on behalf of the 12th Congressional District families and trying to hold auto insurance companies accountable as well as working on tenants' rights and housing bills and we're just dearly going to miss her in our office.
▶ 2:16:36So I'm going to go ahead and continue with our line of questioning, Miss Flynn. Are you familiar with FedNow?
▶ 2:16:45Well, if our moms were listening, how would we explain FedNow?
▶ 2:16:49Well, I I think I would defer to one of my banking colleagues to describe FedNow to everyone.
▶ 2:16:54Okay, well, let's talk about the model that I'm trying to figure out why the United States has it. So how does the domestic US payment system compare to other countries in terms of consumer protections, speed, and expense? It is is it not that the US a system comparably slow and costly? We've been talking about this that how slow and costly it is. It's about the Brazil in 2020, you know, Brazil's Central Bank introduced an instant payments system called Pix. So I wanted a little bit for you to talk about that because we have FedNow which needs a lot of work.
▶ 2:17:24it does try to address some of the struggles in in in how slow in in compared to other countries and what they've been able to do for their I think you turned the mic off.
▶ 2:17:40That's okay.
▶ 2:17:40I thought I turned it on. Sorry. I think one of the things that has been talked about a lot today is about how about faster payments and equating that with innovation. But from a consumer's perspective, I don't think that faster payments equals innovation. I mean, it doesn't mean that they're necessarily fair or safe. Um so um I I can't speak exactly to FedNow.
▶ 2:18:10the Pix program is free.
▶ 2:18:13you know, well you know, anyone in Brazilian bank um uh bank account can use it. While the banks can still charge fees to companies, merchants still face significantly lower fees than with regular bank transfers. And Pix tran- In In Brazil, again, it's just just to understand where we're we're not moving towards this direction, I think it's is to the detriment of our residents. And Pix transfers are instant, while normal bank transfers might take hours to proce- proceed.
▶ 2:18:39More than 80% of Brazil's residents, 178 million people, have registered for Pix. In late last year, it processed about $7 trillion in transactions. Um there's also in India, they have what they call the UPI, Unified Payments Interface, where it's operated by National Payments uh Corp- Corporation of India. And there is a nonprofit entity owned in part by Indian Central Bank, and it processes billions of cost-free transactions each month.
▶ 2:19:08And it regulates interchange fees, so all the transactions made through the UPI interface from one bank to the other are free. Um and now now I know these systems aren't, you know, perfect. We know that. But the achievements are pretty significant for both of those countries. These are examples that demonstrate that large-scale payment systems offering free instant transactions for their residents uh are, you know, a reality again for millions of people. So you know, I was hoping, Ms.
▶ 2:19:37Flynn, you could talk about that because to me FedNow can possibly move towards that direction that could be beneficial to many of our residents. And I didn't know if you were familiar at all with those two models and how it compares to
▶ 2:19:52Unfortunately, I'm not familiar with those two models other than your wonderful description of them. Um, but obviously making it so that payments are fast and free um would be uh beneficial to consumers.
▶ 2:20:07Well, what do you Why Why would consumers and communities care who gets access to these payment rails?
▶ 2:20:15Well, they should care because there is concern about um you know, there's been talk about the various fraud on the system and um so consumers should be interested in who actually gets access to the payment rails and make and actually in hope that they would ask that they would be subject to strict supervision and enforcement and be held to, you know, bank-like requirements.
▶ 2:20:43Yeah. I just think, you know, for many of our colleagues, no matter where we agree, disagree, but I think it's really important to understand when consumers switch from using bank accounts to private fintech products, we are losing a lot of consumer protections and there are hidden fees that are hurting our families. With that, I yield.
▶ 2:21:00The gentle lady yields. I now recognize myself for 5 minutes for questions. Um Ms. O'Mara, in 2012, the state of Georgia created the merchant acquirer limited purpose bank charter to allow entities engaged in merchant acquiring or settlement activities to directly access payment card networks. Stripe now how now holds a Georgia merchant acquirer limited purpose bank charter Bridge has conditional OCC approval for a national trust bank charter.
▶ 2:21:29Can you discuss the features and benefits of charters like these?
