Federal Reserve Begins “Technical Research” Into Payment Modernization Technology
- The Federal Reserve is adopting fintech solutions
- The private sector has blazed a trail
- Technologies implemented today lay the groundwork for tomorrow’s success
PAYMENTS DIVE reports that the Federal Reserve is making strides towards embracing financial technology (fintech) innovations like tokenization, smart contracts, and especially artificial intelligence (AI) within payment systems.
Christopher Waller, a member of the Federal Reserve Board of Governors and potential candidate for chairman, highlighted the Fed's ongoing “technical research” into these technologies during his speech at the Wyoming Blockchain Symposium. Waller’s core message: Engagement with industry innovators is crucial as the lines between traditional finance and digital assets blur.
"It is my belief that the Federal Reserve could benefit from further engagement with innovators in industry, particularly as there is increased convergence between the traditional financial sector and the digital asset ecosystem. We are working on ways to further that engagement, so stay tuned."
Success in Private Sector Driving Modernization Initiatives
In the speech, Waller highlighted the successful deployment and utilization of stablecoins within the private sector:
Stablecoins are the latest example of private sector-led innovation in payments. The original use of stablecoins was to facilitate crypto trading. Crypto-asset prices can be volatile and as with any financial market, there is a need for traders to move out of relatively risky positions into safer ones with a stable asset price. As the stablecoin market matured, firms found that the properties of stablecoins using distributed ledger technology— including 24/7 availability, fast transferability, and their freely circulating nature —could be attractive for other use cases as well. That includes providing a means to access and hold U.S. dollars, particularly in countries with high inflation or without easy or affordable access to dollar cash or banking services. In fact, I believe that stablecoins have the potential to maintain and extend the role of the dollar internationally. Stablecoins also have the potential to improve retail and cross-border payments.
Additionally, Waller noted that AI is driving significant private-sector innovation in payments, serving as an enabling technology rather than core infrastructure. The payments industry has been an early adopter of AI since the 1990s, using machine learning for fraud detection, anti-money laundering, and predicting payment flows and trends.
Federal Reserve Open to Collaboration
Waller concluded his speech with a ringing endorsement for collaboration:
"It is my belief that the Federal Reserve could benefit from further engagement with innovators in industry, particularly as there is increased convergence between the traditional financial sector and the digital asset ecosystem. We are working on ways to further that engagement, so stay tuned."
It appears that the Fed is taking a page out of financial institutions' playbook, working with fintechs like OrboGraph toward payments modernization. FIs know that AI can greatly benefit them and their customers, actively integrating technologies like OrbNet AI and OrbNet Forensic AI to automate check payment processing, while also protecting themselves and their customers against check fraud losses.
As we look to the future of payments, it’s evident that the technologies we implement today are laying the groundwork for tomorrow’s success.
