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Internal Banking Oversight Hearing Talks Peer-to-Peer Payments and Stablecoins

Hello and welcome to Protocol Fintech. This Thursday: Shading fintech in Washington, Jesse Powell is out as CEO of Kraken and Ryan Breslow is making a comeback.

out of the chain

When is an NFT not an NFT? When it’s fungible. This is the apparent conclusion of EU regulators as they attempt to close loopholes in the region’s crucial MiCA rules for crypto assets. A leaked draft of the latest language obtained by CoinDesk encourages a “substance rather than form” approach, which means that fractional NFTs could be treated as titles. Which makes sense: Splitting NFTs seems like a pretty obvious way to financialize an asset. It also shows me how far the EU has gotten ahead in considering the nuances of the crypto markets, while the US is still hesitant to vote on sweeping crypto legislation next year.

—Owen Thomas (E-mail | Twitter)

How do you take your bank CEOs?

Big bank executives arrived on Capitol Hill on Wednesday for the first day of their semi-regular congressional leadership grills. (Olive oil, salt, pepper and a light review of the balance sheet, that sort of thing.) Although the hearing focused on traditional finance, the day-long affair included rounds of questions from lawmakers about two big fintech topics: peer-to-peer payment systems and a digital dollar.

There was a first shadow cast over renowned fintechs. “Despite the headlines, litigation within the Zelle network represents less than 10 basis points of all transactions,” said Bill Demchak, CEO of PNC Bank. “This is not the case with unregulated P2P digital payment services.”

  • Zelle is the money transfer network owned by several of the nation’s largest banks that competes with Block’s Cash App and PayPal, which also owns Venmo.
  • The Financial Technology Association, a trade group that counts PayPal and Block among its members, called Demchak’s comments misleading. “As bank CEOs know, non-banks are regulated at the federal and state levels and adhere to strict consumer protection standards, including for privacy and responses to fraud in electronic funds transfers,” said CEO Penny Lee told Protocol. (We noted yesterday that Demchak’s description was wrong.)
  • Regulators are focusing on complaints of fraud on P2P services and banks appear to be distancing themselves from tech players. The Bank Policy Institute, a think tank representing financial institutions, published a report earlier this week, who said Zelle had the lowest rate of disputed transactions among P2P payment platforms. Their own report, however, showed that Venmo’s fraud rate was just 0.004 percentage points higher than Zelle’s, and it didn’t look at all P2P transactions — just those from the eight major banks surveyed.
  • Bank executives have said they reimburse customers for “unauthorized” transfers, but the wider question is whether banks are responsible for scams that trick customers into sending money. The the wall street journal reported that the CFPB is considering requiring banks to reimburse customers deceived by popular scams, such as someone claiming to represent the bank. Banks pushed back, saying it could actually encourage more scams.

Big banks are financial “leaders,” several representatives said, but they won’t take the lead in adopting a CBDC. Banks took a passive approach when asked about a digital US dollar, signaling that they will not push implementation proactively. The crypto industry, meanwhile, has rallied around asset-backed stablecoins.

  • JPMorgan Chase’s Jamie Dimon said he thinks CBDCs are a good idea, but doesn’t expect the Federal Reserve to implement its use smoothly. He described the Fed as less nimble than private institutions and ill-equipped for something so technically complicated. “You’re not going to see the Fed running call centers,” he mused. “There’s so much more to banking than a token that moves money.”
  • Specifically, Dimon said he was suspicious of the Fed’s ability to handle fraud, risk prevention and regulatory responsibilities such as the Community Reinvestment Act. (He also said he views other cryptocurrencies, like bitcoin, as “decentralized Ponzi schemes.”)
  • DeFi, meanwhile, is increasingly relying on stablecoin providers. After the Luna crash earlier this summer, the importance of having a truly stable digital dollar became apparent. Circle’s USDC has increasingly become the stablecoin of choice for DeFi, although Tether, with more questionable supportstill has the highest market cap.
  • Witnesses have already reported serious interest in stablecoins. JPMorgan, for example, created JPM Coin to use as a payment rail and depository ledger for certain institutional clients. Wells Fargo has piloted a stablecoin for use in transfers that It said could be more efficient than SWIFT. Citi, meanwhile, has taken a more cautious approach. Although he acknowledged that stablecoins could create more utility in crypto, Citi’s managing director of emerging payments for treasury and commerce solutions wrote that competition between CBDCs and stablecoins could generate considerable instability in the banking system.
  • As we wrote in mayif stablecoins become widely adopted, a digital US dollar may prove moot.