▶ 2:21:33Thank you for the question. We um I think the reason that we applied and have uh the Georgian MALPB license is because the current uh framework actually has a dependency on Stripe, on other obviously banks and intermediatories. Uh as I mentioned in my opening statements, the reason we went down this path is one of the banks that we were partnering with and relying on decided that it was no longer strategic for them to be an acquiring partner. That was really the trigger for us then to go and pursue that license.
▶ 2:22:04So, Stripe and large payment companies like Stripe are uh dependent on intermediary trees and third parties in order for us to serve businesses and consumers in the United States. And and that is the very reason that we're advocating for a regulated stringently regulated payments charter at the federal layer in order for us to better serve and support the businesses that build on us and ultimately the consumers. And we advocate for strong and stringent legislation.
▶ 2:22:29And the Georgia money license, of course, we are abiding to all regulatory requirements and oversights under that. And the same is true with the bridge license you mentioned under the OCC as part of the Genius Act.
▶ 2:22:43What do these charters allow and what do they they do not allow?
▶ 2:22:47I mean, they're very specific and narrow. So, from the license that we have in Georgia, that is specific for acquiring and acquiring only. It is in the pursuit of that. These are not banking license. We do not take deposits and we do not lend money out. Uh in the light of the um the OCC Genius Act license that we have with our provisional license for bridge, it is only in the provision of stable coins.
▶ 2:23:10And stable coins are really a a solution that many of our merchants are seeking for but really for markets that are outside of the US where they want to expand into other countries where, you know, it is difficult because the the markets that they're interested in might be unstable in terms of currency. And obviously, with stable coin pegged to the US dollar, it gives them a lot of a lot of opportunity in order to expand their business.
▶ 2:23:35But then, they are very narrow and they do not relate to obviously uh the payment infrastructure which most of our companies and most of the companies on Stripe build on.
▶ 2:23:43All right. Thank you. Uh Mr. Por- uh do you think that Georgia's merchant acquire limited purpose bank charter could be adopted and used by the OCC at the federal level to expand payment it's a good question. I mean, there's two interrelated questions. This is what types of charters does the OCC offer? Today, it's not obvious that the OCC could offer a charter based providing those services that the Malp provides.
▶ 2:24:12The second is what the network operators accept as acceptable members of their I think one of the questions that's been discussed at this hearing and is important question is whether it makes sense to have at the federal level more um particularized charter types for payments business models. And I think the OCC has um looked at that question in the past. There's been a lot of litigation about that question and whether Congress decides to revisit it, I think it's an important issue.
▶ 2:24:40Um in your opinion, which business models would be best suited for a charter like this?
▶ 2:24:44I think the obvious gap is a payments business model, you know, not deposit taking, not lending, uh not engaging fiduciary activities, purely uh moving money on behalf of consumers or businesses.
▶ 2:24:57Okay, thank you. Um chair now recognizes the gentleman from California, Mr. LuCardio for 5
▶ 2:25:04Uh thank you, Mr. Chair. Mr. Portilla, I'd like to pick up where you left off. appreciate your testimony uh that essentially continuing to cling to a a model of bundled banking uh doesn't benefit American consumers in a world in which we're increasingly seeing banking uh be unbundled throughout the world. Is that fair to say?
▶ 2:25:29Yeah, I I think what I was trying to get across is that we have institutions that are providing financial services that less than all three of those core traditional banking components.
▶ 2:25:42And you mentioned payments as an obvious place to start, and as I understand it, England, France, Germany, Japan, Canada, Italy, Australia, Japan, Singapore, I could go on and on, EU, all offer non-banks direct access to payments infrastructure, and they do do so through a regulated The US is the only non-G7 nation to to to fail to grant non-banks direct access to payment infrastructure. Is that Is that right? Is that Is that right?
▶ 2:26:12That's correct. That's a product of the Federal Reserve Act and the institutions that it describes as eligible for uh Federal Reserve services.
