Lawmakers play catch-up as smartphone banking surges

Lawmakers play catch-up as smartphone banking surges
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Lawmakers are taking a closer look at how to regulate and support the emerging financial technology that is turning smartphones into mobile banks.

The House last week passed a resolution supporting a national policy on “FinTech.” Those online banking and payment platforms fall under the jurisdiction of several federal regulators, leading congressional supporters and industry leaders to call for clearer federal standards and guidance.

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"I'm a Luddite, and I was hoping to die before all this stuff happened, but like it or not, it's happening and people need to figure out how to use it,” said Rep. Michael Capuano (D-Mass.), who sits on the House Financial Services Committee.

FinTech is exploding in popularity, expediting financial transactions and broadening the banking sector. 

The technology includes smartphone apps that let users withdraw, deposit and transfer money into their bank accounts. Other apps serve as virtual debit or credit cards, allowing people to buy products at a store by holding the phone up a cash register, or send money to a friend as one would send an email or text message.

Industry advocates and congressional allies say the apps can provide safer, cheaper and broader access to financial services. They say FinTech is critical for areas with few brick-and-mortar institutions for banking.

Even so, lawmakers acknowledge unfamiliarity with the technology and have voiced worries about data privacy.

“We need to have national policy that faces the reality that the world is changing, and pretty darn quickly,” said Rep. Tony Cardenas (D-Calif.), who introduced the FinTech charter resolution with Rep. Adam Kinzinger (R-Ill.).

“It's all good, but if we don't have the proper environment set to protect the consumer and protect the people from bad actors, then we will have missed an opportunity,” he said.

Lawmakers have taken steps to get a better handle on what the technologies do.

A House Financial Services Committee subpanel in July held a hearing on marketplace lenders, which specialize in smaller loans to individuals and businesses and aim to cut costs by using advanced math to speed up the process.

Leaders on finance-related congressional committees are also familiarizing themselves with the platforms and regulatory implications.

Sen. Sherrod BrownSherrod Campbell BrownThe Hill's Morning Report - Can Bernie recapture 2016 magic? Overnight Health Care — Presented by National Taxpayers Union — Trump, Dems open drug price talks | FDA warns against infusing young people's blood | Facebook under scrutiny over health data | Harris says Medicare for all isn't socialism On The Money: Smaller tax refunds put GOP on defensive | Dems question IRS on new tax forms | Warren rolls out universal child care proposal | Illinois governor signs bill for minimum wage MORE (D-Ohio), ranking Democrat on the Senate Banking Committee, said he recently met with Federal Reserve officials about FinTech, but didn’t share specifics. Sen. Mike CrapoMichael (Mike) Dean CrapoNew push to open banks to marijuana industry Private insurance plays a critical part in home mortgage ecosystem On The Money: Lawmakers race to pass border deal | Trump rips 'stingy' Democrats, but says shutdown would be 'terrible' | Battle over contractor back pay | Banking panel kicks off data security talks MORE (R-Idaho), expected to lead Banking Committee Republicans in 2017, said he’d been getting “significant briefings” from his staff.

Industry advocates say their main goal is to educate lawmakers about FinTech platforms and the regulatory maze faced by developers.

Since FinTech could fall within the jurisdiction of nearly a dozen overlapping regulatory agencies, advocates say a national policy would give developers more clarity on how to follow federal rules. 

“When you add in the additional regulatory complexity that comes along with financial services, it’s very difficult,” said Brian Peters, partner at Franklin Square Group and executive director of Financial Innovation Now, a coalition of major technology companies pushing for FinTech policy.

“This is an ongoing process, it always is, and technology always moves faster than government, so educating government is a constant requirement,” Peters said.

But Peters said recent data hacks of major businesses and websites complicate the education process, specifically with online payment platforms.

“I should go on the ‘Mythbusters’ show because the idea that newer payments are less concerned is a total myth,” Peters said. “What you have in your pocket is a dynamic device that can stay ahead of the latest security threats and that’s offering you multiple upon multiple more layers of protection.”

And lawmakers more familiar with FinTech say Congress must strike a careful balance between adding consumer safeguards and fostering innovation.

"We have a digital world emerging and an analog regulatory system,” said Rep. French Hill (R-Ark.), House Financial Services Committee member. “Innovation has to comply with federal law, but it also has to be allowed to innovate, and I think that's best done through a flexible regulatory system."

Sen. Mark WarnerMark Robert WarnerTalk grows that Trump will fire Dan Coats Harris on election security: 'Russia can't hack a piece of paper' Schiff: Evidence of collusion between Trump campaign, Russia 'pretty compelling' MORE (D-Va.) said lawmakers and regulators must weigh whether FinTech platforms are financial institutions on their own.

"From a regulatory standpoint, it raises a whole host of questions,” said Warner, “I would hate to come in and squash all the innovation before we even see how this industry or these products develop."