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Jo Ann Barefoot explores how to create fair and inclusive consumer financial services through innovative ideas for industry and regulators

Barefoot Innovation Podcast

Know Your Customer: Alloy CRO Laura Spiekerman

Mallory Kwiatkowski

One of the biggest challenges in fighting money laundering is satisfying the KYC, or Know Your Customer, rules. These regulatory requirements make sense in concept -- they require financial companies to verify customers’ identities before letting them connect to the system, in order to screen out high-risk people and entities and as a foundation for meeting the legal mandate to monitor financial activity for potential crime. However, the traditional verification process has always been expensive and time-consuming. In recent years it’s also been creating new problems.

My guest today has a company that is setting out to fix those. She is Laura Spiekerman, the Chief Revenue Officer of Alloy.  

The new problems are two-fold. One is that millions of people lack traditional identity documents and therefore can’t gain access to the system at all. That isn’t actually a new issue -- it’s always been true -- but it’s becoming more acute because mobile technology is making it possible for more and more people to connect to the financial system through their phones, if they can identify themselves.  In much of the developing world, hundreds of millions of people cannot, because they lack formal ID documents (a factor that tends to disproportionately harm women, members of disfavored minorities and people with low incomes).

Having large swaths of the population detached from mainstream finance, in turn, undermines economic growth and opportunity. As a result, many central banks throughout the world view KYC modernization as a top priority. For example, see my episode with Sanjay Jain who was one of the leaders of the India stack on their project that is connecting everyone in India to the financial system and mainstream commerce. Some governments are trying to create customer identity through biometric identification. Global organizations ranging from The World Bank to the Gates Foundation and the Omidyar Network (where I am a Senior Advisor) have all elevated AML as a core goal in their efforts to wide financial inclusion.

The KYC barrier also impacts consumers in the United States, including many young people and immigrants or, say, people who have moved frequently. If a financial company cannot verify identity by investing a reasonable level of time and effort, it usually will not open an account.

The second problem with the current KYC process hits the US and other developed countries even more directly. We still rely on traditional identity information like name, address and Social Security number that is, quite simply, no longer secure -- it’s widely for sale on the dark web. (Re-listen to our episode with Greg Kidd of globaliD) for more insight on that).

The solution to both problems -- both access and insecurity -- is the same: more data and better technology.

Alloy is bringing these into KYC. The company enables real-time decisioning through an API that lets a financial institution access the data it needs, in a fully transparent way, and that also provides a rules engine to control how to waterfall the data to put it into a rule. I spoke to Laura at the Comply 2018 conference in New York this year -- you’ll hear some of the conference bustle in the background.

In our conversation, Laura describes the impact Alloy can make. In retail banking, they’ve been able to automate about 98% of decisions for onboarding, as opposed to a standard of about 50%. Once the remaining 2% are sent to manual review, they have also been able to reduce manual review times by about 95%, while also seeing reductions in fraud and increases in conversions, seemingly a win-win for all.

Laura also shares her advice for other fintechs, including how to overcome the many barriers faced by regtech firms in trying to work with financial institutions. She talks about Alloy’s plans for building AI into their solutions. And she offers advice to regulators. Like me, she’s hopeful that the regulatory landscape is increasingly receptive to new technology.

I know you’ll enjoy my conversation with Alloy’s Laura Spiekerman!

Links

Full Transcript of Episode

Alloy on Twitter

Innovation at a Small Bank: Radius CEO Mike Butler

Access For All: CIIE’s Sanjay Jain and The India Stack


More for our listeners

We have great podcasts in the queue. We have a series focused on global developments in fintech and regtech. One is with Harish Natarajan of the World Bank, who talks about their remarkable work in global financial inclusion. Another is with Anju Padwardhan of CreditEase and Stanford University, who describes fintech developments in China. From London, we’ll have a talk with P.J. DiGiamarino of JWG and the Regtech Council. We’ll also have a far-ranging conversation with Peter Renton, who leads Lend Academy and the LendIt conference series. And we’ll have a show with the co-founders of Earnup...among many others.

Last week I spoke at the National Foundation for Credit Counseling’s NFCC Connect in Dallas, where I was very honored to receive their Making the Difference award. I’m on the NFCC board and want to share that we have a visionary new CEO, Rebecca Steele, who is bringing technology more and more into the work of credit counselors -- the people on the front lines of helping consumers make their financial lives healthier. Keep your eye on the NFCC and try to connect with its work.

Other places I’ll be speaking this fall include:

Last but not least, Money 2020, is only two weeks away and it’s going to be amazing. I’m chairing and hosting the regulatory track, which is SUNDAY, October 21, starting at 10AM. The day will include amazing speakers, including a fireside chat I’m doing with Lord Digby-Jones of the House of Lords, and an Oprah-style regulator town hall. On Monday, all ten of the senior regulators and former regulators participating in the conference will join in a mix and mingle with anyone who would like to talk with them.

And then Monday afternoon at 3:15, I’ll be on the new Revolution Stage speaking on Regulation Revolution. I’m aiming to make it the most interesting speech I’ve ever given. If you’ll be at the conference, be sure to come, and tell your friends to come too.

Also, watch for upcoming information on my collaboration with Brett King on his new book, Bank 4.0, which you can now buy. I co-wrote the regulatory chapter with Brett, and we’ll have a show and events on that as well.

Last year, I ended the fall with what I called my world tour designed as seven countries in seven weeks, ending at the Dutch Central Bank right before Christmas, and I tried to share the main takeaways from each by posting mini-videos from the scene. This year I’ll be in fewer countries but at more events, so I’m going to do the videos again -- a lot of people said they enjoyed coming along on those adventures. So please follow me on Twitter, LinkedIn, and Facebook and come to jsbarefoot.com for more information.

And yes, we’re going to revive the newsletter. One of my colleagues recently suggested we call the next post Whirlwind, because that’s what the year has been.

Innovation everywhere!

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Talking Through the Storm with Jan Lynn Owen

Mallory Kwiatkowski

jan owen 2.png

I am especially thrilled about today’s guest -- California DBO Commissioner Jan Owen -- because this episode has been years in the making. I’ve known Jan for a long time, and as anyone who knows her will attest, she’s a breath of fresh air in the regulatory world. She’s candid, she’s outspoken, she’s thought provoking, and she's fearless in tackling thorny issues. We’ve been looking for a good chance to sit down and talk, and we finally found one this summer.

As it happens, it turned out to be one of Barefoot Innovation’s most fun settings ever (and we’ve had some great ones, including beachside in Fiji at the AFI conference). Jan and I were both in Santa Fe in July for a conference and we decided to record our talk on an outdoor balcony, as a thunder storm approached. It was extremely windy, and we could smell the ozone and coming rain, and you’ll be able to hear the thunder booming, sometimes startlingly well-timed to punctuate Jan’s more pointed comments. We took our chances with the weather, staying outside as the sky darkened and dozens of lightning strikes forked down out of the clouds onto the mountains behind Jan -- I wish I’d gotten a photo of that.  In the end, we had to run for it as the rain began, first with big drops spattering the deck and then, ten seconds later, deluge! So the episode ends a little abruptly!

Jan Lynn Owen is one of the most important financial regulators in the US because she heads the California Department of Business Oversight (DBO). Since California arguably leads the world in financial innovation, the DBO is at the forefront in addressing emerging regulatory issues around fintech. Importantly, state regulators, unlike most of the federal ones, oversee both banks and nonbanks. The US federal regulators dominate financial policy, but they don't directly supervise nonbank startups. That means they’re not in close touch with the cutting edge of innovation, which is not in the banks -- it’s in the nonbank startups.

So having a regulator like Jan who understands both banking and fintech is invaluable. In our conversation, she shares her diverse background, including having been a banker and regulator. She describes the scope of the DBO, which is breathtaking -- 368,000 licensees, over 4,000 small business and small dollar lenders, over 300 payday lenders, over 400 nondepository mortgage companies - you get the picture.

As you would expect, we had a lively discussion about the proposal by the US Office of the Comptroller of the Currency (OCC) to create a fintech charter. Jan is famously opposed to it and I have been an outspoken advocate for it - we’ll link in the show notes to my debate on that topic with John Ryan, CEO of the Conference of State Bank Supervisors (CSBS). Jan is of course a leader in CSBS and in our talk, she describes their efforts to modernize and streamline the state regulatory systems and licensing system in ways that she believes can meet the needs of the fintech sector without the OCC establishing a new type of federal charter. (Note that my discussion with Jan was recorded in mid-July, and so predated the OCC’s July 31 announcement that it is going ahead with the new fintech charter.)

Jan points out that the fintech world has transitioned from seeking to avoid regulation to embracing it, in the realization that it helps their business model. She says this shift is putting healthy pressure on government to figure out how to regulate these novel companies, and she’s candid in saying that many of our financial laws and rules are old and out of date. In our talk, she invites input from anyone and everyone on how to fix them.

The OCC fintech charter was not the only issue on which Jan and I disagree. If you read the news, you probably already know that she’s been outspoken in her skepticism about regulatory sandboxes -- and our regular listeners know that I think regulators really need them. Much of the issue comes down to how they’re designed, and we had a good conversation about the dos and don'ts of sandboxes, reglabs, and innovation hubs. The key is to give regulators a safe space to do easy experimentation, mainly to accelerate their own learning, while still assuring full consumer protection. (Since Jan and I spoke, the Bureau of Consumer Financial Protection also announced that it will launch a regulatory sandbox.)

Before we fled the rainstorm, I asked Jan to talk about a speech she’s been giving titled “Sex, Drugs, and Skinny Jeans” (a perfect example of her style). The “sex” topic is the #MeToo movement, including Jan’s personal experience with workplace sexual misconduct. The “drugs” issue is, of course, how to regulate the financial issues raised by legal marijuana in states like California, since federal law still bars banks from opening accounts for these cash-rich businesses. And “skinny jeans” is about the culture clash between traditional, suit-and-tie finance and the jeans-and-tee-shirt worldview of Silicon Valley. We’re going to have to bridge that divide, if we want to optimize the technology change coming to the financial world.

Enjoy this thunderous episode with Jan Lynn Owen.

Links

LINK TO FULL TRANSCRIPTION

Podcast with John Ryan - Conference of State Bank Bank Supervisors President

Recent Speech at Lendit


More on Jan Lynn Owen

Jan Lynn Owen was appointed the first-ever Commissioner of the California Department of Business Oversight by Governor Edmund G. Brown Jr. on July 1, 2013, following a merger of the departments of Corporations and Financial Institutions. Previously, Ms. Owen served as Commissioner of Corporations.

