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Fintech at the White House

Published: June 15, 2016 by Cherian Abraham

FintechWhiteHouse

Last Friday, I attended a private session on FinTech at the White House – alongside a few others in the financial services ecosystem – Founders, Investors, Academics, a handful of Financial institutions and Regulators. Titled “The White House FinTech Summit” – the intent was to promote a discussion, sans media, on what could be done better to progress innovation in financial services, as well as communicate the administration’s own perspective on topics such as Financial inclusion, Regulatory arbitrage, Cyber Security, and Big Data.

I am only writing down what resonated most, with me – so this isn’t meant to be a complete account of the half day event.

Startups and Regulation: The need for a radically simpler engagement model
I wasn’t surprised that this view was articulated half an hour into the summit – by Bruce Wallace of SVB, on a panel hosted by Secretary Penny Pritzker of the US Department of Commerce. Asked what the Govt role in fostering an environment for innovation, should be: Bruce summarized it best (and I am paraphrasing): “A FinTech startup has only a limited amount of time and scope to focus on the myriad state and federal agencies and regulators on understanding and interpreting policy. We need a radically simpler and transparent engagement model.”

On this topic of “what should we be doing more to encourage startups to come to US” I would have liked Stripe to chime in here, with what they are likely to have learned from launching Atlas – I call it “Company in a Box” – which is a suite of services including banking and payment processing to enable entrepreneurs to maintain a presence in the US and sell to the US consumer.

Regulatory Sandbox to Test, Proves and if need be – Fail
Unsurprisingly, the incumbents echoed much of the same view, and Adam Carson of Chase suggested that “the regulatory climate is making it hard for FIs to experiment, collaborate – and where applicable, fail quickly. And thus, we should be advocating for a sandbox of sorts – that allows institutions to not have to be burdened so much by regulation as they attempt to test and learn – before worrying about scale and burdensome regulation”. Adam is absolutely right in that consumers no longer compare their banking experience on Chase’s platform to that of Capital One or Citi or BofA – they compare those digital experiences to that on Facebook, Amazon, Google, Apple, and Uber. I have written before on the same topic (see below):

“As banking moves from branch to app – from a wholly owned and curated experience inside a branch – TO – an app that vies for space in a “democratized” and crowded home screen, banks must realize that they no longer own the entire canvas. Instead they merely follow the design principles set by the most-used apps on our phones. I no longer compare my bank app with that of another bank, I compare it against the services I use often – Facebook, Twitter, Gmail, Apple Pay, Uber etc. And if who you compete with on this platform has been redrawn to include brands who have nothing to do with managing money – then you have to try as hard not to be boxed in as a bank.

Having both the talent required to design these new experiences, and the capital to acquire them will only serve to further differentiate banks that have this focus as a priority vs those who will in the end get wrapped.”

Risk of Algorithmic bias as FinTech ingests alternative data
Representatives from a couple of agencies – were a bit more cautionary in their approach to the topic of FinTech, scaling distribution and the focus around Big data, with Urban affairs asking FinTech firms to be cognizant of algorithmic bias in their models – because the data that drives decisions could be slanted or skewed towards a particular demographic – and used civil rights as an example.

Playing fast and loose with consumer data
Anjan Mukherjee of Treasury focused on Cybersecurity – and Chris Carroll (from John Hopkins) warned of a potential “Asteroid impact” manifesting in a data breach involving one or more FinTech firms – which could cause an inexorable exodus of trust away from the upstarts towards the incumbents. I understand the sentiment, and we have had a couple of examples where a couple of the startups have invited criticism around data handling and security – and this topic invites further scrutiny in light of EU PSD2 as well as the banking incumbents clamping down on access to customer account data.

There is much agreement that screen scraping and sharing customer credentials with personal finance apps and aggregators is inadvisable – but to not consider that these rather poor approaches emerged only in the absence of a genuine, bank approved framework or API, would be a missed opportunity to understand why these exist in the first place. We do need secure methods for consumers to transfer customer data to 3rd party platforms or aggregators to extract more value out of the interactions with their bank. And we need guidelines to make it easy and transparent – so that consumers can make an informed decision after having considered the apparent cost and benefits involved.

I hope we will sort this out soon – between Banks, Startups, Consumer Advocates and Regulators – not just because a systems breach is inevitable that will sweep up millions of unsafely stored consumer banking credentials – but the opportunity to create standards, improve security and create a level playing field for all will be the only desirable outcome to discussions such as the one on last Friday.

Much thanks to Adrienne Harris at the White House, for hosting this event and inviting us to join this debate.

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