▶ 2:26:21And And it's not just a question of whether or not institutions are insured or uninsured. Uh we've already crossed that river with respect to the genius act. Already uninsured institutions that are chartered by OCC can engage in in limited payments activities. Is that
▶ 2:26:35That's right. The genius act provides that an uninsured national bank can be a permitted to payment stablecoin issuer.
▶ 2:26:41But companies like Stripe that uh Ms. Morra represents uh have to navigate 50 different state laws, regulations because they have licenses to operate in 50 different states.
▶ 2:26:52That's right. Once you move outside of payment stablecoin activity and are doing what we might call fiat payments activity only, uh there is no federal licensing option
▶ 2:27:04I I I wanted to to move to Ms. Morra. I I heard part of Race's concerns about the risk that a model that would have companies like Stripe getting direct access to payment rails uh could present a risk that we'd have a massive shift of deposits to uninsured Uh but as I understand it, your company handles lots of payments. I think you said 1.7 trillion a year.
▶ 2:27:30Um you don't offer interest or yield on deposits, do we don't we don't we are a payments provider. We move money. Uh we do not take deposits and offer loans. And obviously we're regulated in all of those countries you mentioned and uh we uh our regulations to the highest standards in the EU under the Central Bank of Ireland, under the FCA in the UK, and are very familiar how to operate in a regulated payment way and obviously to huge success with that.
▶ 2:28:00We saw no degradation on banking business in those jurisdictions as we operate under those um those regulatory entities.
▶ 2:28:08So if I'm looking for a place to deposit my money and get a return, I'm not going to run to Stripe first.
▶ 2:28:14We are not a bank.
▶ 2:28:15Yeah. And you don't pretend to be and I think that's really important. Now Mr. Casten raised some reasonable concerns about what may happen with regard to fraud anti-money laundering regulation if it becomes more diffuse with more players, fintechs and others getting involved in direct access to payment rails.
▶ 2:28:31In your written testimony, you referred to a bill that Congresswoman Kim and I introduced, the PACE Act HR 8396, and that would in fact subject all uh participating companies not only to regulation by OCC but to all relevant Bank Secrecy Act and anti-money laundering uh compliance obligations.
▶ 2:28:53Um with those obligations, would there be any new risk of fraud or money laundering uh in in terms of your business model?
▶ 2:29:08Um in terms of our business model, um you know, we currently serve 5 million businesses on Stripe. We prevent uh $14 billion every month on fraud prevention. We operate to the highest standards on all of the regulations that are required on AML, and we take consumer protection very very seriously. If anything, we believe that we will be able to enhance our models and enforce them even to a greater degree. And you know there's many things that are happening with businesses and concerns they have.
▶ 2:29:36Obviously fraud is one of them and human fraud as we all know it and now agentic fraud. This is where we really invest deeply on our machine learning models to ensure that actually we have the most robust, most secure and most safe platform available for businesses that build on Stripe.
▶ 2:29:51I appreciate your focus on innovation and how that is [clears throat] helping millions of consumers here and around the world. I'm concerned we're not seeing enough of it generally in the industry. 80% of eligible financial institutions have not even connected to FedNow despite the fact that small businesses and consumers are demanding as you said to know when will the payment clear. So thank you for your for your work and I look forward to getting this bill over the goal line.
▶ 2:30:16The gentleman's time is expired. The chair now recognizes the gentleman from Texas, Mr. Green.
▶ 2:30:21Thank you Mr. Chairman. I ask unanimous consent that I be allowed to place questions in the record. I have many and time is of the essence.
▶ 2:30:30Without objection.
▶ 2:30:31Thank you.
▶ 2:30:33The gentleman yields. The chair now recognizes the gentleman from Louisiana, Mr. Fields for 5 minutes.
▶ 2:30:39Thank you Mr. Chairman and ranking member and let me thank all the witnesses for being here today. My first question is for all five witnesses. The Trump administration has essentially shut down the CFPB. The only federal agency whose entire job job is to protect consumers from financial harm. Enforcement cases as you all know have dropped. Staff has been fired.
▶ 2:31:06Banks no longer being examined for whatever consumer protection laws are being abided by. At the same time complaints have grown, has exploded like 7.9 million people filed complaints within the last 14 months.
