FED considers opening its payment system to fintech companies or making it better for payment agencies

The Federal Reserve said in a statement On Wednesday that it would publicly comment on a proposed approach that would allow companies with “new bank charters” to use the Fed’s accounts and services. The proposed account opening would open its payment system to fintech companies and allow third-party lenders that were not previously included in the Fed’s liquidation system to complete transfers more efficiently and easily.

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Payment industry insiders believe that this measure may help reduce the settlement costs of US third-party payment and other fintech companies. This will also reduce the costs for multinational companies in the cross-border payment chain such as Alipay, WeChat Payment, PayPal, Payoneer, etc., thus providing a favourable development.

“The US is not as complete as China in building a fintech and electronic payment system. Previously, US electronic payment companies have been kept out of the clearing system.” A person in charge of cross-border business of a third-party payment agency told Caixin that if a third-party payment company wants to do payment business, it must cooperate with banks and other institutions already in the payment system of the Federal Reserve to complete the payment loop, which undoubtedly greatly increases the cost of electronic payment.

If the Fed ultimately decides to include fintech companies, including third-party payment providers, in its payment system, it would remove the banking sector that acts as the “payment and settlement channel,” which could mean lower fees for electronic payments, these people said.

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It is understood that the current payment fee in the United States is relatively high, generally at the level of 1 to 2 percent. However, the charge rate of POS machine swiping card is generally 0.6% in China, and now the charge rate of code scanning is about 0.38%. In terms of institutional mechanisms, China has formed a payment and clearing system dominated by UnionPay and NetPay, and has long included third-party payment systems such as Alipay and WeChat Pay into the supervision system of the central bank.

Another payment industry insider also said that the business of Chinese third-party payment companies in the US is mainly to serve the consumption of Chinese tourists, but rarely directly to American consumers, so the business proportion is often very small. Especially in recent years, due to the impact of the epidemic, the scale of cross-border business has been reduced. However, Chinese third-party payment companies generally need to cooperate with local third-party payment institutions to conduct settlement business when conducting business in the US. If these payment institutions can directly face the settlement system with the Fed, it is possible to reduce the settlement costs, thus reducing the fees for Chinese consumers to settle their bills through these payment institutions.

However, according to the Fed’s announcement, “direct links” between fintech companies and the Fed are also subject to compliance, and whether this will increase their compliance costs remains to be determined by the Fed, the person added.

Article source: cailianpress.com