Prior to becoming Commissioner, Ms. Owen was the principal at The Jan Owen Group; a strategic initiatives manager at Apple Inc.; vice president of government affairs at JP Morgan Chase; state director of government and industry affairs at Washington Mutual Inc.; and executive director of the California Mortgage Bankers Association.

From 1999 to 2000, Ms. Owen was acting commissioner of the Department of Financial Institutions, following on her role as deputy commissioner from 1996 to 1999. She also served for several years as a consultant to the state Senate Banking Committee.

Ms. Owen is an alumna of California State University, Fresno, where she earned her degree in Economics.

More for our listeners

We have great podcasts in the queue. We have a series focused on global developments in fintech and regtech, including Harish Natarajan of the World Bank and Anju Padwardhan of CreditEase and Stanford University, who talks about fintech developments in China. From London, we’ll have a talk with P.J. DiGiamarino of JWG and the Regtech Council. We’ll also have a really thought-provoking show with Peter Renton, who leads LendAcademy and the LendIt conference series. We have a regtech firm coming up, Alloy, which has high-tech solutions for meeting the Know-Your-Customer rules in AML. And we’ll have a show with the co-founders of Earnup. So, lots to look forward to!

The fall conference circuit is exciting. Some of the places I’ll be speaking are:

I’ll also be speaking at several events hosted by US regulators this fall. It’s great to see so many of them really digging into the issues surrounding fintech and regtech.

Also, watch for upcoming information on my collaboration with Brett King on his new book on the future of finance -- we’ll have a show and events on that as well.

If you listen to Barefoot Innovation on iTunes, please leave a five star rating and also remember to send in your “buck a show” to keep it going. Come to jsbarefoot.com for today’s show notes and to join our email list, so you’ll get the newest podcast, newsletter, and blog posts. As always, please follow me on Twitter, LinkedIn, and Facebook.

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Machine-Readable Regulation: Compliance.AI CEO Kayvan Alikhani

Mallory Kwiatkowski

kayvansfbusinesstime.jpg

What if regulations were machine-readable? What if, when regulatory changes come out, financial companies wouldn’t have to download hundreds or thousands of pages of rules and read them all? What if they didn’t have to rely on lawyers -- their own, and also the legions of legal experts and consultants who translate rules for the industry as a whole, to help them understand what to do? What if, instead, they could run new rules through a machine-based review, and get all those answers automatically? For very little money?

Banks would be able to update compliance processes much more easily. Startups could easily find out what rules apply to them. The results could feed into other new, high-tech tools, to automate and streamline implementation.

A lot of people are working on this concept, both at regulatory agencies and at regtech firms. One leader in that effort is my guest today, Kayvan Alikhani, Co-founder and CEO of Compliance.ai. We both were speakers this year at the Comply 2018 conference in New York, and while we were there we found a chance to sit down and talk.

Kayvan and Compliance.ai set out to solve the problem that today’s solutions are aging, rigid, slow, and expensive. Among other things, these systems fall behind the deluge of regulations that hit the financial sector every year. Compliance.ai looked at which industry most needed its new tech and chose finance, in part, based on research findings that compliance teams spend at least 30% of their time just chasing changes.

Compliance.ai aims to automate the manual work of collecting, cleaning up, and parsing data and figuring out what is relevant to its customers, using machine-readable technology. Their software can speed up and simplify much of the work done today by traditional GRC -- governance, regulation and compliance -- systems. More basically, they are trying to redesign the whole model of importing data manually, analyzing it in spreadsheets, communicating on it via email, and all the rest.

While today’s regtech innovation is mostly point solutions for particular use cases, remember that they’re converging. Machine-readable technology will meet up with other new ways of capturing and using data, from cloud computing to blockchains, and we’ll see big breakthroughs when these connections really take.

Kayvan is especially thoughtful about artificial intelligence. AI has incredible power to save massive time and money in compliance processes. I myself have no doubt that AI and machine learning are the future of regulation and compliance. However, getting to that future is a journey, and Kayvan describes how it is likely to go, and especially steps that will be needed to surmount reluctance by both industry and regulators to adopt AI they don’t fully understand, by gradually building up understanding and trust and by assuring that AI meets the standards needed for accuracy and fairness.

Significantly, regulators themselves are working on machine-readable regulation too. In particular, the UK’s Financial Conduct Authority (FCA) is aiming to “digitize the rulebook” by tagging regulations with machine-readable markers. In the US, the Commodity Futures Trading Commission is exploring the same concept. We’ll link in the show notes to our episodes with both agencies.  

Regtech firms like to emphasize the time and money they can save the industry, which in turn sometimes leaves compliance professionals worried about robots taking their jobs. One lesson from my talk with Kayvan is that there’s a mountain of human compliance work ahead. The machines are going to do the rote tasks, and the higher math. The people, with their deep expertise in both rules and the complex systems around them, are going to be freed up to do ever-more meaningful work, better than ever before. They will be busy shaping these new tech tools, and they will be using them to tackle the work only they can do -- the deep dive analysis, the hard cases, the systemic reforms. They’ll have less frustration, less boredom, and more traction in achieving the big goals that our laws and regulations were written to further, from protecting consumers to expanding financial inclusion to catching money launderers. At my regtech firm, Hummingbird, we say our mission is to give compliance people superpowers. Compliance leaders are going to emerge as heroes in their companies as they produce better results, cut costs, cut risks, and help lead their organizations, especially banks, into the twenty-first century.

I asked Kayvan to help us envision a day in the life of a compliance professional a few years into the future. He paints a fascinating picture, and he says it’s going to be beautiful. That’s not usually a word we associate with regulation and compliance.

Links

LINK TO FULL EPISODE TRANSCRIPTION

A day in the life of a compliance officer - Part 1

A day in the life of a compliance officer - Part 2

A day in the life of a compliance officer - Part 3

Chris Woolard and Nick Cook Podcast

Podcast with Nick Cook

Podcast with Dan Gorfine, LabCFTC Chief Innovation Officer and Director

Podcast with CFTC Chairman Christopher Giancarlo


More on Kayvan Alikhani

With more than 25 years of experience in hi-tech, Kayvan leads operations, strategy, sales, and marketing for Compliance.ai. Most recently, Kayvan led the identity strategy at RSA, and represented EMC on various industry alliances such as the FIDO board. He is Co-Founder and CEO of PassBan (acquired by RSA), a company focused on mobile identity assurance. Kayvan also led strategy at LiteScape (as CTO and later as CEO), creating security and mobile identity solutions for VOIP-based networks. He was Co-Founder and CTO at BeNotified, a cloud mobile communication service provider. Prior to that, Kayvan co-founded AVIRNEX, a cloud-based enhanced fixed- and mobile-communication service provider.

More for our listeners

We have great shows coming up. We have a wonderful episode with the California Banking Commissioner, Jan Lynn Owen. We’ll also have another regtech firm, Alloy, which has high-tech solutions for meeting the Know-Your-Customer rules in AML. We have one with the co-founders of Earnup. From the global perspective, we’ll have the World Bank’s Harish Natarajan; one with Anju Padwardhan of CreditEase focused, among other things, on fintech developments in China; and one with P.J. DiGiamarino of JWG and the Regtech Council. We also have a great show in the queue with  Peter Renton of LendAcademy and the LendIt conference, one of the most thoughtful people we’ve talked with.

I’ll be speaking this fall at some great events:

If you listen to Barefoot Innovation on iTunes, please leave a five star rating to help us continue to build the show, and remember to send in your “buck a show” to keep it going. Also come to jsbarefoot.com for today’s show notes and to join our email list to get the newest podcast, newsletter, and blog posts. As always, please follow me on Twitter, LinkedIn, and Facebook.

I’m so grateful that you listen to Barefoot Innovation. Our audience is growing rapidly all over the world, and hardly a day goes by without someone telling me how much they enjoy the show or how they were helped by an insight shared by one of our wonderful guests. Let’s keep that going -- and let’s all keep innovating!

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Transforming Identity: GlobaliD CEO Greg Kidd

Mallory Kwiatkowski

pasted image 0 (1).png

It’s always extra fun when we have a show where the guest talks about the days when Jack Dorsey hacked him and lived in his backyard. For today’s conversation, I’m joined by my friend Greg Kidd, Co-founder and CEO of globaliD. I’m predicting right now that this one is going to be a Barefoot Innovation fan-favorite.

Greg has an unusual background. He was involved from the early days of Ripple, Twitter, and Square. Unlike most Silicon Valley innovators, though, he’s also been a banking consultant and worked for the Fed Reserve Board. He is famously a big thinker (I like to tell him that people sometimes have no idea what he’s talking about, although I promise that doesn’t happen in this show).  I remember the first time I met him -- we walked into a party at the same time one night in San Francisco, and were still talking, barely inside the door, two hours later. This is actually the longest episode we’ve ever done, because he’s just fascinating to listen to -- I couldn’t tear myself away.

We recorded it this spring in globaliD’s space at the Digital Garage in San Francisco, where Greg shared his vision of what’s ahead in finance, commerce, and technology. We talked about the magnitude of the shifts he sees, and his passionate belief that new technology should be used to empower people, not control them. The secret to that, Greg says, is decentralization. He thinks blockchains and distributed ledgers are as revolutionary as the internet was. And he thinks, above all, that we should decentralize control over people’s identities. As he says, government-issued identities are inherently insecure -- they create huge centralized “honeypots” of data that attract hackers -- and they can invite misuse by government itself.

Greg's firm globaliD is building an alternative. Its software can be downloaded to the phone to create an individual token of identity that can attach a unique name, which then can collect identity proofs, or “attestations,” based on the person’s electronic footprint and relationships. The individual can customize how to share identity information for different purposes, shielding sensitive information for some uses and revealing it in others, in order to protect privacy. Because the underlying information lives in the individual’s device, not a government or corporate database, it’s relatively secure from cyber-attack.

As mobile phones approach ubiquity worldwide, this kind of system can also expand financial inclusion by authenticating millions of people who lack traditional credentials and therefore can’t enter the mainstream financial system. We've done other shows on this (I suggest re-listening to the one on the India stack and Aadhaar card with Sanjay Jain). Governments throughout the world are working on this, especially in countries where much of the population (often, especially, women) lack documents and therefore can’t satisfy the bank Know-Your-Customer regulations. A few years ago I ran into Greg in Fiji at the annual summit of the Alliance for Financial Inclusion. He was speaking there on how to use mobile phone-based data to help refugees identify themselves to authorities, to make it easier to screen people even in the midst of mass migrations and humanitarian crises.