▶ 2:31:26My question is for families who already struggle with uh access to financial um, what does it mean in plain terms when these protections are just eliminated, disappeared, taken away? And what could Congress do about it? Why don't we start with Ms. Phan Phan and then we end with Ms. Patel?
▶ 2:31:51Thank you for your question. Um, I think I would just want to level set a little bit. The protections exist. It's just what you're suggesting is that there aren't it law enforcers, I think, to actually enforce them or supervise banks or non uh banks to ensure that they are complying with these laws. And so I think that's where the the problem comes, right?
▶ 2:32:18We don't The laws are on the books, but um if there's not a vibrant and um funded and staffed CFPB, um those um laws aren't being enforced and therefore consumers don't have um a recourse necessarily if the company doesn't do right by them.
▶ 2:32:40So, I guess that's where I'd start um and there are obviously um other concerns with the lack of supervision um well, and and enforcement, right? They they The incentives get out of whack.
▶ 2:32:55It There are incentives to not comply with the law if you don't think you're going to get caught or you don't think you're going to be supervised um on on the part of companies um and um you know, it it's sort of some of the um entities that are subject to um supervision um or could be if the CFPB would um uh Uh, you know, designate them as risk-based supervision.
▶ 2:33:24Um, those entities would uh get a little bit of a free pass as opposed to um other, you know, banks, etc. that are subject to supervision by other uh regulate regulators as well. I don't want to take all the time you wanted to talk to others as well, but if let me know if there are further
▶ 2:33:42Yep, thank you very much, Ms.
▶ 2:33:47Um, Anchorage Digital Bank is supervised by the OCC. Um, and so as I had mentioned before, you know, the regulated the regulatory perimeter is a national asset. And the more that we bring institutions into the regulatory perimeter, whatever that is, uh the safer that we all are. Uh our consumers, our institutional protections, um you know, the regulators that we have in place, the OCC examines us on those.
▶ 2:34:11Um, the CFPB is not the only regulator that examines uh for consumer compliance, uh complaints, fraud, etc. This is part and parcel to the US regulatory framework.
▶ 2:34:24Ms. Omarova.
▶ 2:34:25Yeah, from my personal perspective, obviously, um we take consumer protection like very seriously, and we welcome any regulation as it relates to it. We already comply with BSA and AML, and we'd welcome the opportunity to ensure that the right regulation befits the right obviously charter. And businesses in America that are subject to fraud and poor consumer experiences will not survive.
▶ 2:34:49It is in all of our interest to ensure that there is a healthy ecosystem and consumer protection is intact, and we very much want to be part of that conversation and ensure that the right uh support and regulation is in place for all consumers.
▶ 2:35:05Uh, BPI and and its member banks uh comply with all consumer protection regulations. And in fact, BPI members are continuing to be supervised and examined by the CFPB. Um and in addition as uh my colleague Ms. Inderika said, um the federal banking regulators continue to um supervise for consumer protections.
▶ 2:35:30We do think it is important that all entities that provide banking services, financial services to consumers are subject to the same regulation and consistent direct
▶ 2:35:41Gentleman's time has expired. Uh any other questions can be submitted for the record. The chair now recognizes the chair of our subcommittee on digital assets, Mr. Steil of Wisconsin for 5
▶ 2:35:51Thank you very much, uh Mr. Chairman. If I can, before I begin my questions, I just want to take a moment to recognize one of our dedicated staff members, uh Jack Soloway. Uh today is Jack's last with the committee. Uh he has worked tirelessly in the digital asset space. Uh he's been an absolutely uh essential resource to the team. Uh the guy's an absolute expert uh in digital assets, fintech, uh and AI.
▶ 2:36:18Uh and your service was greatly appreciated to this committee and to the subcommittee in particular, and uh we'll miss you, but we wish you all the success in your future endeavors. Uh congratulations on the next move.
▶ 2:36:35Jumping into uh the questions, I think we all know innovations are occurring across all levels of the financial system from our uh state-based institutions, fintechs, novel business models, uh federally chartered banks. In the dual banking system in the United States, has allowed institutions to choose what charter, what model uh fits well for them, and it's one of the reasons the US uh is so diverse and innovative in our financial markets.
