Friday, April 29, 2022
In opening comments, task force chair Rep. Stephen F. Lynch, D-Mass., defined digital wallets as software applications used to facilitate electronic payments and transactions. He noted they are offered by a variety of big tech companies and banking consortiums and are becoming integral to the financial ecosystem.
"The digital wallet space has grown dramatically in recent years, and has reached a value of $120 billion in 2021," Lynch said. "In addition to payment-focused digital wallets we've seen the emergence of digital wallets, which can hold cryptocurrencies and stablecoins."
Lynch referenced ease and convenience as primary drivers of digital wallet adoption, stating they enable users to send and receive money quickly with a few keystrokes on their phones. However, digital wallet usage has raised questions around consumer data privacy, security, and vulnerability to fraud, he said, citing a New York Times article, "Fraud is Flourishing on Zelle; The Banks Say It's Not Their Problem," co-authored by Stacy Cowley and Lananh Nguyn.
Published March 6, 2022, and subsequently picked up by other media outlets, the news story claimed 18 million consumers fell victim to digital wallet scams in 2020.
A memorandum, which circulated ahead of the congressional hearing, challenged task force members and participating guests to take a deeper look at digital wallets and their proposed benefits for the unbanked. Citing an April 18, 2022, Congressional Research Service memo titled "Digital Wallets and Selected Policy Issues," the committee questioned whether digital wallets that require smartphones and bank accounts are the right solution for marginalized consumers.
"Wallets may increase user convenience, but inclusion is an issue of access to accounts, not wallets," task force members wrote. "Research shows digital payments create alternatives to traditional bank products that can promote financial inclusion among the unbanked, but it typically applies to countries where bank use was not prevalent and alternative accounts or value storage grew in the absence of bank accounts.
"However, in the United States, where the majority of consumers have access to bank accounts and other financial services, digital wallets may serve only as an ancillary or complementary good. Furthermore, they are typically used on smartphones that the unbanked may not possess."
Scott Talbott, senior vice president of government affairs at the ETA, emphasized the payments industry's commitment to financial inclusion, stating 98 percent of U.S. adults have mobile phones and 81 percent of those are smartphones. The ETA's white paper How Fintech is Addressing the Financial Needs of the Underserved provides more details on this issue, he stated, and is available at www.electran.org/wp-content/uploads/ETA-Creating-a-More-Inclusive-Economy-2022-2.pdf.
"Financial inclusion needs remain significant and urgent, however, a goal of ETA member companies is to continually enhance the electronic payments and financial ecosystem so that it is accessible to all consumers, while ensuring that their transactions can be completed securely, efficiently, and ubiquitously," Talbott said in written and spoken testimony.
"A key driver to achieving such a system," he continued, "is the development of new technologies such as digital wallets, which have proved invaluable in helping the traditionally underserved consumers access financial products and services."
The Task Force on Financial Technology hearing and memorandum are available at financialservices.house.gov/events/eventsingle.aspx?EventID=409260 .
The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.
Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.