The US needs updated identity methods too. Our analog-era systems like social security numbers are no longer secure -- too often buyable on the dark web. Digital solutions will be coming here soon.

Greg also gets excited about making innovation work with regulation. He says we don’t have to end up in George Orwell’s world, nor in Mad Max’s, as he argued in this memorable piece.

I promise this episode will leave you with some new ideas.

Links

Link to Episode Transcription

www.hardyaka.com

Podcast with Anne Boden

More on Greg Kidd

Greg Kidd is the CEO of globaliD and the former chief risk officer at Ripple. His work taking his own startup public (Dispatch Management Services) on the Nasdaq is book-ended by time at Booz Allen, Promontory, and the Board of Governors of the Federal Reserve. He was an initial investor and advisor for both Twitter and Square, and his investment firm Hard Yaka continues to back many fintech and regtech companies. His leadership pursuits include work at Outward Bound and the National Outdoor Leadership School (NOLS).

More for our listeners

We have many more great podcasts in the queue. We have a wonderful episode with the California banking commissioner, Jan Owen (which is extra exciting because we recorded it outside with lightning and thunder through the whole thing). We’ll also have other regtech firms, including Compliance.ai, which is creating machine-readable regulations, and Alloy, which has high-tech solutions for meeting the Know-Your-Customer rules in AML. And we have one with the co-founders of Earnup. There are many more in the works.

The fall events schedule is filling up. Some of the places I’ll be speaking are:

If you listen to Barefoot Innovation on iTunes, please leave a five star rating on the show to help us continue to grow. Come to jsbarefoot.com for today’s show notes and to join our email list, so you’ll get the newest podcast, newsletter, and blog posts. As always, please follow me on Twitter, LinkedIn, and Facebook.

support our podcast

Meanwhile, keep innovating!

Congressman Gregory Meeks on Win-Win Fintech

Mallory Kwiatkowski

meeks photo.png

We have such a special guest on today’s show. Gregory Meeks is the United States Congressman representing the Fifth District of New York. He is also a leading member of the House of Representatives Committee on Financial Services. I was able to sit down with him, in his Capitol Hill office on one recent, hot summer day, to talk about how technology is changing consumer finance and, especially, how it can expand financial inclusion.

Congressman Meeks has been bringing breakthrough leadership to this issue on Capitol Hill.  As he says in our conversation, his views are grounded in his own experience growing up in public housing in Harlem, where he learned firsthand the struggles faced by low-income families in making ends meet, and also in getting access to credit. He talks about his own parent’s situation in being able to purchase a home, and the effect it had on his family. As a passionate advocate for these communities, it’s hugely important that he believes some of the solutions for them lie in fintech.

I think it’s fair to say that many advocates for financial inclusion are still skeptical that fintech is a good thing. Obviously it sometimes isn’t, and clearly there are many questions that need to be  addressed as these new technologies expand. As someone who has worked with financial inclusion efforts for decades, however, I think these new tech innovations are actually the best hope we’ve ever had for building a truly affordable, accessible and healthy financial system for everyone.

As we’ve discussed in other shows, fintech is attacking all the things that cause people to have unhealthy financial lives, other than lack of money itself. It is sharply reducing the costs of providing financial services, by leveraging both mobile delivery channels and new kinds of data. It’s enabling accurate underwriting of the millions of people who can’t qualify for good loans because they lack traditional credit files -- again, using new data and data analytics. It’s helping people build digital identities, which equips them to satisfy the Know-Your-Customer rules of the banking system and thereby access transaction accounts (this progress is especially dramatic in the developing world). Fintech innovation is also creating a wide array of tools that just make it easier to manage money wisely, regardless of your level of financial education. New tools are simplifying everything from saving, to budgeting and bill-paying, to new solutions for people with “gig” jobs, to getting alerts when funds are getting low. Fintech is not a panacea, obviously, but my view it that it can accomplish many of the goals we’ve been pursuing for decades through regulation, with mixed results at best. Congressman Meeks is focusing on this powerful potential.

We had a wide ranging conversation, including talking about modernizing the Community Reinvestment Act which the Congressman has called for -- here is his op-ed on that challenge. And you’ll hear his passion for building a bipartisan approach to crafting solutions that work for everyone, including how both rural and urban communities’ financial health can benefit from fintech.

The Congressman has a keen sense for how we need to embrace technology, rather than fighting it. He’s optimistic, as am I, that we are on the verge of finding truly superior ways to use new technologies to better communities.

More Links

Link to Full Episode Transcription

Fintech Charter and Financial Inclusion Op-Ed

Corporate Board Diversity Op-Ed

Twitter @repgregorymeeks

Facebook @repgregorymeeks

Congressman Meeks’ Office - 202-225-3461

More on Gregory Meeks
Congressman Gregory W. Meeks (D-NY) is now in his tenth term serving the 5th District of New York, which is one of the most diverse constituencies in the nation. He is known for working with Democrats and Republicans alike and is one of sixty-one pro-growth Democratic members who comprise the New Democrat Coalition (NDC). He co-chairs the NDCC Trade Task Force.

Congressman Meeks is a senior member of the House Financial Services Committee, having previously served as a Dodd-Frank conferee. Key provisions in the Wall Street reform law – including its stress testing requirement, the creation of the Office of Minority and Women Inclusion at the financial regulatory agencies, and the requirement that U.S. public companies that use natural resources must report their due diligence in stamping out conflict minerals– were authored by Congressman Meeks and remain in the law today.

The Congressman is also a senior member of the House Foreign Affairs Committee, where he is the Ranking Member on the Subcommittee on Europe, Eurasia, and Emerging Threats. A multilateralist with decades of experience in foreign policy, he believes the United States should build coalitions around our interests and work with other countries to build a stable and prosperous future. He co-chairs several international organization caucuses, including the European Union Caucus.
 

More for our listeners

We have many more great podcasts in the queue. We’ll have a really thought-provoking discussion with my friend Greg Kidd, Founder of GlobaliD.  We have a wonderful episode with the California banking commissioner, Jan Owen (which we recorded amidst a gathering thunderstorm that adds some drama). We’ll also have two regtech firms -- Compliance.ai, which offers machine-readable regulatory compliance, and Alloy, which has high-tech solutions for meeting the Know-Your-Customer rules in AML. And we have one with the co-founders of Earnup. There are many more in the works.

The fall events schedule is filling up. Some of the places I’ll be speaking are:

I’ll also be speaking again at AFI, in Russia, if we can make the schedule work.

Also, watch for upcoming information on my collaboration with Brett King on his new book on the future of finance -- we’ll have a show and events on that as well.

If you listen to Barefoot Innovation on iTunes, please leave a five star rating on the show to help us build it. Also please remember to send in your “buck a show” to keep it going, and come to jsbarefoot.com for today’s show notes and to join our email list, so you’ll get the newest podcast, newsletter, and blog posts. As always, please follow me on Twitter and Facebook.

support our podcast

And tell me what you’re thinking about fintech and financial inclusion. Let’s widen this dialogue to more people, and more and more ideas!



Innovation at a Small Bank: Radius CEO Mike Butler

Jo Ann Barefoot

mike butler.png

Today’s guest is Michael Butler, CEO of Radius Bank in Boston. As with our recent show with Bob Rivers of Eastern Bank (which is also based in Boston), Mike belongs to a small, but growing, group of CEOs who are truly transforming their community banks through technology. When conversation turns to the tech future for community institutions, these two banks’ names always come up.

We’ll link in the show notes to the Eastern episode and you’ll notice many common themes -- especially that both CEOs focus first and foremost on full embrace of a tech culture. Not a mixed culture, not one that’s hampered by pockets of resistance, but full embrace.

We all know it’s hard for smaller banks to keep up with cutting edge technology. I know some community bankers who say they have given up. I know many others -- maybe most -- who hope they are keeping up enough to please their customers, but can’t tell for sure how well they’re doing. And I think many worry that they have no clear idea of what the road ahead looks like. For Radius Bank, Mike explains how they analyzed this challenge. Their conclusion was that in today’s market, in which customers expect Amazon-type technology, their small bank was not going to be able to offer fully competitive full-service retail banking products. As a result, they shifted quite radically to a new strategy.

In this show, Mike tells the story of that journey, beginning in 2008 at the height of the Great Recession. He shares their reasoning that a full-service, branch-based, locally-confined strategy would actually be more risky than offering a narrow product set to a wide market, with a very low cost structure. He argues that a small bank like Radius has powerful advantages over larger ones that have more complex and rigid systems that slow them down. And he talks about how they tackled the task of building, as he puts it, a great tech platform, including for attracting deposits from a very specific niche of customers -- those who don’t want a branch, and actually prefer to bank through their phone, if the experience is wonderful.

You’ll enjoy listening to Mike describe the internal debates they undertook, including the fears around offering something like, for example, a free ATM. He says they concluded that the whole banking industry’s platform is wrong, if you want to offer a virtual product. They also realized that a key to their future is fintech companies, both as customers and as partners. He says they now think of their “branches” as being located at the “corner of Radius” and the partner company, not on a physical street intersection where they would be competing with other banks’ street. Mike says it’s “a beautiful place to be.”

He also talks in depth about making the tech great. For example, he describes getting the deposit account opening process streamlined from fifteen or twenty minutes down to three or four. He says that, behind the scenes, Radius Bank does things like Amazon, and delivers an Amazon-like experience. He also has tips on how to attract tech talent (hint -- it includes empowering young employees).

Mike has thoughts on how to modernize the Community Reinvestment Act for the digital age. More broadly, he shares insights on overall regulatory challenges which, as he says, are “not easy.” He describes tasking the bank’s risk people to figure out how to work with new-generation vendors, because, as he puts it, “we can’t just go with the big guys that look good and look safe,” if they have old and inferior technology. He describes the checklist they’ve developed to handle this modernized third-party risk management for partnering with fintechs and regtechs. He says one secret is to have a “rock star compliance person.” Another is to interact constantly with the regulators.

Listen especially closely to how he thinks about the risk in these partnerships, and specifically his thought process on how these newer tech partners are able to make any needed course corrections quickly and nimbly, and at low cost, so that even if things don’t work perfectly the first time, the bank is still ahead for having experimented or for trying a new approach. I’m hearing this thinking more and more from innovative banks, including the point that while older technology may look safe, it’s actually high-risk because much of it is too rigid, and changes too slowly, to keep up with the market.

