Nick Catino, Head of Policy at TransferWise (Americas), recently commented on why he thinks the United States should allow payment firms to take part “directly in payment systems.” At present, access is limited to depository institutions, Catino explains.
He notes that payment firms are unable to gain direct access to core payments infrastructure even though it’s their “core” expertise. He adds that this is somewhat like telling heart specialists that they may not use a stethoscope in their private practice, because they may only be used in big hospitals.
Catino claims that “direct access” could be a good policy because consumers might be able to take advantage of lower costs and better services. He also mentioned that the financial ecosystem could benefit from “innovation and competition.” He added that “financial stability benefits from increased diversification of risks.”
He further noted:
“This is central to payments modernization in other countries, often following the development of faster payments systems. For example, in 2018, the UK first allowed ‘direct access’ for payment companies via Faster Payments Scheme membership and a settlement account with the Bank of England. The EU, Canada, Singapore, and Australia are following suit.”
“And the G20/FSB recently called for direct access for payment companies to reduce the cost of international payments. The World Bank and others have a similar view.”
Catino points out that the cost for payment firms (in the US) through bank transfers is “closer to 20/30/40 cents.” But the FedACH only charges .35 cents to send direct payments. Catino also notes that this is a 100x markup with consumers “eating the costs.”
He adds that “under the current rules, payment companies rely on bank partners – often competitors – to access payment rails,” which “means relying on a bank’s technology and infrastructure rather than integrating directly.”
“Financial Stability: Two banks originate more than 50% of ACH payments. That’s not a surprise because many payment companies rely on the same two. That means risk is concentrated and there are single points of failure for retail payments in this country.”
He also mentions:
“I agreed with the Fed Governor when she suggested, ‘contrasting the US oversight framework for retail payment systems with other jurisdictions.’ She’s right. We’d discover this is a conversation we should be having in the US. Other countries and international orgs are focused on expanding direct payments access. We’re not. American consumers are worse off for it.”