The hearing showed that lawmakers still see many flaws in traditional finance – areas where they may be more willing to accept disruption from would-be incumbents despite growing skepticism about technology in general. It also demonstrated, as far as regulators are concerned, that new tech companies can perpetuate the same harms. Fintech executives would do well to tread carefully with P2P payments and push for a CBDC, and seem eager to do so in a way that doesn’t perpetuate consumer harm. Otherwise, they might find it’s their turn to roast the Capitol.

— Veronica Irwin (E-mail | Twitter) and Ryan Deffenbaugh (E-mail | Twitter)


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on the money

On protocol: Kraken CEO Jesse Powell is resign and will be replaced by Chief Operating Officer David Ripley.

Coinbase tested by making internal crypto bets. A team at the trading-focused crypto exchange completed a $100 million test trade earlier this year, the The Wall Street Journal reported. Last year, Coinbase executives told members of Congress that the company does not buy or sell digital currencies for its own account. A Coinbase spokesperson told the Journal that it had decided not to trade on own account. “Our statements to Congress accurately reflect our actual business activities,” the spokesperson said. “Coinbase does not and never has had any proprietary trading activity.”

Tether has been ordered to produce documents showing support for USDT. A judge in New York ordered the company to produce financial records relating to support of USDT in a lawsuit alleging Tether conspired to issue the stablecoin as part of a campaign to inflate the price of bitcoin.

The Fed rising interest rates by 75 basis points for the third consecutive time. Let’s check fintech stocks: Coinbase closed Wednesday down just half a point; PayPal was pretty much the same; Block closed down 3.3%; and SoFi closed the day down 3.4%. The S&P 500 index closed down 1.7%.


East Brian Moynihan the most conflict-averse banking chief of all time? “I’m not sure I agree with Visa’s public statement at all, but it’s their statement. I’m not sure I disagree with that. I really don’t reflect on the statements others, frankly”, the bank of america CEO said at Wednesday’s hearing in the House in response to a question about Visas move on to categorizing gun store transactions.

Moves and hires

Former Square executive Jackie Reses is now president of Kansas City-based Lead Bank. Reses led a group of investors who bought the bank earlier this year. She revealed her role at the Kansas City Business Journal, which also announced that she planned to move to the area.

Binance has launched a global advisory board made up of business leaders and former government officials. The group is chaired by Max Baucusformer Chairman of the US Senate Finance Committee and Ambassador to China.

Ryan Breslow has re-emerged as CEO of health-focused startup Love. Breslow resigned as CEO of Bolt in January.

Ira Auerbach leads Nasdaq’s new digital assets unit. Auerbach previously led prime brokerage services and Gemini.

Abhi Pabba, Apple Card’s head of credit risk, has left Apple. Pabba is join the credit card startup X1 as Chief Risk Officer.

Spencer Tucker is the first Director of Games at Yuga Labs. Tucker previously worked for developers Scopely and Gree International Entertainment.

Chris Hazelton is chief marketing officer for prime crypto brokerage Floating Point Group. Hazelton joins from fireblockswhere he most recently led product marketing for crypto and cybersecurity services.


AR disconnect occurs when AR teams and customers struggle to communicate, which slows cash flow and damages relationships. If that sounds familiar, get our new report covering what’s really hurting customer experience and what you can do about it.

Learn more

Thanks for reading – see you tomorrow!

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