I’ve long believed that the two top challenges facing banks, and especially community institutions, are, first, keeping up with technology and second, regulatory burden. The good news, which is sometimes hard to see, is that new technology can be the answer to both.

Radius bank is pioneering a new pathway to reaching those solutions. I know you’ll enjoy my conversation with Mike Butler.

More Links

Link to Full Transcription

Radius Bank Website

Podcast with Citi Fintech - Citi Fintech Global Head of Policy, Andres Wolberg Stock

Podcast with Eastern Bank CEO Bob Rivers

More on Michael Butler

Michael Butler is the President and Chief Executive Officer of Radius Bank. Since joining Radius Bank in March 2008, he has transformed Radius into an innovative leader in the financial services industry, focused on delivering superior customer service and leading-edge technology to its clients. He is an experienced banking executive with an extensive background in all facets of commercial and consumer banking. Prior to joining the Bank, Mike served as President for National Consumer Finance at KeyCorp in Cleveland, Ohio. He is a graduate of Providence College and the ABA's Stonier Graduate School of Banking. Mike serves as a member of the Financial Services Committee for the Greater Boston Chamber of Commerce, on the Board of Trustees for Thompson Island Outward Bound, on the Advisory Board for FinXTech, and has been active with the Habitat for Humanity program.

More for our listeners

We have many more great podcasts in the queue. They include a number of leading government officials, including Congressman Gregory Meeks and Jan Owen, the banking commissioner of California, as well as World Bank official Harish Natarajan. We’ll have an amazing show with Greg Kidd, Founder of Global ID; a show with the co-founders of EarnUp, and two regtech firms -- Alloy and Compliance.AI.

The fall events schedule is filling up. Some of the places I’ll be speaking are:

Also, watch for upcoming information on my collaboration with Brett King on his new book on the future of finance -- we’ll have a show and events on that as well.

If you listen to Barefoot Innovation on iTunes, please do leave a five star rating on the show to help us build it. Also please remember to send in your “buck a show” to keep it going, and come to jsbarefoot.com for today’s show notes and to join our email list, so you’ll get the newest podcast, newsletter, and blog posts. As always, please follow me on Twitter and Facebook.

support our podcast

And tell me what you’re thinking about digitizing regulation. We want to widen this dialogue.

Until next time, keep innovating!

Data that Deepens Financial Access: Experian and Lendup

Mallory Kwiatkowski

Today’s show brings us two fascinating guests.  Alex Lintner is President of Consumer Information Services for Experian, and Sasha Orloff -- who is a previous guest on Barefoot Innovation -- is founder and CEO of LendUp. They recently joined forces to explore using new kinds of data to widen financial inclusion. We all sat down to discuss it at the LendIt conference this spring in San Francisco.

Credit scores are a great tool for evaluating the creditworthiness of many consumers, but as Alex explains, not for all of them. He and Sasha think -- as do I -- that we need a fuller view into what Alex calls the consumer’s financial “reputation.” Experian estimates that 100 million people in America need this kind of broadened evaluation. We know that many consumers with low or no credit scores are actually creditworthy, and in fact could prove it if we had systems that could look closely at their financial behaviors and situations beyond reported credit history.

Traditionally, though, we didn’t have efficient ways to get that information because, in the analog age, when the current systems were designed, data was scarce and costly. Today, in contrast, we have massive volumes of digital information we can access and analyze, instantly and efficiently. This creates the ability to do what used to be impossible -- make financial services more inclusive, without sacrificing lending soundness.

Toward that goal, LendUp and Experian undertook a joint research project to look at the benefits of capturing data on customers’ performance on single-payment loans. The study produced really striking results -- the overwhelming majority of consumers in the study came out with positive impacts on their credit scores.

And as Alex explains, single-payment loans are just one kind of nontraditional data. In today’s digitized world, there are many other factors that we can begin to capture methodically and build into routine credit scores. Experian is now routinely doing this, offering a new score called Clear Early Risk.

In our conversation, Alex and Sasha share insights drawn from their own lives and talk about the many situations in which people have trouble accessing credit when they need it. Some of these consumers are young people or new immigrants with thin or no credit file. Some are facing life changes like a family death or divorce. Some are contending with emergencies like loss of a job or medical bills. Our discussion also tied these kinds of individual challenges into big shifts underway overall in lifestyle and in technology -- the advent of mobile financial services, the rise of the gig economy, and expanding use of artificial intelligence.  In addition, we touched on the future of the Community Reinvestment Act, which is due for much-needed, tech-driven modernization.

Using alternative credit risk data has complex implications for fair lending regulation, especially in the US and especially regarding “disparate impact.”  US policy bars use of credit practices that have a disproportionate adverse effect on “protected classes” like women and minorities, unless the lender can demonstrate a business need and show that less-discriminatory alternatives are not available. The criteria for proving this are not clear today, and I’m among the many people who think that clarifying them is essential to expanding financial inclusion by fostering use of new data. Despite having the best of intentions, policymakers have inadvertently made hard-to-score consumers the riskiest market to serve, due to the regulatory risk arising from uncertainty. That chills efforts to address these customers’ needs by many mainstream and high-quality lenders.

The CFPB is exploring this issue through its evaluation of alternative data and issuance of a “no action letter” for Upstart. A similar effort is underway, also, at the new nonprofit FinRegLab, which is run by Melissa Koide and funded by the Omidyar Network. I chair FinRegLab’s board, and we’re conducting empirical testing of alternative data -- specifically cash flow underwriting -- including how these new methods relate to disparate impact.

Today’s show is a glimpse of a promising future, harnessing innovative technology to produce lending that is more inclusive, and also more sound.

More Links

Episode Transcription

Podcast with Al Ko - Episode recorded last year with Al Ko of Intuit

LendUp Infograph

Alternative Credit Data trends and reports

Op-Ed by Sasha on innovation in credit scoring

More on Sasha and Alex

Sasha Orloff is CEO and co-founder of LendUp. LendUp’s mission is to provide anyone with a path to better financial health. The company builds technology, credit products, and educational experiences that haven’t existed before for the emerging middle class -- the 56% of Americans shut out of mainstream banking due to poor credit or income volatility. It has originated more than $1 billion in loans. With offices in San Francisco, CA and Richmond, VA, LendUp is backed by debt and equity financing from venture and social impact investors including Y-Combinator, Kleiner Perkins, Andreessen Horowitz, Google Ventures, Victory Park Capital and Yuri Milner’s Startfund. In June, both Nigel Morris and Frank Rotman of QED Investors joined the LendUp board of directors.

Prior to founding LendUp, Sasha held roles in risk management, finance, online acquisitions and customer insights on Citi’s consumer credit team, and most recently served as Senior Vice President on Citigroup's Venture Capital team. He previously worked for the Grameen Foundation Technology Center and The World Bank. He has a B.S. in applied math and economics from the University of California, San Diego and an MBA from Georgetown University.


Alex Lintner is President of Experian’s Consumer Information Services, overseeing the company’s US consumer credit bureau and the National Consumer Assistance Centre (NCAC). He’s responsible for all aspects of Experian’s consumer credit activities within the business-to-business marketplace, including delivery and management of value-added credit risk, marketing, and collection products to help clients manage and optimize their customer relationships. Alex was previously CEO and President of Vertafore, a $450+ million revenue insurance industry technology provider. Prior to that he was President of Intuit’s Global Business Division and also Senior Vice President of Strategy, Government Affairs and Corporate Development. He’s also spent 15 years as a consultant, starting as a Business Analyst at Dr. Hoefner & Partners in Munich, Germany and later serving as Vice President of The Boston Consulting Group in their London and San Francisco offices.

More for our listeners

Our next guest on the show will be another community bank CEO, Mike Butler of Radius Bank in Boston.  Upcoming episodes include a fascinating conversation with Congressman Gregory Meeks on financial innovation and policy; a talk I recorded this year at LendIt with my friend Greg Kidd of Global ID; and three discussions with regtech firms -- JWG in London, Compliance.ai, and Alloy.

Speaking of LendIt, I was a guest this month on Peter Renton’s Lend Academy podcast, and he’ll be on our show soon as well. I was also a guest in June on the Commodity Futures Trading Corporation podcast, CFTC Talks, with Andy Busch. And here are my two podcasts with the CFTC, one with Chairman Giancarlo and a recent one with innovation head Dan Gorfine.

It’s not too early to register for the fall’s premier fintech event, Money 2020, in October in Las Vegas. I’ll again be MC for the regulatory track, which, remember, is on Sunday -- be sure to plan accordingly!  I’ll also be speaking on the Revolution Stage, which is new this year, about regulation innovation. Also watch for Regtech Rising in December, which I’m helping to plan.

We’ll also be posting information on my collaboration with Brett King on his new book on the future of finance -- we’ll have a show and events on that as well, and I’ll be a guest on Brett’s great radio show Breaking Banks this week, on July 5.

Please remember to give Barefoot Innovation a five-star rating on iTunes to help us expand the show. I hope you’ll sign up to get emails that bring you the newest podcast, newsletter, and blog posts, at www.jsbarefoot.com.  Follow me on Twitter and our Facebook fan page. And please send in your “buck a show” to keep Barefoot Innovation going!

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Until next time, keep innovating!

Regulatory Challenger: LabCFTC and Daniel Gorfine

Jo Ann Barefoot

Gorfine 1.png

Some organizations are so interesting that we come back to them more than once. Among US regulatory agencies, the most fascinating may be the Commodity Futures Trading Commission. Last July we ran a podcast conversation with the Commission’s Chairman, Christopher Giancarlo, which goes into greater depth about the role of the CFTC and it also contains Chairman Giancarlo’s thought-provoking statement that the top priority facing every regulatory body is to convert the rule book from analog to digital design. The CFTC is at the forefront of regulatory innovation in part because its leader is so passionate about the importance of it.

In that spirit, they recruited the perfect person to lead the LabCFTC innovation project -- today’s guest, Daniel Gorfine. Luckily for us, the CFTC was able to attract Dan into government from the fintech sector – I first met him when he was at OnDeck – and he’s been bringing an innovator’s mindset and working models to this venerable government agency.

This episode has three very meaty topics, each of which could have been a whole show.

First, Dan talks about the vision and work of LabCFTC, sharing insights about how it’s organized that I know other regulators will find helpful. He talks about how they track and facilitate innovation in the financial markets, including a “primer” they issued on rules applying to cryptocurrency. He also explains how they explore new technology for use by the agency, itself -- they call that CFTC 2.0 -- as well as “Digital Reg,” an internal think tank for rapid learning and sharing of tech insight.

