Money is going digital. Despite the many fits and stops, competing technologies and platforms, and omnipresent wrestling match for control over the future of payments, it seems to be inevitable that physical money (coins and cash), and likely plastic payment cards will eventually go the way of the dodo. How soon and under whose influence this transition will happen, however, remains to be seen.
But whether it’s Bitcoin, Apple Pay, Google Wallet, PayPal, CurrentC, or another yet unknown platform that ushers us into the future of payments, it looks like competition from industry peers is no longer the only obstacle impacting digital payment adoption. A new report from the Consumer Financial Protection Bureau (CFSB) yesterday sets the groundwork for new regulations that could impact the adoption of digital wallets.
The 870-page report deals mostly with prepaid debit cards and suggests that these accounts be limited in their ability to borrow money but receive protections against lost or stolen cards. But buried therein are regulations that mention “virtual wallets and virtual currency products.”
The CFPB says that it is in the process of reviewing whether these digital financial products would fall under prepaid debit card regulations. The answer to this question likely relies on the variations in ways that these service providers hold funds and process payments, such as whether, like Apple Pay and Google Wallet, these wallets provide a passthrough to traditional bank or credit card accounts, or whether, like PayPal or Coinbase, they allow consumers to fund a proprietary account. The CFPB writes:
In particular and as noted above, the Bureau is aware of an increasing number of mobile financial products, each with different features, capabilities, and consumer protections. Determining how this proposed rule might apply to those products may be difficult in light of the quick evolution of these products and their features. …
With respect to mobile financial products and services, the Bureau anticipates that this proposed rule would apply to certain mobile wallets. The Bureau also recognizes that the proposed rule may have potential application to virtual currency and related products and services. As a general matter, however, the Bureau’s analysis of mobile financial products and services, as well as and virtual currencies and related products and services, including the applicability of existing regulations and this proposed regulation to such products and services, is ongoing.
The CFSB previously issued an advisory warning against the risks of digital currencies in August and around the same time began soliciting consumer complaints pertaining to virtual currencies and digital wallets. It appears, based on this latest report, that the bureau’s inquiry into the risks presented by the digital payments ecosystem remains ongoing. For consumers, this preemptive evaluation is a good thing, but for entrepreneurs and investors the lingering uncertainty is a challenge.
Hopefully for all involved, the regulator environment will crystalize sooner rather than later. Then, the inevitable move to a fully-digital payments ecosystem can run its course. Until then, I, along with many others, will be waiting with bated breath.