The Clearing House calls for tighter controls on non-bank payment providers

US payments and lobby group The Clearing House has called for legislative measures to rein in non-bank startups hitching a free ride on banking rails.

Owned by 24 of the nation's largest banks, The Clearing House has published a white paper to highlight perceived regulatory gaps relating to the data security practices of innovative startups such as Square, Venmo and Stripe and bigger tech groups such as Apple and Google.

Describing such companies as 'naive' interlopers with a disregard for watertight security measures, the paper states: "Banks are subject to extensive regulatory, supervisory, and enforcement scrutiny by their regulators with respect to privacy and data security, APPs (alternative payment providers), by contrast, are providing their products and services by continuing to rely on the backbone of existing bank payment systems while capitalising on innovations in communications platforms, thus generally managing to avoid the reach of the traditional financial regulators."

The Clearing House complains that APPs only face punishment for lax data security practices if they suffer an actual cybersecurity breach that is discovered by the government, because, unlike banks, such companies are not subject to regular examinations and enforcement actions by regulators.

The paper calls for increased scrutiny of new entrants by "using available examination authority and enforcing existing requirements as well as enacting legislation establishing additional data security requirements for APPs".

Read the full paper:

Download the document now 622.6 kb (PDF File)

Related Companies

The Clearing House Payments Company (inc. SVPCO)

Channels

Retail banking Payments Start ups

Keywords

Cards Innovation Mobile & online banking

Comments: (2)

A Finextra member 21 August, 2015, 14:29

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You would think that in this day and age that the Clearinghouse would attempt to gather the APPs and discuss this situation. The Banks are no doubt highly regualated bt the examiners and have problems doing what is aked of them by the regulators. I am not sure if this is a delay tactic by the Banks or are we trying to move forward. The APPs don't have to play by the regulators and they have a successful customer base that happens to be the customers of the Banks. Maybe the Banks cannot keep up with APPS because they are seeing that the customers like the services of the APPs more than the services provided by the Banks.

Good challenge

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A Finextra member 22 August, 2015, 11:17

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The topic warrants debate; it echoes the ongoing challenges regulated payments providers are having in getting bank accounts, which are a pre-requisite to accessing clearing and settlement services.

A couple of points:

the TCH paper presents a US-centric point of view. In Europe, the PSD established a regulatory environment which forces firms handling payments to be regulated, and therefore to adhere to the various rules and regulations relevant to payments.
the paper implies that 'Buy Buttons' may expose customer credentials; yet I can't see any reference to tokenisation. The card payments industry - which constituted 60.9% of the total non-cash transactions globally in 2012 (World Payments Report 2014) - has invested heavily in tokenisation to protect sensitive customer data across transactions initiated from personal devices such as smartphones; and uses other simple methods such as value-limits in contactless transactions, so as to strike the right balance between security and convenience.

There is a wide spectrum of 'non-bank' players in the payments ecosystem; the vast majority of us understand the importance of and operate to bank-grade norms.