Davis Polk partner David Portilla discussed the payments sector and industry initiatives in the U.S. with Lexology.

David highlighted the Federal Reserve’s FedNow service as one initiative that will be a focus for the payment industry this year. FedNow is an instant payment system for banks and credit unions. Financial institutions and their service providers can use the service to provide instant payment services to customers and recipients have full access to funds immediately.

“The idea behind FedNow was that the Fed wanted to make sure that banks of all sizes would have access to real time payments network,” David explained. “There’ll be more discussion around real time payment alternatives to FedNow.”

He predicts that FedNow will continue to exist alongside private sector alternatives, such as the ClearingHouse Association’s RTP Network and others that use technology such as tokenized payments.

David added that another focus in the payment sector in 2024 is the Consumer Financial Protection Bureau (CFPB) review of the role of non-banks in payment services and the rules that govern them. In November 2023, the CFPB proposed new rules to supervise payment service providers such as digital wallets and payment apps. David said the new oversight would allow the CFPB to pursue parity between regulatory requirements for banks and non-banks while banking regulators continue to look into safety and soundness issues in any partnerships between banks and non-banks.

He noted that there remains an open question about whether the CFPB should use its authority to federally regulate non-bank payment providers.

“What’s in store for 2024: payments,” Lexology (January 16, 2024) (subscription required)

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