Second, Dan talks with me about an exciting initiative they’ve just launched, issuing the first-ever CFTC Science Prize Competition Act challenge. They discovered this law empowering agencies to run competitions to solve regulatory problems in science and technology, and they decided to crowdsource ideas on both the problems to tackle and the process to use. Public comments are due July 24. In our conversation, Dan throws out some of the ideas he and his colleagues have thought of -- maybe regulatory data visualization tools, or machine-learning for market surveillance, or machine-readable and machine-executable regulation -- but they want to hear from you. Our listeners are among the most thoughtful people anywhere on regulation innovation, so please comment. You could even become CFTC Innovator of the Year!

Our third topic is one that rarely surfaces in the innovation dialogue, and solely needs discussion: the legal and procedural obstacles to government agencies that want to embrace innovation. We could call the topic, government modernization.

Think about it. If you were a federal agency wanting to keep up with technology innovation, you would want to be able to do a few things. You would want to be able to try out new technologies, hands-on. If the innovation was something you might adopt for your own agency, you would want to test it before you had to commit to a major procurement budget and procedure. You would also want to be able to brainstorm with a wide range of people, learning from them, thinking through ideas with them.

All of this is stunted today by well-intentioned rules that were designed long ago -- for good reason -- to prevent inappropriate influence, backroom deals, and the like. Dan talks in particular about the Anti-Deficiency Act, which restricts procurement activities and prevents the CFTC from being able to try out new kinds of tools. Another issue is the procurement process itself. I met a few months ago with people from a different agency, showing them some innovative technology that could make their regulatory work easier, and one of them said, “If we decided today that we should adopt this, we would have it in seven years.”

I’ve talked with other agencies that cite the Federal Advisory Committee Act, with its restrictions on meetings, and the Administrative Procedure Act, which structures the rule-making process and, at some stages, limits interactive dialogue. Agencies have raised concerns about various “government in the sunshine” rules, which again make it difficult to talk informally. Some can’t readily attend a breakfast or lunch event. They have to ask about the value of the meal being served and if it’s more than, I think it’s $15, they can’t eat it, or they have to go through paperwork to pay for it. And of course, there are complex approval processes for participating in various kinds of forums.

More than any show we’ve done, this one puts you in the shoes of the regulatory agency and shows how their hands are tied by procedural prohibitions and requirements. I’d love to see someone do a study, maybe a graduate thesis, on how rules that were written in an older, slower era may now undermine the ability of regulators to keep up with exponential change in technology. We could use suggestions on updating them for the digital age. And remember, it’s an issue much broader than finance.

I’ve been in and around Washington for decades and can remember the bad old days before some of these rules were created -- indeed, I remember some of the bad old practices that led to them. Still, we don’t need to straightjacket our regulators. Other countries have a much more fluid discussion between agencies and industry, and also have the ability to try things. One model is the Bank of England’s Fintech Accelerator, which explores new technology for the bank itself. And Dan and I both participated in London last month in the amazing AML Tech Sprint run by the UK Financial Conduct Authority -- which is a stunning model of innovative regulatory process. Its leaders were my guests on the last podcast we posted (which my friend Peter Renton of LendAcademy and LendIt called the “most fascinating discussion he’s ever heard on the future of financial regulation” -- if you missed it, check it out).

Meanwhile, here’s some great news. Just a few days ago, Congressman Austin Scott (R-GA) introduced the CFTC Research and Development Modernization Act, H.R. 6121. Dan refers to it in our talk – it’s bipartisan legislation to address some of these hurdles at the CFTC. We’ll link to it in the show notes. The bill would permit the Commission to collaborate on projects with fintech developers. It would also allow it to receive “gifts” for R&D purposes, including software to try out, subject to common sense safeguards.

The bill echoes work by Congressman Patrick McHenry (R-NC), who has sought to facilitate innovation by all the financial regulatory agencies. And the US agencies, themselves, are all moving ahead, too. The CFPB’s Acting Director, Mick Mulvaney, plans to launch a regulatory sandbox. The FDIC held a tremendously impressive technology forum. Five US agencies attended the UK tech sprint.

Regulation innovation is coming, and no one is more thoughtful about it than Dan Gorfine.

More links

More on Dan Gorfine

Daniel Gorfine is Chief Innovation Officer and Director, LabCFTC at the U.S. Commodity Futures Trading Commission. LabCFTC is dedicated to facilitating market-enhancing financial technology (FinTech) innovation, fair market competition, and proactive regulatory excellence and understanding of emerging technologies. Daniel is also an Adjunct Professor at the Georgetown University Law Center where he teaches a course on ‘FinTech Law & Policy.’ Daniel was most recently Vice President, External Affairs & Associate General Counsel at OnDeck, and previously served as director of financial markets policy and legal counsel at the Milken Institute think tank where he focused on technology-driven financial innovation, capital access, and financial market policy. Earlier in his career, Gorfine worked at the international law firm Covington & Burling LLP and served a clerkship with U.S. District Court Judge Catherine C. Blake in the District of Maryland. A graduate of Brown University (A.B.), Daniel holds a J.D. from George Washington University Law School and an M.A. from the Paul H. Nitze School for Advanced International Studies (SAIS) at Johns Hopkins University.

More for our listeners

We have many more great podcasts in the queue. We’ll talk with another community bank CEO, Mike Butler of Radius Bank.  We’ll have two more episodes that we recorded this year at LendIt. One is a discussion of new research by LendUp and Experian, on credit reporting, and the other is with Greg Kidd, Founder of Global ID.  We also recorded two episodes at last month’s Comply 2018 conference in New York, with two regtech firms -- Compliance.ai, which offers machine-readable regulatory compliance, and Alloy, which has high-tech solutions for meeting the Know-Your-Customer rules in AML.

Speaking of LendIt, I was a guest last week on Lend Academy podcast, and Peter Renton will be on our show soon as well, so watch for those.

I’m also excited we’ll have several leading members of Congress on the show in the coming weeks. So, stay tuned!

The summer conference slowdown is nearly upon us, but I hope to see you at upcoming speeches and events including:

Also, watch for upcoming information on my collaboration with Brett King on his new book on the future of finance -- we’ll have a show and events on that as well.

If you listen to Barefoot Innovation on iTunes, please leave a five-star rating on the show to help us build it. Also please remember to send in your “buck a show” to keep it going, and come to jsbarefoot.com for today’s show notes and to join our email list, so you’ll get the newest podcast, newsletter, and blog posts. As always, please follow me on Twitter and Facebook.

Support our Podcast

And tell me what you’re thinking about digitizing regulation. Let’s widen this dialogue to more people and more and more ideas!



Regulation Revolution: The Financial Conduct Authority and Digitally-Native Regulatory Design

Jo Ann Barefoot

FCA1.png

This is the most unique, and the most consequential, show we’ve ever done. If our thousands of listeners all think about it and especially if you share it widely, it has the most potential to actually change the financial regulatory world for the better and also in turn, therefore, to improve the financial world, too. It goes right into the heart of the most important work, being done by the most innovative people, on redesigning regulation for the digital age.

My guests are Chris Woolard and Nick Cook of the UK’s Financial Conduct Authority. We sat down to record it on the last night of their enormous, ambitious, mold-breaking tech sprint held in London a few weeks ago. This regtech sprint, the fifth one they’ve done, focused on how to use new technology to combat financial crime. The sprints -- which are hackathons -- play a dual role, both sparking new ideas on specific regulatory challenges and also innovating in regulatory process, itself.

I’ll set the scene for you. It was a Thursday night, dinner time, in the London offices of EY, in the Canary Wharf section of the city on the Thames, just a few blocks from the FCA’s building. EY generously offered their beautiful training facility for the sprint, because the FCA’s building is too small to hold the 400 people who were there by the end, or even the 260 who had been there for three days, working feverishly, day and night, to invent new solutions for money laundering. Those people had arrived on Tuesday morning and had self-formed into sixteen small teams, usually with total strangers, in a format mixing organizations and most importantly, mixing knowledge and skill types. Regulatory experts and AML experts and lawyers had worked elbow-to-elbow with tech experts, brainstorming ideas together and then translating these, live, into computer code, using test data provided by the participating tech companies.

We sat down for this recording in a quiet conference room, just as the main gathering began to shift into post-conference socializing and bonding and celebrating over food and drink.

It was one of those special moments where everyone feels elated and excited, and at the same time, completely drained. For me, as I think I say two or three times in this show, the sprint was the most fascinating and inspiring thing I’ve ever experienced. I hope that listening to it will inspire you to take up the FCA’s challenge to build on it in your own country and with your counterparts in other countries, and perhaps to take up their offer to help. People came to the sprint from all over the world, including, I’m especially happy to say, a substantial contingent of both regulators and financial companies from the United States (and also a new nonprofit, FinRegLab, with which I’m affiliated and which is building an empirical testing environment for regtech concepts in Washington).

The FCA is at the forefront of a global regulatory awakening about the need to innovate regulatory models as technology increasingly outpaces the speed at which government can change. Its most famous innovation is its Regulatory Sandbox, which enables fintech innovation to be tested in a controlled experiment under the regulator’s close scrutiny and is being emulated throughout the world. Less well-known is their equally important innovation on the regtech side, for which they invented this creative new format, the regulator’s TechSprint.  

Both the sandbox and the sprints have three key elements essential for regulatory innovation. First, they make collaboration happen, especially between the regulatory and tech worlds. Second, they enable very fast learning by the regulator, through direct, hands-on experience. And third, and most crucially, they use experimentation. They provide a safe space for trying things out, testing, learning, shaping -- quickly and cheaply. They apply the techniques that technology innovators figured out years ago, about the need to start small, try something, adjust as you learn, and if some ideas are going to fail, let them “fail fast” in a controlled setting where critical lessons can be learned early, and no harm can be done.

These ideas are hard for people to grasp in the abstract, especially the notion that regulators need to get comfortable with learning through trial and error because there’s no other way to learn fast enough. I’m a former bank regulator and I know this idea is completely alien to regulatory culture and tradition, which have been designed, for good reason, to be careful and thorough and deliberate. A couple of years ago, a senior U.S. bank regulator told me that her agency had figured this out by spending time on the FCA’s website, reaching this epiphany that, the regulator doesn’t need to have all the answers -- even can’t have all the answers on tech change, before moving forward. It’s really the other way around. You have to move forward, to get to the answers. Chris and Nick describe the very same process -- as Chris calls it, the light bulb turning on, suddenly realizing it was riskier NOT to move, even though you’re not sure exactly what to do and what will happen. To me, the most interesting thing you’ll hear in this show is their voice as they describe this journey, the struggle toward creating a new way to work.

