Bankers are 'very concerned' about stablecoins, check fraud

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A large number of bankers are exploring whether to create stablecoins or deposit tokens with nearly all bankers saying they are concerned that Amazon or Walmart will try to pay interest on stablecoins despite prohibitions in the recently-passed GENIUS Act, a new survey has found.

96% of bankers surveyed by the fintech firm IntraFi said they were either "very concerned" or "somewhat concerned" that the GENIUS Act may prompt Amazon or Walmart to offer discounts or rewards to attract deposits away from traditional banks. President Trump signed the stablecoin bill into law on July 18. 

Though the law prohibits all stablecoin issuers from paying "interest or yield" to individuals, many bankers think sophisticated marketers will find an alternative to spur adoption.  

"The last thing we need is for Amazon and Walmart to get into banking through stablecoins," said Brad Bolton, president and CEO of $212 million-asset Community Spirit Bank in Red Bay, Alabama.

Stablecoins have gained traction due to the passage of the GENIUS Act with bankers lured by what they think may be a growing, profitable industry. Bankers are also worried about check fraud, according to the survey from IntraFi, to be released Wednesday.  Survey respondents also weighed in on the economy, saying economic conditions have improved slightly in the most recent quarter. 

Stablecoins are "something that is new, and I think there would be a fear factor adopting that on a very broad basis unless other companies can convince the public that this is something they need," said HD Barkett, senior managing director at IntraFi. "Certainly some of the folks that are going to be involved in this are brilliant marketers."

The survey, conducted from June 30 to July 14, received 455 responses primarily from CEOs and CFOs of banks with assets below $10 billion. IntraFi, in Arlington, Va., invented reciprocal deposits, which allow banks to offer higher levels of Federal Deposit Insurance Corp. insurance to their customers. 

Banks have been kicking the tires on tokenized deposits and bank-issued stablecoins, which are a type of cryptocurrency that purports to have actual value because it is pegged to a real asset such as the U.S. dollar. A slim majority of 52% of bankers surveyed said they don't expect to issue stablecoins or deposit tokens at all, and they agreed with a statement that such products "are not a priority." Meanwhile, 48% said they plan to explore issuing stablecoins or deposit tokens in the next five years.

Banks are also considering stablecoin alternatives that are perceived as less risky but have some of the same benefits such as faster processing. Last month, JPMorgan Chase announced that it plans to issue a "permissioned USD deposit token," that would be an electronic payment instrument backed by funds deposited by a customer.

Still, it is unknown whether consumers will migrate toward using stablecoins or tokens versus credit cards, which have consumer protections from fraud, interest rate hikes and unfair billing practices under the Credit Card Accountability Responsibility and Disclosure Act of 2009, known as the CARD Act.

Bankers also continue to tell regulators that they want something done about rampant check fraud that has been going on for years without a solution.  

Last month, the Federal Reserve, FDIC and Office of the Comptroller of the Currency issued a joint request for information on how to prevent fraud. 

Fed Vice Chair for Supervision Michelle Bowman wants to find a solution to check fraud, experts say. When the RFI was issued, Bowman said that check fraud has grown substantially over the past few years and that "efforts by regulators have been slow to advance, and seem to have done little to address this growing threat."

The survey shows that bankers are pointing their fingers at the bank of first deposit, typically the largest banks such as JPMorgan Chase and Bank of America, where customers first deposit a check. 

An overwhelming 82% of bankers surveyed said the bank of first deposit is slow or uncooperative in resolving check fraud disputes. And 68% said the bank of first deposit refuses to accept responsibility for fraud, while 60% of bankers surveyed said their own bank is forced to reimburse customers for fraud even though the bank is not liable. Bankers think there's a lack of clear guidance on fraud liability and many have difficulty gathering evidence to dispute fraudulent transactions. 

"It is clearly an issue but as far as I know nobody's offered a solution where there's consensus," said Barkett at IntraFi.

In the survey, 82% of bankers said they want regulators to outline clearer rules on which institutions are ultimately responsible for reimbursing customers, and 73% want more collaboration with banks to ensure a quicker resolution to disputes. 

Bolton, at Community Spirit Bank, said his customers are immediately reimbursed for fraud that in some cases amounts to hundreds of thousands of dollars. But often the bank has no contact at a big bank to resolve the dispute and get paid.  

"All we're asking them to do is honor Know Your Customer procedures so they can combat the fraud that's occurring inside of their organization," Bolton said. "And the regulators must hold banks accountable to the obligations that already exist under current law and rules."

Bolton said check fraud is "targeting small businesses more than anything," with criminals opening bank accounts online and making what appear to be regular deposits to the account before starting to deposit fake checks. 

"Everybody talks about the problem of check fraud but there is no repository for regulators to see the magnitude of it," Bolton said. "There is nowhere on the call report for us to report check fraud."

In the survey, 71% of bankers said they want regulators to offer more support in tracking and sharing fraud information across institutions. 

As for the economy, bankers see moderate improvement, with roughly 50% saying the economy hasn't changed compared with a year ago, and 28% saying there has been a moderate improvement compared to 20% that think the economy is moderately worse. 

Looking forward, 43% of bankers surveyed said economic conditions will stay the same while bankers are split with 27% think the economy will get worse and 27% predicting it will get better in the next year.