Many payments companies see a conflict between innovation and regulation, with each side perceiving the other as out of touch with their needs, particularly when it comes to new technology.
Often, regulators "aren't living that experience no one looks at the viewpoint of the immigrant that works 60 hours a week and sends 60% to 80% of his pay back home," says Juan Llanos, executive vice president and compliance officer at Unidos Financial Services Inc., a licensed money transmitter offering remittance services. "We've always had this problem that no one that regulates us is able to see the world from the point of view of the undocumented citizen or recent immigrants."
To bridge this gap, the Consumer Financial Protection Bureau created Project Catalyst in November 2012. One of the project's early initiatives involved an agreement among several payments companies to share anonymized data about consumer behavior and trends with the CFPB. The goal was to use the data from BillGuard, Plastyc (now called Banking Up) and Simple to inform policy decisions.
This month, Project Catalyst took aim at improving oversight of the disclosures financial companies provide to consumers. It published a trial disclosure policy, allowing companies to test improvements to how they handle disclosures. The ultimate goal of this project is to inform improvements to the CFPB's disclosure rules, the agency says on its blog.
"One reason we launched Project Catalyst is that we have been told that because consumer financial regulations often are written in light of existing products, the regulations can intersect very inefficiently with new permutations," says Michelle Person, a spokeswoman in the office of communications at the CFPB. "So we are interested to hear more about where this is the case and about potential solutions that can both protect consumers and promote innovation."
The initiative opens lines of communication between innovators and regulators to identify regulatory pain points and create a better understanding of emerging products, says Person.
"Through this project the Bureau will collaborate with innovators who are developing products that may be of particular benefit to consumers and gather data about these innovations to inform the Bureau's decision-making and help us better understand what works and does not work for consumers," she says.
Project Catalyst takes a proactive approach that could help the payments industry, says Pervees Faisal Islam, director of Centra Payments Solutions.
"Payments products are the ones that give [regulators] the most worry and are the hardest for them to wrap their heads around," Islam says.
In another example of regulators and payments organizations coming together, the Financial Crimes Enforcement Network hosted a visit by the Bitcoin Foundation, a trade group, in August.
In September, Islam attended a regulatory panel discussion in Washington D.C., hosted by the American Conference Institute. Ten regulators, including representatives from the Treasury Department and the FDIC, spoke about emerging payments. When Islam asked the group if they used any of the discussed payments products within the past two months, most said no, he says (the Treasury Department and the FDIC would not provide comment for this story). One person mentioned using online banking and another said he loves using social media, Islam says.
The concern among emerging payments companies is that regulators are informed by only the most extreme situations, Llanos says.
For example, many recent headlines about the digital currency Bitcoin mention its prevalent use on the Silk Road marketplace. Silk Road's owner, Ross William Ulbricht, was arrested this month and charged with narcotics trafficking conspiracy, computer hacking conspiracy and money laundering conspiracy.
However, many companies have sought to showcase the legitimate uses of Bitcoin. Last year, several merchants staged their own version of Black Friday to encourage the use of bitcoins to purchase honey, guitars and other common goods.
"Sometimes it doesn't make sense to create a huge burden of compliance for very isolated cases that are not bound to occur often," Llanos says.