Again, this was the fifth tech sprint. Be sure listen to my two earlier FCA shows, one with Chris that explains the FCA’s regulatory sandbox and one with Nick on regtech. The regtech one featured the breakthrough, two-week sprint held last November, successfully proving that regulatory reporting requirements could be updated directly, computer-to-computer, by issuing a rule change in the form of code, rather than words. That one was like a regulatory moonshot -- it could eventually change regulation, itself. This new sprint last month, by contrast, focused on the specific use case that’s most ripe for regtech transformation -- anti-money laundering. The UN estimates that there’s $1.6 - $2 trillion in annual global financial crime, and that we catch less than 1 percent -- despite spending tens of billions of dollars each year. And it’s getting worse. The criminals and terrorists today use sophisticated technology and operate as networks, while banks and governments use old technologies, with data trapped in silos.

As Chris and Nick said, it will take a network, to beat a network.

Chris also said that a million children are trafficked, each year.

There’s a moment, in our conversation, where Nick says the sprint brings people to realizing that collectively, we can actually DO something about money laundering -- and you can hear the tone of excitement in his voice. For decades, we couldn’t really do much better, because we’ve had analog-era technology. Today we can use digitally-native tools. We can use them to fight crime and also to tackle nearly every other aspect of financial regulation -- all the areas where problems are so hard to solve. Financial inclusion. Consumer education. Preventing discrimination and predatory finance. Identity verification. Risk assessment. Financial reporting. New technology can make it all work better, and cost less, at the same time -- something that in the past was completely impossible.

Believe it or not, I’m actually curbing my enthusiasm for this. This is the tamped down version.

I think this is a regulatory revolution, beginning to move. Please listen to this episode, share it with everyone you know, and join in the dialogue.

More on Chris Woolard

Christopher Woolard is Executive Director of Strategy and Competition and an Executive Board Member of the Financial Conduct Authority. He’s responsible for policy, strategy, competition, market intelligence, consumer issues, the Chief Economist's department, communications and the Innovate initiative. He is chair of the FCA's Policy Steering Committee and a non-executive board member of the Payment Systems Regulator.

Christopher joined the FCA in January 2013. Previously he was Group Director and Content Board member at Ofcom. He has spent most of his career in regulation or policy development including working at the BBC and in government as a senior civil servant. He is a Sloan Fellow of London Business School.

More on Nick Cook

Nick Cook leads the FCA’s RegTech activities, including the FCA’s TechSprint events - the first events of their kind convened by a financial regulator. He is responsible for creating the FCA’s Analytics Centre of Excellence to drive the organization’s use of data science, machine learning and artificial intelligence.  Nick is the FCA’s representative on the European Securities and Markets Authority’s (ESMA) Financial Innovation Standing Committee and an advisor to the RegTech for Regulators Accelerator Programme. Nick joined the Financial Services Authority (the FCA’s predecessor) in 2009, initially in its Enforcement and Market Oversight Division. Prior to joining the regulator, Nick qualified as a chartered accountant at KPMG Forensic.

More for our listeners

Full interview transcript.

We have many more great podcasts in the queue. We’ll talk with another community bank CEO, Mike Butler of Radius Bank.  We’ll have two more episodes recorded this year at LendIt. One is a discussion of new research by LendUp and Experian, on credit reporting, and the other is with my friend Greg Kidd of Global ID.  We also recorded two episodes at last month’s Comply 2018 conference in New York, with two regtech firms -- Compliance.ai, which offers machine-readable regulatory compliance, and Alloy, which has high-tech solutions for meeting the Know-Your-Customer rules in AML.

Speaking of LendIt, I’ll also be a guest on Peter Renton’s Lend Academy podcast, and he’ll be on our show soon as well, so watch for those.

I’m also excited we’ll have several leading members of Congress on the show in the coming weeks. So, stay tuned!

I hope to see you at upcoming speeches and events including:

Also, watch for upcoming information on my collaboration with Brett King on his new book on the future of finance -- we’ll have a show and events on that as well.

If you listen to Barefoot Innovation on iTunes, please leave a five star rating on the show to help us build it. Also please remember to send in your “buck a show” to keep it going, and come to jsbarefoot.com for today’s show notes and to join our email list, so you’ll get the newest podcast, newsletter, and blog posts. As always, please follow me on Twitter and Facebook.

And tell me what you’re thinking about digitizing regulation. Let’s widen this dialogue to more people, and more and more ideas!

Support our Podcast


Innovation and Community Banks: Eastern Bank CEO Bob Rivers

Matthew Van Buskirk

Rivers Photo.png

One of my goals for Barefoot Innovation is to amplify the voice of America’s community banks about the future of financial innovation and regulation. Today’s guest is perfect for this. He is Bob Rivers, CEO of Eastern Bank in Boston. At age 200, Eastern is the oldest and largest mutually-owned bank in the United States. At the same time, it is one of the most “young” and nimble community banks in adopting new technology.

Mutual savings banks were once common, especially in New England. Most have converted to stock ownership, but Bob points to Eastern’s mutual structure as a key advantage in its strategy, which includes a strong focus on social mission. He explains the bank’s roots in Salem, Massachusetts, serving people who had no bank, and describes how it evolved to emphasize empowering marginalized customers, including women. He also tells the story of his own rise to leading Eastern, from a start 36 years ago that included cleaning bank branches at night. It’s a classic community banking story, for both Eastern and its leader.

What mainly drew me to Eastern’s offices, though, on a cold day in Boston last February, was its reputation for innovation. When people talk about community banks and the technology change that’s transforming banking, Eastern’s name always comes up.

In this episode, Bob describes how their innovation strategy began six years ago, when he invited Eastern’s Chief Technology Officer, Don Westermann, out for “walkabouts” in Kendall Square, a Boston neighborhood noted for innovation. Bob and Don just introduced themselves, cold, to tech firms, hoping “to understand the mindset of the disruptive innovator” -- their goals and approaches, and also how to reach their networks. Two years into that process, they met PerkStreet Financial, which Bob describes as similar to Simple (we’ve done two shows with Simple CEO Josh Reich, who just stepped down this month -- they are here and here, still great listening.)  In Boston, PerkStreet was giving up (actually as a result of regulatory changes), when Bob met its CEO Dan O’Malley, and they went into business together. The resulting Eastern Labs set out to digitize the lending application process for small businesses, including on SBA loans. Three years later, Eastern spun off that enterprise as Numerated Growth Technologies -- whose website describes it as “Built For Banks, Incubated Inside A Bank.” Now Eastern has opened a new Lab 2.0 with plans for additional tech solutions.

In our conversation, Bob gives a road map for how a community bank can undertake this kind of innovation -- how to position it, structure it, staff it, fund it, and run it; how much capital it needs; how to price the services; how much to integrate the innovation team with the bank versus leave it independent; and how to use tech-world concepts like agile design and minimum viable products, or MVP’s. He also explains how an initiative like this can radically transform a small bank’s ability to attract tech talent, and how it can remake the bank’s culture, itself.

Bob also has views on how regulation factors into innovation. Notably, Eastern recruited Steve Antonakes, former Deputy Director of the Consumer Financial Protection Bureau and former Massachusetts Commissioner of Banks, to lead its enterprise risk function. Bob has a range of insights into what regulators are doing right, along with suggestions.

This bank has cracked the code on one of the most critical challenges facing community institutions, namely how to partner with innovators to leverage the respective strengths and weaknesses of each. As he says, fintech startups used to see themselves as replacing lumbering old banks, but most now hope instead to work with them, because these two groups need each other. Few banks of any size can innovate the way startups can. Yes, banks have always innovated, but today’s changes, coming so fast, driven by trends erupting in the wider tech world, are simply not in basic banking DNA. Few banks can build a world-class, digitally-native user experience. Few can afford and attract the data scientists for new-generation risk analytics.  Conversely, though, very few fintechs can readily get the building blocks needed to scale up, like rapid, affordable customer acquisition, or accessing stable, low-cost funding, or deeply understanding financial products, markets and regulations -- all of which are strengths every bank can bring to the table. And the good news for community banks, specifically, is that they also have natural advantages over large banks, despite having less sophisticated technology, precisely because they’re small. They can be nimble. They don’t have to turn the proverbial battleship. They can chart and follow a new course, as Eastern is doing.

Smaller banks see this logic, but most struggle to know where to start. Bob Rivers has the answer. It’s simply, start where you are and just move forward. You don’t need to figure it all out first. Really, you can’t. Instead, start small. Try things. Immerse in rapid learning. Talk to people. I’ll add, go to tech conferences and read tech publications. Do the walkabout!

I recently spoke at a state bankers association conference. On the hotel elevator, coming down to the event before my talk, I chatted with a former bank CEO, now a director. When he learned my speech was on technology, he laughed and said, “I’m too old to learn it!” I told him I was going to try to change his mind about that, because, here’s the reality: banks’ CEO’s must lead this. They don’t have to be techies -- Bob Rivers isn’t. He says he still balances his checkbook with a calculator. But he’s leading his bank into a new digitized financial world, by knowing it needs to change and embracing innovation with boldness and imagination.

More about today’s show

Link to Full Transcript of This Episode

Our podcast episode with John Ryan, CEO of the Conference of State Bank Supervisors, on banks and communities.

My cover story in Texas Banker, with tips for community banks on digital transformation.

More about Bob Rivers

Bob Rivers is Chairman and CEO of Eastern Bank, America’s oldest and largest mutual bank with two centuries of service to the communities it serves. During Bob’s tenure, Eastern has built on its long legacy of community service and philanthropy by developing a robust advocacy platform in support of various social justice and sustainability issues.

In 2014, Bob co-founded Eastern’s innovation venture, Eastern Labs, which earlier this year spun out Numerated Growth Technologies, a new fintech company offering a state-of-the-art small business lending platform.

Bob has also been personally recognized for his work in championing social justice and sustainability issues by organizations and outlets like The Boston Globe, Boston Business Journal, The Partnership, Get Konnected!, Color Magazine, the Massachusetts Immigration & Refugee Advocacy (MIRA), Asian American Civic Association (AACA), Association for Latino Professionals For America (ALPFA), El Planeta, the Massachusetts Transgender Political Coalition, The Theater Offensive and The Ad Club.