▶ 2:37:06Uh I want to start with you, uh Ms. Inderika, if I can, to describe how you've used uh the state charter now a federal national bank charter to allow you to be innovative in the digital space and if you can touch on the South Dakota that'd be great just in a short amount of time. I mean as I mentioned we got a South Dakota trust charter first. Before we had one client we had that charter and we needed that charter to convey our services.
▶ 2:37:36And we had that charter until we had about 200 clients and we had designs to grow. But South Dakota really enabled us to offer this new activity and they looked in the first principles basis. Does their statute meet what we're doing? Permissibility was determined first and then the determination of whether we had the controls in place to mitigate that risk.
▶ 2:37:58When we got a national charter it was a game changer for us and the reason why is because we were able to operate without the ambiguity of having to navigate state by state systems. That was extremely important. The second thing is that and and I heard something at this committee that I want to really address that uninsured trust banks do not have to comply with the Bank Secrecy Act. I think that's a little bit ridiculous to assert. Um A national an uninsured trust bank is a national bank period full stop.
▶ 2:38:28Um National trust banks must comply with laws rules and regulations the same as any bank that is in the OCC's portfolio.
▶ 2:38:36The the state and federal really gives you an opportunity to be innovative creative take different approaches leverage what South Dakota provides you also gives you alternatives at the federal level.
▶ 2:38:47Let me let me jump I want to jump into the the payment system. I want to bring in Ms. Paradon and Ms. Um on this topic. We've seen a lot of states create novel charters for digital assets and fintech activities. New charter grants by the OCC and a proposal by the Federal Reserve to expand master payment accounts through very limited master account access.
▶ 2:39:12And as we seek to modernize the financial system for the 21st century, I think it's critical that we're looking at this innovation development while also ensuring the proper safeguards are in place. I'd love to hear from both of you about your perspective on how on how Congress and the federal financial regulators can foster that competitive financial ecosystem for private sector payment innovations while also ensuring financial stability and consumer protection. And we'll start with you, Ms. Pereda.
▶ 2:39:40Sure, as as as I've said, banks welcome competition and banks want to innovate within the banking sector. And for for many years um some of the banking regulators were skeptical and prevented banks from using innovative technology to provide services to their customers that they wanted to use.
▶ 2:40:05For example, banks were essentially prohibited for several years from experimenting and using distributed ledger technology. So, we welcome the ability of banks in the banking sector to to innovate. Of course, subject to them being able to demonstrate that they're able to manage the risks. And banks are very expert at managing risks. We welcome innovation and competition within the payment ecosystem itself.
▶ 2:40:35And commend the Federal Reserve for inviting public input into whether it should expand its account access to provide a limited payment account to certain entities that have not traditionally had access to master accounts.
▶ 2:40:51Let me jump Thank you. Let me jump into Ms. Omara. Your your thoughts and analysis on this?
▶ 2:40:57We think innovation is at the heart of the American economy. We should all encourage that. But the current setup and the regulation doesn't provide for companies like Stripe. The current regulation provides for companies that you're a bank or you're not a bank. What we're asking for is a payment charter that supports companies like Stripe to serve American businesses that are building on us and serving their communities. And this skinny charter does not solve for this because it does not give us direct access to ACH.
▶ 2:41:22And when I mentioned the 5 million companies that are on Stripe and the 1.9 trillion dollars that flow through our systems, remember we are not a bank, we are not taking deposits and we are not issuing loans. We need access to ACH in order to fulfill the requirements fast, reliable flow of money into the businesses that build on us.
▶ 2:41:39Thank you all for your testimony. And Mr. Chairman, I yield back.
▶ 2:41:43The gentleman yields. The gentlewoman from Georgia, Ms. Williams is recognized for 5 minutes.
▶ 2:41:48Thank you, Mr. Chairman. And thank you to all of our experts here today to have this conversation. Y'all are representing Georgia's fighting fifth congressional district, otherwise known as transaction alley. I'm sure you're all familiar. So, 70% of all credit, debit, and prepaid card transactions in the entire country flow through companies headquartered right in Midtown Atlanta, the heart of my district.
