Peer-to-peer payments and their regulatory future

Peer-to-peer payments have modernized how consumers transact in the US—and, on occasion, have drawn the attention of regulators. From concerns over fraud to questions about CBDCs, a dynamic set of regulations will shape how peer-to-peer payments scale over the long term.

FedNow and CBDCs

The rollout of FedNow—as well as that of its counterpart, Real Time Payments (RTP)—has the potential to seriously disrupt the P2P payments space. Incumbents may be pressured to open up their walled gardens over time, letting users conduct account-to-account transactions that are instantaneous, rather than dependent on transfers from digital wallets into checking accounts.

But FedNow may also set the stage for more complex financial infrastructure in the US. Namely, the existence of an instant payments network established by a government entity may make it easier for regulators to roll out a central bank digital currency (CBDC). Nowever, FedNow isn’t a liability of the federal government—a crucial difference from a CBDC.

Security standards

P2P payments have been the subject of serious scrutiny and consumer ire over the past five years. Zelle in particular has navigated systemic fraud, compelling the bank-backed platform to bolster its security practices and infrastructure.

Especially as payments platforms tap directly into bank accounts, we may expect security standards to defend against the vulnerabilities that come with instantaneity. This comes with an up-front cost that may discourage smaller banks from overhauling their tech stacks to accommodate instant payments.

Cross-border implications

Finally, we should expect instant cross-border payments to become a reality over time. However, regulators have to institute a comprehensive regulatory framework to make that happen—and, for now, there doesn’t seem to be any movement on that front. Regardless, partnering with versatile instant-payment institutions that can plug in cross-border capabilities will be key in the long run.