Since the podcast was recorded, Eastern Bank has opened a new branch in Roxbury Crossing, the first bank in that community to open in 20 years, reflecting the bank’s work in underserved communities.

More for our listeners

We have many more great shows in the queue. We’ll talk with the CEO of another community institution, Mike Butler of Radius Bank, which is much smaller than Eastern and is pursuing a fascinating innovation strategy.  We’ll have two more episodes recorded this year at LendIt. One is a discussion of new research undertaken jointly by LendUp and Experian, on credit reporting, and the other is with my friend Greg Kidd of Global ID.  We also recorded two episodes at this month’s Comply 2018 conference in New York, with two regtech firms -- Compliance.ai, which offers machine-readable regulatory compliance, and Alloy, which has high-tech solutions for meeting the Know-Your-Customer rules in AML.

Speaking of LendIt, I’m also going to be a guest on Peter Renton’s Lend Academy podcast, and he’ll be on our show as well, so watch for those.

I’m also pleased to say we’ll have several leading members of Congress on the show in the coming weeks. In addition, we’ll record a very special show at the upcoming, global AML tech sprint being run by the UK Financial Conduct Authority in London this week -- which will be, in my view, the most important regtech development in memory...for reasons we’ll talk about. So, stay tuned!

I hope to see you at upcoming events including:

Also, watch for upcoming information on my collaboration with Brett King on his new book on the future of finance -- we’ll have a show and events on that as well.

As always, please remember to review Barefoot Innovation on iTunes, and sign up to get emails that bring you the newest podcast, newsletter, and blog posts, at jsbarefoot.com. Again, follow me on twitter and facebook.  

Support the Podcast

And please send in your “buck a show” to keep Barefoot Innovation going!



The Courage to Change: Former Wells Fargo BSA Officer Jim Richards

Jo Ann Barefoot

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We’re moving into a new era of regulation and compliance that will be driven by new technology. Most of our listeners know I’ve co-founded a regtech firm, Hummingbird, to help bring this new model, first, to anti-money laundering, which is widely seen as the arena where the old compliance model is most broken, and where new technology could go the farthest, fastest, to solve everyone’s problems -- by both improving outcomes and cutting costs. There is a growing global “regtech” community, in both the public and private sectors, aiming to transform financial regulation and compliance, and specifically to make them both digitally-native, with all the power of digitization to make everything better, faster, and cheaper, all at once.

Executing this transformation will take imagination, vision, wisdom and even courage, which is why I invited today’s guest to join us.  He is Jim Richards, founder of the new firm, RegTech Consulting, and I think he used the word “courage” six times, in our talk.  We sat down together at this year’s LendIt conference in San Francisco, just a few days after Jim had retired from his position as the Bank Secrecy Act Officer and Global Head of Financial Crimes Risk management at Wells Fargo, a job he held for more than twelve years. He’s also an attorney and a deep expert in financial crime.

Jim is famously outspoken. He’s also funny (he says the book he wrote on transnational financial crime sold more copies in Russian than in English. Most of all, though, he’s frustrated. He thinks we can do better in fighting financial crime.

I do too. According to the United Nations, there’s about $2 trillion in global financial crime each year, and we’re catching less than 1 percent of it. To achieve these paltry results, the financial industry spends around $50 billion a year. In other words, launderers can fund terrorism and amass wealth by trafficking in drugs, weapons, and human beings, with very little risk of getting caught. No wonder financial crime is a growing global business.

Jim says that the heart of this problem is that incentives are misaligned, which means resources are too. He thinks we’ve built a regulatory system that does not reward effectiveness but instead prizes compliance “hygiene.” The theory of the system, of course, is that banks’ careful compliance with the AML regulations should lead to high levels of effectiveness in helping law enforcement stop financial crime. Possibly, in an earlier era, it did. Today, though, there is a massive mismatch between the compliance activities required by our regulations and the desired outcomes -- partly because the technology of both money laundering, and anti-money laundering, has shifted under our feet. And today’s methods can’t scale up.

Like many people in the AML world -- including me -- Jim envisions a better system in which, mostly through newer technology, we could take some of the thousands of people and billions of dollars devoted to this effort and redirect them to drive better results, and cut the costs, too.

He has lots of ideas. They include updating the rules on Currency Transaction Reports; fixing the Know Your Customer process through more information standardization, prescreening, and data sharing; addressing the new beneficial ownership requirements (which he calls a tsunami hitting banks and their small business customers; and resolving what he calls “The Clash of the Titles” -- the four titles of the US Code that govern financial crime. He suggests getting law enforcement input into financial regulators’ enforcement efforts. He has thoughts on how AML and fraud detection overlap and differ. He says there’s a lot to learn from how fintech companies do AML since they generally have good data and new systems. Like our previous Barefoot Innovation guest, Ripple’s Chris Larsen, Jim sees a useful model in how global trade was transformed by the advent of standardized shipping containers, as explained in Marc Levinson’s book, The Box.

A key issue is transaction monitoring (although Jim vigorously argues that term is obsolete). The law requires banks to monitor their customers’ activity and report suspicious patterns.  Today, this process, systemwide, produces huge over-reporting of meaningless alerts that drown both bank personnel and law enforcement in low-value information they don’t have the tools to analyze. It’s a perfect use case for AI, which Jim says Wells Fargo began using in AML as early as 2008 and is now building further under his successor, Graham Bailey (whom Jim calls a genius, the best AML technologist in the industry).

Jim says that banks like Wells Fargo devote less than ten percent of their AML compliance people to working on sophisticated, complex crime, while the other 90+ percent do regulatory compliance, just “crunching through the volumes.”  This is at a time when the crime itself is getting more and more sophisticated because the worst criminals are adopting new tech and are building global networks, most of which we can’t find with current methods. He makes the case that it would be good to flip that and deck the 90 percent against the big problems. We already have the technology to do that, both in process and analytics. We just need to enable the system to adopt it, for both government and industry.

The original AML law in the United States, the Bank Secrecy Act, is approaching the half-century mark. It’s been modernized and automated along the way -- FinCEN has brought in a lot of automation -- but the system doesn’t yet leverage the newest technology. It needs to shift to digitally-native design, probably with open source technology that can enable new, efficient, effective approaches, system-wide. A few weeks after we recorded this episode, I hosted a roundtable in Washington where experts from across the AML ecosystem -- large and small banks, fintechs, regtechs, bank regulators, trade groups, Congressional staff, academics and, crucially, law enforcement -- spent a day together thinking through next-generation AML. The new Comptroller of the Currency, Joseph Otting, has made AML modernization a top priority. Change is coming.

And it’s attracting great people, including great tech people, into solving these problems, including many who, a year ago, would surely have laughed to hear Jim Richards say, as he did to me, that BSA Officer is “the most fascinating job you can have in banking.”  People think compliance is boring. They’re wrong. It’s fascinating, and it’s important.

Jim has founded his new firm, RegTech Advisors, to, as he puts it, “develop the next generation of professionals, technologies, programs, and regimes and really make a difference.” He thinks doing that will take courage... including the courage to make some mistakes. That’s a type of courage that doesn’t come easily to the regulatory sector, but we’re going to have to develop it.

More on Jim Richards

  • James R. Richards, B.Comm., JD, CAMS
  • Principal and Founder, RegTech Consulting, LLC
  • www.regtechconsulting.net
  • Richards@ThinkRTC.net
  • (925) 818-6612
  • Author, “Transnational Criminal Organizations, Cybercrime, and Money Laundering” (CRC Press, New York, London, Boca Raton, ISBN 0-8493-2806-3)

Jim Richards is Principal and Founder of RegTech Consulting, LLC, a private consultancy aimed at developing the next generation of BSA/AML and financial crimes professionals, technologies, and programs. Services include BSA Officer coaching, program reviews, crisis management, director support, non-financial institution development and awareness, and FinTech due diligence.

From 2005 to April 2018 Jim was BSA Officer, Global Head of Financial Crimes Risk Management, Wells Fargo & Co., where he was responsible for governance and program oversight of Bank Secrecy Act and AML for Wells Fargo’s global operations, including quarterly reporting to the Board of Directors. As Director of the Global Financial Crimes Risk Management group, Jim oversaw governance and program execution of BSA, AML, External Fraud, Global Sanctions, Financial Crimes Analytics, and High-Risk Customer Due Diligence. He was a member of the Wells Fargo Management Committee and Enterprise Risk Management Committee, and he represented Wells Fargo with the Bank Secrecy Act Advisory Group (BSAAG) of the US Department of the Treasury.

Jim previously held AML and financial intelligence positions at Bank of America and FleetBoston. He was also an Assistant District Attorney, Special Investigations Unit, Middlesex County District Attorney’s Office, in Cambridge, MA, investigating and prosecuting cases involving narcotics, organized crime, white-collar crime, and economic crime in the largest county in Massachusetts.  Investigations and prosecutions included felony embezzlement, attorney fraud, public corruption, computer-based larceny, gambling, money laundering, and organized gambling cases. He was Supervisor of the SIU’s Narcotics Forfeiture Group, with carriage of and supervision over the Group’s civil and criminal forfeiture caseload.

Jim has prior experience in private legal practice at Choate, Hall & Stewart in Boston, as a Barrister in Ontario, Canada, and as Special Constable, Royal Canadian Mounted Police, E Division (British Columbia).

More for our listeners

We have great shows in the queue. We’ll talk with the CEO’s of two community banks -- Bob Rivers of Eastern Bank and Mike Butler of Radius Bank, both of which are leading the way in innovation by smaller institutions. We’ll also have two more I recorded at LendIt. One is a discussion of new research undertaken jointly by LendUp and Experian, on how to improve financial access through credit reporting. The other is with my friend Greg Kidd of Global ID.  I’m pleased to say we also will have several members of Congress in the coming weeks, and also several guests I’ll record at the upcoming, global AML tech sprint being run by the UK Financial Conduct Authority.

I hope to see you at upcoming events including:

As always, please remember to review Barefoot Innovation on iTunes, and sign up to get emails that bring you the newest podcast, newsletter, and blog posts, at jsbarefoot.com. Again, follow me on twitter and facebook.  

Support the Podcast

And please send in your “buck a show” to keep Barefoot Innovation going!



How to Change the World: The Gates Foundation’s Michael Wiegand

Jo Ann Barefoot

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My guest this week is Michael Wiegand, Director of the Financial Services for the Poor strategy at the Bill and Melinda Gates Foundation.

