House bank oversight hearing talks peer-to-peer payments, stablecoins

Good morning, and welcome to Protocol Fintech. This Thursday: throwing fintech shade in Washington, Jesse Powell is out as Kraken CEO, and Ryan Breslow stages a comeback.

Off the chain

When is an NFT not an NFT? When it’s fungible. That’s the apparent conclusion of EU regulators as they try 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 over form” approach, which means that fractionalized NFTs might be treated as securities. Which makes sense: Fractionalizing NFTs seems like a pretty obvious way to financialize an asset. It also points out to me how far ahead the EU has gotten in considering the nuances of crypto markets, while the U.S. still stumbles toward maybe taking up a vote on broad crypto legislation next year.

— Owen Thomas (email | twitter)

How do you take your bank CEOs?

Big bank leaders arrived on Capitol Hill Wednesday for day one of their semi-regular grilling by Congressional leaders. (Olive oil, salt, pepper, and some light balance sheet scrutiny, that kind of thing.) Though the hearing focused on traditional finance, the daylong affair included rounds of questions from lawmakers on two big fintech topics: peer-to-peer payment systems and a digital dollar.

There was some early shade thrown at big-name fintechs. “Despite the headlines, disputes within the Zelle network make up less than 10 basis points of all transactions,” said PNC Bank CEO Bill Demchak. “That is not true of unregulated P2P digital payment services.”

  • Zelle is the money transfer network owned by many 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 as members, called Demchak’s comments misleading. “As the banking CEOs know, non-banks are regulated at the federal and state levels and uphold robust consumer protection standards, including for privacy and fraud responses in electronic funds transfers,” CEO Penny Lee told Protocol. (We noted yesterday that Demchak’s description was off.)
  • Regulators are homing in 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 the financial institutions, released a report earlier this week that said Zelle had the lowest rate of disputed transactions among P2P payment platforms. Their own report, though, showed Venmo’s fraud rate was only 0.004 percentage points higher than Zelle, and it didn’t examine all P2P transactions — just the ones at eight large banks surveyed.
  • Bank leaders said that they reimburse customers for “unauthorized” transfers but the broader question is whether banks are responsible for scams that trick customers into sending money. The Wall Street Journal reported that the CFPB is considering requiring banks to reimburse customers tricked by popular scams, such as someone pretending to represent the bank. Banks have pushed back, saying that could actually encourage more scams.

Big Banks are financial “leaders,” multiple representatives said, but they won’t take the lead on adopting a CBDC. Banks took a passive approach when asked about a digital U.S. dollar, signaling they will not proactively push implementation along. The crypto industry, meanwhile, has been rallying around asset-backed stablecoins.

  • JPMorgan Chase’s Jamie Dimon said he thinks CBDCs are a fair 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 a lot more to banking services than a token that moves the money.”
  • Specifically, Dimon said he was wary of the Fed’s ability to manage fraud, risk prevention and regulatory responsibilities like the Community Reinvestment Act. (He also threw out there that he considers other cryptocurrencies, like bitcoin, to be “decentralized Ponzi schemes.”)
  • DeFi, meanwhile, increasingly relies on stablecoin providers. After the luna crash earlier this summer, the importance of having a genuinely stable digital dollar became clear. Circle’s USDC has increasingly become the stablecoin of choice for DeFi, though Tether, with more questionable backing, still has the highest market cap.
  • The witnesses have signaled a serious interest in stablecoins previously. JPMorgan, for example, created JPM Coin to use as a payment rail and deposit ledger for certain institutional clients. Wells Fargo piloted a stablecoin for use in transfers that it said could be more effective than SWIFT. Citi, meanwhile, has had a more cautious approach. Though he acknowledged that stablecoins could create more utility in crypto, Citi’s managing director of emerging payments for treasury and trade solutions wrote that competition between CBDCs and stablecoins could generate considerable instability in the banking system.
  • As we wrote in May, should stablecoins become widely adopted, a digital U.S. dollar could prove moot.

The hearing showed lawmakers still see plenty of flaws in traditional finance — areas where they may be more primed to accept disruption from potential incumbents despite increasing skepticism of tech in general. It also demonstrated where regulators are concerned that new tech companies may be perpetuating the same harms. Fintech leaders would be smart to tread carefully with P2P payments and pushing for a CBDC, and to appear keen to do so in a way that doesn’t perpetuate harm to consumers. Otherwise they may find it’s their turn for a Capitol roasting.

— Veronica Irwin (email | twitter) and Ryan Deffenbaugh (email | twitter)


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On the money

On Protocol: Kraken CEO Jesse Powell is stepping down and will be replaced by chief operating officer David Ripley.

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

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

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


Is Brian Moynihan the most conflict-averse banking chief ever? “I’m not sure I agree with Visa’s public statement at all, but it’s their statement. I’m not sure that I don’t agree with it. I just really don’t reflect on other people’s statements, frankly,” the Bank of America CEO said at Wednesday’s House hearing in response to a question about Visa’s move to categorize gun shop transactions.

Moves and hires

Former Square executive Jackie Reses is now chair of Kansas City-based Lead Bank. Reses headed up an investor group that bought the bank earlier this year. She revealed her role to the Kansas City Business Journal, which also reported she planned to move to the area.

Binance has launched a global advisory board of business leaders and former government officials. The group is chaired by Max Baucus, a former U.S. Senate Finance Committee chairman and ambassador to China.

Ryan Breslow has reemerged as CEO of health-focused startup Love. Breslow stepped down as Bolt’s CEO in January.

Ira Auerbach is leading Nasdaq’s new digital assets unit. Auerbach previously led prime broker services at Gemini.

Abhi Pabba, the manager of credit risk for Apple Card, has left Apple. Pabba is joining the credit card startup X1 as chief risk officer.

Spencer Tucker is Yuga Labs’ first chief gaming officer. Tucker previously worked for developers Scopely and Gree International Entertainment.

Chris Hazelton is director of marketing for crypto prime brokerage Floating Point Group. Hazelton joins from Fireblocks, where he most recently led product marketing for crypto and cybersecurity services.


The AR Disconnect happens when AR teams and customers struggle to communicate, causing slowed cash flow and damaged 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!

This news is republished from another source. You can check the original article here.

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