Postal Banking, FedAccounts & Digital $: Congressional Interests in Innovation

Amy Donaghue

By: Brian Laverdure, AAP, Director, Emerging Payments Education

Can you imagine… going to the U.S. Post Office to withdraw money from your personal account with the Federal Reserve? Or, perhaps making a payment with a digital version of dollars you store in your phone’s digital wallet instead of pulling out a debit card? These possibilities may sound surprising or even far-fetched, but they are some of the concepts explored on June 11 during a hearing hosted by the Task Force on Financial Technology, a special sub-group within the U.S. House of Representatives Financial Services Committee.

Issues Prompting Congressional Interest
In response to the spread of the coronavirus and its negative impacts on the U.S. economy, Congress passed the CARES Act on March 27. Since then, according to the IRS, the government has distributed over 159 million Economic Impact Payments electronically as ACH credits or through the mail as checks and prepaid debit cards. However, according to Forbes, some citizens have yet to receive their payments for several reasons, such as incorrect account information or even because they accidentally threw away the envelope containing their prepaid card. These challenges, as well as concerns about the speed with which the U.S. Treasury processed the payments, has prompted some members of Congress to take a closer look at legislative solutions that may impact the financial industry.

Chairman Steven Lynch (D, MA-8) cited a survey conducted by the Federal Deposit Insurance Corporation (FDIC) in 2017 that revealed approximately 14.1 million adults and 6.4 million children are living at home without any access to a bank or credit union checking or savings account. He contended that access to a financial institution account “in times like these…can be the difference between a fridge full of groceries and going to bed hungry.” With those statements setting the stage, Lynch announced the task at hand: discussing the potential creation of consumer accounts at the Federal Reserve and digital wallets to expand financial services and make benefit payments faster.

Ranking member Rep. Tom Emmer (R, MN-6) supported the task force’s investigation into leveraging digital technology as solutions for un/underbanked Americans. Emmer used his opening remarks to advocate for a hearing dedicated to one of the hottest topics in payments today: a central bank digital currency.

FedAccounts and Digital Dollars
The task force received testimony from four experts on the development of two possible solutions: 1) Allowing consumers to create accounts at the Federal Reserve ("FedAccounts") and building out a supporting physical infrastructure via U.S. Post Offices and 2) Issuing a digital version of the U.S. dollar.

Promoters of FedAccounts and postal banking urged Congress to ensure consumers have “equal access” to the Federal Reserve by partnering the Federal Reserve with post offices to satisfy in-person financial service needs, such as check cashing or using an ATM.

Although postal banking may sound new or odd to payments professionals today, the concept is quite old. U.S. Post Offices even functioned as banks during the first half of the 20th century after Congress authorized the formation of the U.S. Postal Savings System in 1910. The proposed solution, however, could result in a much more substantial competitor to credit unions and banks as they envision the Federal Reserve working with the Post Office to offer all the modern amenities of online banking, mobile apps, digital wallets and debit cards!

The other major proposal involves the issuance of a U.S. central bank digital currency, or a digital equivalent of cash and currency that is stored in digital wallet. The task force welcomed the testimony of Chris Giancarlo, former Chairman of the Commodity Futures Trading Commission (CFTC) and leader of the Digital Dollar Project, a joint venture with Accenture that recently published a white paper laying out the case and basic function of a potential digital dollar.

What Comes Next?

What will come next in the halls of Congress? No one can say for certain, but lawmakers are clearly well-aware of the changing payments landscape and they are seeking ways to leverage promising new technologies to aid citizens. As more financial institutions move towards faster payments and the economy recovers from the pandemic with an even greater emphasis on omnichannel delivery and digital services, policymakers are expected to remain attentive to the changing landscape to evaluate how the federal government can support new technology and inclusive financial services.