Deborah Matthews Phillips: At the forefront of payments advocacy

Federal Reserve Building

The country’s payments environment is on the precipice of major changes, and ICBA is on the forefront of that change. ICBA is working to ensure a level playing field with these key payments issues.

The country’s payments environment is on the precipice of major changes, and ICBA is on the forefront of that change. ICBA is working to ensure a level playing field with these key payments issues.

By Deborah Matthews Phillips, ICBA

The payments landscape for community banks is changing rapidly as traditional payments converge with new instant payment systems and emerging cryptocurrencies. Community banks don’t have to navigate these changes alone. ICBA is at the forefront of advocacy for community banks and the critical role they play in the payments system.

The past few months have seen the regulatory agencies exploring action on everything from debit card interchange and digital assets to whether special purpose depository institutions—aka speedy banks— should have access to Federal Reserve services. ICBA has been the leading voice for community banks on these issues, gathering insights from community bankers, reaching out to like-minded allies and submitting comment letters explaining the community bank viewpoint.

Here are three key issues.

1. Reg II (debit card interchange fees and routing)

Earlier this year, the Fed released a noticed of proposed rulemaking (NPR) that seeks to clarify existing rules requiring debit card issuers to ensure that at least two unaffiliated payment card networks have been enabled for debit card transactions, including card-not-present transactions, such as online transactions.

When the Fed first enacted Reg II, which implements the Dodd-Frank Act’s Durbin Amendment, it wasn’t yet possible to easily support multiple networks for merchants to choose from for card-not-present transactions. In the 10 years since, technology has eliminated this barrier, but ICBA is concerned that making changes to Reg II will have little, if any, benefit for consumers while adding to community banks’ regulatory burden.

In a recent comment letter, ICBA noted that most community banks already comply with the proposed changes, making an update unnecessary. ICBA also urged the Fed not to proceed with a final rule until it had completed a full analysis of the competitive effects of the rule change and determined that it would be in the best interest of consumers. While the Durbin Amendment was designed to reduce interchange fees, it has instead transferred billions of dollars from small financial institutions to large merchants, which have not passed their savings onto consumers and small businesses.

“We strongly oppose any additional substantive revisions to Reg II, particularly those that could threaten the competitiveness or stability of community banks,” ICBA wrote in its letter to the Fed.

2. Access to Fed services and payments system

ICBA is calling on the Fed to strengthen proposed guidelines for evaluating account and services requests, especially as novel charters held by fintechs continue to proliferate. Federal Reserve accounts and services stand at the center of our payments and monetary ecosystem, and both the resilience and the risk management of institutions that hold these accounts are linchpins to the safety and effectiveness of the U.S. payments system. Access to these services should be limited to regulated financial institutions.

ICBA is encouraging the Fed to establish a uniform set of standards that each of the 12 Federal Reserve Banks will apply as they evaluate requests for access to the payments system. ICBA is also asking the Fed to rigorously apply those standards—particularly for novel charters.

ICBA has partnered with the Bank Policy Institute in a joint comment letter asking the Fed to:

  • provide greater clarity into the legal standards for eligibility
  • explain how it and the Federal Reserve Banks will perform due diligence and monitor whether novel charters meet application standards
  • provide an appropriate mechanism to ensure all decisions regarding novel charters are made with the consent/non-objection of the Fed
  • consider affiliate relationships when making novel charter decisions
  • retain the Fed Board’s statutory authority to set the interest rate on reserve balances

3. Insights into digital assets

When the Federal Deposit Insurance Corporation (FDIC) put out a request for comment on digital assets in May, ICBA sprang into action. We interviewed members to learn how community banks are exploring digital assets to address customer needs and how they think digital assets may affect the future of financial services.

ICBA shared its findings with the FDIC. Here are the key points:

  • Community banks want the regulatory agencies to work together to harmonize definitions and provide more clarity on how existing regulatory frameworks will apply to digital assets.
  • Terms like “digital assets” aren’t well-defined, making some community banks hesitant to pursue digital asset products and services.
  • There should be cross-industry engagement to consider all the possible uses, benefits and risks of digital assets in banking and find ways to prevent haves vs. have-nots due to limited availability of expertise.
  • The FDiTech Innovation Hours should be expanded to include sessions dedicated to digital assets.
  • The FDIC should develop its internal expertise on digital assets among its staff and examiners.

ICBA will continue to engage with both community banks and the regulatory agencies to ensure that all community banks continue to play a leading role in the payments space. This includes developing the products and services that enable their customers and communities to benefit from advances in financial technology.

Deborah Matthews Phillips ( is ICBA’s senior vice president of payments and technology policy and senior vice president of industry relations for ICBA Bancard