Tom Curry

The Biden administration has announced that it will make financial equity, diversity and inclusion (EDI) a priority, and Treasury Secretary Janet Yellen has already voiced her intent to increase support for EDI initiatives and policies in the financial system.  

Several proposals are under consideration, including more diverse senior leadership at the financial regulatory agencies, increased access to financial services and initiatives to increase EDI in the financial services industry workforce. One specific initiative focuses on increasing access to the unbanked and underbanked through postal banking and the digital dollar wallet.     

Postal Banking 

Before his election in November 2020, President Biden created the Unity Task Force with Senator Bernie Sanders (D-Vermont). The Unity Task Force proposed, among other initiatives, a recommendation to implement a public banking infrastructure within existing United States post offices, which has been dubbed “postal banking.” This proposal, which has been discussed among legislators for decades since its debut as the United States Postal Savings System from 1911 until 1967, would utilize the existing system of United States Postal Service offices to increase accessibility of traditional financial services to unbanked and underbanked communities.  

Kate Henry

Proponents of the concept argue that, in addition to providing access to banking services to those neighborhoods that currently do not have convenient bank branches, the measure could also provide an additional source of revenue for the Postal Service. Indeed, the agency’s lack of funding was an issue at the forefront of the national political conversation during the first surge of the coronavirus pandemic in the spring of 2020. Additionally, Sen. Sanders pointed to the fact that the Postal Service “already cashes Treasury checks and issues money orders,” and that the Postal Service “should fully exercise its existing authority” to implement programs such as postal banking to increase access to unbanked or underbanked individuals.   

However, opponents counter that implementing a new, unfamiliar line of business into an existing institution presents significant operational challenges and start-up costs, which could prove to be prohibitive. Traditional banks and credit unions also have raised competitive concerns. 

Armand J. Santaniello

Digital Dollar Wallets 

Another initiative to increase access to the unbanked and underbanked that has gained renewed attention in the Biden administration is the “digital dollar wallet.” Similar to postal banking, the underlying concept of a digital dollar wallet is not a new one, but has gained renewed attention in the midst of the coronavirus pandemic and related economic turmoil, as policy makers search for innovative solutions to the new challenges presented by the pandemic.  

Digital dollar wallet legislation was introduced to the United States Senate in March 2020 as part of the Banking for All Act, which provides a conceptual definition of “digital dollars.” The Banking for All Act would allow all 12 Federal Reserve member banks to maintain digital dollar wallets for all individuals.  The Federal Reserve currently is only permitted to offer accounts to banks.   

Proponents of the digital dollar wallet cite the fact that the Federal Reserve already administers a system of dollar-denominated accounts (reserve accounts) and could therefore accomplish the shift relatively easily. However, similar to postal banking, the digital dollar wallet would require congressional authorization, and implementation of the necessary technology for individual accounts present logistical obstacles. Further, implementing such a program expands the scope of the Federal Reserve far beyond its traditional mandate. Such an expansion could present further administrative and regulatory hurdles in the pipeline to implementing the concept of digital dollar wallets administered by the Federal Reserve banks.  

Despite these hurdles, the need for a form of digital benefit delivery mechanism was underscored by the difficulties faced by those Americans who were unbanked or underbanked during the distribution of COVID-19-related stimulus and other benefits payments.  

The CARES Act was a watershed moment, and while efforts were largely successful, the pandemic response cast light on potential deficiencies in existing systems and payment methods. For example, stimulus applicants who had pre-existing banking relationships received payments via direct deposit faster than those who either did not have pre-existing banking relationships or who otherwise received paper checks that had to be mailed and cleared before utilization.   

Fintechs and traditional financial institutions occupy a critical position in facilitating the implementation of these policies, and the coming months will reveal how these institutions adapt. The unprecedented COVID-19 pandemic and related economic downturn in particular have made it crucial for government entities and fintech companies to work together to find innovative solutions to these new, widespread challenges, particularly for those individuals who remain unbanked or underbanked. Hopefully, the regulatory outcome will be mutually beneficial to banks and fintechs. 

Thomas J. Curry is a partner in Nutter’s corporate and transactions department. Kate Henry and Armand J. Santaniello are associates in Nutter’s corporate and transactions department. Curry is former U.S. comptroller of the currency and all are members of the firm’s banking and financial services group.