▶ 2:42:13My constituents don't just use payment systems, y'all they literally built the payment systems. So, that's why this conversation is quite important for me today. So, because of that I have a deep interest in making sure that this committee gets payment policies right. I welcome innovation. I want to be very clear about that. I want to make sure that we are keeping up with the times and doing everything that we can to be more efficient and innovate. But the innovation that I want to see is smart, sustainable, and puts consumers first.
▶ 2:42:45So, with that I have a few questions. And I'll start with Stripe. Ms. O'Mara, Georgia approved your application for a merchant acquiring limited purpose bank charter, MaB. That charter was created in my state and it's been used by fewer than three companies in over a decade. So, I want to ask directly, why did Stripe pursue Georgia specifically? And has it worked the way you expected for your business and the merchants that you serve?
▶ 2:43:12Thank you for your question and thank you for the support of our application in Georgia. Um So, the current legislation uh is built around us having to work with middle men, middle middle layers effectively. And the reason that we pursued the license in Georgia is that we were relying on banking partners for our acquiring. Um and one of those banking partners decided that was no longer strategic for them. So, it left not only us exposed, but millions of businesses that are on Stripe.
▶ 2:43:41And that is the reason that we pursued the uh Georgia MLPP uh license, and we are delighted with the uh regulation and the oversight that comes with that and the partnership that we have as part of that in order for us to securely and reliably serve the merchants that are on Stripe.
▶ 2:43:58Thank you so much. And Ms. Blalock, I want to do some more digging into this. The Georgia MLBP is deliberately narrow. It doesn't take deposits or make loans, but we're also seeing a broader wave of novel charters like the industrial loan company special purpose charters and skinny master accounts discussed here today. When you look at these narrowly tailored charters as a category, what's the consumer protection concern that keeps you up at night? Because I'm sure it's going to keep me up at night if it's dealing with my constituents.
▶ 2:44:28Thank you for the question. So, I with respect to the narrow charters, I think one of the concerns uh we have I and sort of putting my NCRC hat on is that um with respect to like a national trust bank charter, there aren't any community investment um requirements. The CRA doesn't apply.
▶ 2:44:51And in the absence of um, they these companies that have the charter aren't required to invest in communities, um, and and that's is uh, creating problems for, um, communities that need money for investment in small businesses or, um, housing or loans. So, uh, that that is sort of one of the issues with respect to the national trust bank charter.
▶ 2:45:20ILC charters, as you know, they're not subject, uh, the the parent company of, uh, the non-bank company parent company is not subject to consolidated supervision. And that raises, I think, consumer protection issues, um, because they aren't, um, they get the benefit of, um, their their sub having this charter, but they're not, you know, being examined by the folks who would look and see if there's going to be any if there are any
▶ 2:45:50issues, consumer issues, etc. So,
▶ 2:45:53So, Ms. Flynn, as a follow-up, is there a version of these charters that you could support? And what would a consumer-first framework actually look
▶ 2:46:02Well, I think, um, obviously, there are a lot of different permutations being discussed here today, but I think, um, something if our approach is if you're going to have bank-like services, you need to have bank-like responsibilities.
▶ 2:46:19So, you need to, um, offer robust consumer protection, um, and that means, you know, ability to, um, when I was talking about reversing payments, I was speaking of, uh, payments in the context of stablecoin and cryptocurrency, which often are not, um, easily reversed.
▶ 2:46:42Um, so, um, if you're offering those kind of services, that would be something that would be important as well as um ensuring that there are investments in the community and that you're robustly supervised and
▶ 2:46:56Ms. Flynn. My time is up and I'm sure we'll have many more conversations on this. Thank you, Mr. Chairman, and I yield back.
▶ 2:47:03The gentle lady yields. I'd like to thank all our witnesses for their testimony today, uh taking time to come here is very important. Without objection, all members will have five legislative days to submit additional written questions for the witnesses to the chair. The questions will be forwarded to the witnesses for their response. Witnesses, please respond no later than July 29, 2026. This hearing is adjourned.