The entry of cryptocurrencies into the real-time payments market is a big concern for the Consumer Financial Protection Bureau, its director said.
In discussing a broader look at Big Tech’s advance into financial services, CFPB Director Rohit Chopra said that the agency would have a “heavy” focus on the adoption of cryptocurrencies for real-time payments, noting that big online firms could push widespread adoption of the technology.
Which suggests very clearly that the CFPB thinks crypto has the potential to become a big competitor to the growing number of real-time rails, including FedWire and The Clearing House’s RTP product in the U.S., TARGET2 in Europe, and CHAPS Sterling in the U.K.
See also: Real-Time Payments Are Coming — But Do We Need Crypto to Deliver It?
It also suggests that it sees cryptocurrencies — and especially of the non-stablecoin variety— as a bigger threat to not just real-time payments but payments in general than many outside the digital asset industry.
Chopra also pointed to concerns like Apple’s move into the buy now, pay later (BNPL) space, telling the Financial Times that the CFPB would take a close look at the “implications of Big Tech entering this space,” including whether Apple Pay Later could “reduce competition and innovation in the market.”
Read more: Apple’s Move Into BNPL Space Triggers Alarm at CFPB
Why not Crypto?
Technologically, crypto does have the capacity to become a contender. While bitcoin’s 10-minute “block time” between the addition of new transactions and 60-minute finality are one of its biggest Achilles’ heels when it comes to payments — real-time or otherwise — many other, newer blockchains — notably, so-called “Ethereum killers” including Algorand, Cardano, Cosmos and Solana — are fast enough to be near if not effectively real-time.
See: Blockchain Series: What’s Algorand? The Blockchain Securing Transactions by Spreading the Wealth
The problem with crypto versions of RTP, Chopra said in a July 27 Reuters interview, is the risk of hacks, errors and fraud. While he didn’t go beyond that, there are a couple of basic reasons for concern, all of which come back to two realities about the blockchain technology cryptocurrencies are built on.
First, transactions can’t be reversed. The only way to get a refund is for the recipient to initiate a separate transaction. There isn’t a middleman like a bank or card processor with the power universally reverse a payment.
Read also: Crypto Basics Series: What’s a Blockchain and How Does It Work?
Second, crypto transactions are “pseudonymous” — meaning that while the details of the transaction are viewable on a publicly accessible blockchain, the people behind those transactions can retain their anonymity.
See: Crypto Basics Series: Is Bitcoin Really Anonymous and How Can Law Enforcement Track It?
Aside from being another impediment to refunds, chargebacks and the like, this brings with it know-your-customer (KYC) and anti-money-laundering (AML) concerns.
Big Tech Advances on Banks
In discussing his concerns about crypto’s potential impact on real-time payments, Chopra pointed to Facebook’s failed Libra/Diem project, which would have created a stablecoin pegged to a basket of fiat currencies (rather than one, like the dollar or euro) that would have been instantly usable by its 2.3 billion users for local and cross-border transactions.
Calling that project, which immediately received widespread opposition from central bankers, regulators and politicians around the world, a “wake-up call,” Chopra suggested that non-stable digital assets use for real-time payments could be similarly worrisome.
Read also: To Win Real-Time Payments Fight, Crypto Must Beat Mainstream FIs, Woo Regulators
One outcome of Facebook’s stablecoin scare was the advance of central bank digital currencies (CBDCs) like a digital dollar, which are now being studied or under development in more than 100 countries. They would likely be built on modern blockchains or very similar technology, and would thus enable effectively real-time payments.
While banks have reacted with fear, with the groups like the Bank Policy Institute (BPI) saying CBDCs could “undermine the commercial banking system in the United States,” other experts take a more sanguine view.
“Central bank digital currencies are throwing a lifeline to banks,” Co-Pierre Georg, who holds the South African Reserve Bank chair in financial stability studies at the University of Capetown, told PYMNTS recently. “The banks really have it backwards. They should be terrified of Big Tech.”
An adviser to the Algorand Foundation, a blockchain developer working on several CBDC projects, Georg added that Libra would have been as big a threat to banks as central bankers.
While Algorand is capable of real-time payments, he did not see crypto as a big threat in that regard — noting that the existing RTP “systems are working well,” are inexpensive and reliable, and “have never failed as far as I know.”
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