If you had new ideas for solving the world’s toughest problems, and ample resources to devote to pursuing them, you might do what Bill Gates did when he stepped back from running Microsoft in order to apply what he’d learned there, especially about the power of technology, to problems that have long seemed unsolvable. He and his wife launched their foundation to tackle age-old challenges like eliminating malaria, or combating disease that’s spread by lack of clean water and sanitation, or... achieving worldwide financial inclusion.

Anyone who spends time with the developing world’s financial inclusion efforts is in constant contact with the Gates’ Foundation, both directly and indirectly through the many projects and entities they fund. Their efforts are always notable for incisive analysis and insight. Like their counterparts at the Omidyar Network, which works in the same space (and with whom I often work), they have a genius for finding the critical, concrete, doable things that, if accomplished, will set needed change in motion across an entire complex ecosystem, drawing in the efforts and energy of more and more people with leverage on the problem.

Michael and I met at the Asian Development Bank summit last winter in Manilla, and then both went on to the Monetary Authority of Singapore’s enormous FinTech Festival, where we recorded this conversation.

Anyone interested in emerging markets will find it fascinating, but I also recommend it to everyone who cares about consumer finance, financial protection, inclusion, and technology in the developed world as well. As I’ve said in other shows, developing countries are in many ways ahead of the larger economies in both fintech and regtech. That’s mainly because their consumer financial markets are already mostly digital -- i.e. delivered through the mobile phone -- and therefore easier to regulate through digital means. It’s also because the rush of new, lower-income consumers into these markets makes it critical for regulators to figure out how to protect them. That is going to require new regulatory tools that are already being designed.

The World Bank has set the goal that every adult in the world should have financial access -- essentially a “bank” account in their phone -- by 2020. Michael discusses where we stand in that effort -- nearly two billion people short -- and describes Gates’ goals for progress by 2030. He explains what the pathway toward it looks like -- the most critical things that have to happen, including the technology, the infrastructure, and the trust.

The pathway starts with payments, since payments innovation like Kenya’s M-Pesa has been the first step in mobile financial access almost everywhere and, once established, makes everything else possible. Michael describes Gates’ Level One project, which includes offering workshops for central banks on how to develop electronic systems that will function safely and well in replacing cash and other forms of payment. (As Michael explains, a key is to use “push” payments initiated by the sender of the money, rather than the more common arrangement in which payees “pull” the funds.) They also have launched the Mojaloop initiative, using blockchains and digital payments with partners like Ripple (Mojaloop is the Swahili word for “one.”)  

Michael talks about how phone-based payments activity can accumulate a data footprint for people who lack one, so that the combination of their growing data identity and the mobile delivery channel can enable other financial services to begin to stack on top of the payments capability, in the phone -- lending, savings, insurance, financial management, and the rest. He answers the often-asked question of whether any of this can work, when most people now do have phones, but not yet smartphones. He cites a McKinsey Global Institute study estimating that digital financial services could add $3.7 trillion to the GDP of developing countries by 2025. He also talks about the disproportionately positive effects of all this on women, including how the men in their own lives view them -- a key focus of Gates’ work.

We also talked about digital identity in the context of the Know Your Customer, or KYC, anti-money laundering rules that create such barriers for people trying to come into the financial system without traditional identity documents. (Here is my episode with Sanjay Jain about this point, on the India Stack and Aadhaar card.)

Again, if you think these developments aren’t relevant to the United States, ask yourself this: how are we going to protect consumers’ financial data from cyberthreats, when we’ve built our identity verification around outdated paper-based systems like social security numbers -- which are now widely for sale on the dark web? We too will have to move to protectable digital identity over time, and we’ll learn a lot from the advanced efforts underway now in other parts of the world.

The Gates work, again often teamed up with others like the Omidyar Network, includes helping regulators innovate, themselves. He talks about the Regtech for Regulators initiative, or R2A, that’s using technology to help several countries solve their main regulatory pain points, with solutions ranging from digitized AML to creating a complaint chatbot on consumers’ mobile phones. He talks about funding the Alliance for Financial Inclusion, or AFI, which consists of the central banks and financial regulators of the Global South (here’s my podcast with AFI’s leader, Alfred Hannig.) Michael talks about how Gates chooses which countries to work with as learning laboratories, where they can develop lessons that may apply everywhere.

He also talks about supporting C-GAP, the Consultative Group to Assist the Poor, under the umbrella of the World Bank’s financial inclusion work. And also the Better Than Cash Alliance, under the umbrella of the United Nations. I could go on -- again, they are touching nearly all the important innovations underway.

There’s a genius here for figuring out what needs to happen, including what needs to happen first, and second and third; learning through small, concrete experiments; and then seeding and building coalitions or where needed, new institutions, to make progress actually...happen. It’s breathtakingly ambitious, and yet, it’s practical.

Here’s the thing. This is not an old-style charitable effort to chip away at a problem that will always be there. It’s an actual effort to solve it. In other shows I’ve talked about “wicked problems” -- problems too complex to be solved -- and how sometimes technology solves them. That’s the Gates vision on the problem of financial inclusion.

More for our listeners

We have more great shows coming up. We’ll talk with the CEO’s of two very innovative community banks -- Bob Rivers of Eastern Bank and Mike Butler of Radius bank. I also have three wonderful episodes I recorded at this year’s LendIt conference in San Francisco. One is with Jim Richards, recorded just a few days after he retired from his role as global head of Anti-Money Laundering for Wells Fargo. Plus I had an incredibly fascinating conversation with my friend Greg Kidd of Global ID. And we’ll have an overview of new research done jointly by LendUp and Experian, on how to improve financial access through credit reporting. We also will have several members of Congress in the coming weeks, which I’m really looking forward to. And we’ll have a show with the head of innovation at the CFTC, Dan Gorfine, who is going to talk about WHY it’s so hard for government to change -- some of the barriers that, while well-intentioned, may need to be rethought for today’s fast-changing technology environment.

I hope to see you at upcoming events including:

As always, please remember to review Barefoot Innovation on iTunes, and sign up to get emails that bring you the newest podcast, newsletter, and blog posts, at jsbarefoot.com. Again, follow me on twitter and facebook.  

And please send in your “buck a show” to keep Barefoot Innovation going! Until next time, keep innovating!

Support our Podcast


Affordable Financial Advice: Nerdwallet CEO Tim Chen

Jo Ann Barefoot

Chen 2.png

Tim Chen is the founder and CEO of NerdWallet, and he’s a classic American story. In today’s episode, he describes the remarkable journey he’s taken so far in his still-young life, which has had dramatic ups and downs -- (as he says, when one door closes, a bigger gate may open). NerdWallet, which he founded at age 26, now helps more than 100 million people every year shop for and choose financial products that meet their needs.

NerdWallet is a matchmaker, guiding consumers to find the financial products that fit them best, and doing it in a way that automates large swaths of the financial advisory process in order to make advice affordable for people who don’t qualify for a personal wealth manager.

Tim says, “Money is so complicated” and he talked with me about how to make it all simpler, especially for people with relatively simple financial profiles. One key is automate the process of learning about their situation and needs, without making that process intrusive or too burdensome to be practical. In our conversation, he talks about how to do this, finding the areas where people’s situations are fairly similar versus those where there’s huge variation. He talks about doing living room visits, and how surprised he’s been by the vast differences among people who look the same if you just consider top-line factors like income. He talks about how much people struggle just to know where they stand, and about being humbled by how little we know.

Tim says traditional finance has been opaque, and he wants to change that. Among other things, he wants to break the “entrenched behaviors” around, as he puts it, people basically just taking what they’re given. 

As a man who founded a company in his mid-20’s, Tim has ringing advice for other entrepreneurs, including that it really helps to be “delusionally optimistic” about your product. As a startup cofounder myself, I’ve often recalled another bit of advice, on how to set priorities and stay focused on what counts the most.

Tim also has interesting thoughts on regulation, and had recently written an op-ed on the future of the CFPB (note that we had this conversation late last year).

Finally, he shares his secrets of personal effectiveness, which I suspect you will find surprising.
 

More for our listeners
We have great shows in the queue. They include my talk in Singapore with Michael Wiegand, who heads the Gates Foundation’s work on financial services for the poor. We’ll also talk with the CEO’s of two community banks -- Bob Rivers of Eastern Bank and Mike Butler of Radius bank. I was able to record three wonderful episodes at this year’s LendIt conference in San Francisco. One is with Jim Richards, recorded just a few days after he retired from his role as global head of Anti-Money Laundering for Wells Fargo. Plus I had an far-ranging conversation with my friend Greg Kidd of Global ID. And we’ll have an overview of new research done jointly by LendUp and Experian, on how to improve financial access through credit reporting. We also will have several members of Congress in the coming weeks, which I’m really looking forward to.

I hope to see you at upcoming events including:

  • Bank Director, The Reality of Regtech, April 18, New York, NY
  • Texas Bankers Association Annual Conference, May 3, Houston, TX
  • Women Corporate Directors Global Institute, May 10, New York, NY
  • Comply 2018, May 16, New York
  • Financial Conduct Authority AML Tech Sprint, May 22-4, London
  • CFSI’s EMERGE, June 6-8, Los Angeles, CA
  • American Bankers Association Regulatory Compliance Conference, June 26, Nashville -- I’ll be moderating a general session panel on regtech, and also teaming up again with the ABA for some special podcasts.

As always, please remember to review Barefoot Innovation on iTunes, and sign up to get emails that bring you the newest podcast, newsletter, and blog posts, at jsbarefoot.com. Again, follow me on twitter and facebook.  
 
And please send in your “buck a show” to keep Barefoot Innovation going!
 

Support our Podcast


Sponsor Bank: Cross River Bank’s CEO Gilles Gade

Matthew Van Buskirk

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My guest today is pioneering a crucial innovation within the innovation landscape in finance -- by providing banking services to fintechs through a platform-based financial services model known as the sponsor bank, or partner bank. In today’s episode, Gilles Gade tells the story of founding and building one of the leading sponsor banks, Cross River.

Most fintech companies are licensed by their states, but are not banks. That means that every one of them has to find a bank through which to clear payments and connect to the payments system (which only banks can do). That’s not easy -- many fintechs struggle with this because banks are required by their regulators to set up complex systems for due diligence and risk management in dealing with any kind of third party that could affect the bank’s soundness or its customers’ wellbeing. Over the last decade or so, this challenge, combined with the enormous potential of the fintech market, prompted a number of banks to focus on meeting this need -- Gilles points to Webbank as leading the way. These banks have to meet a range of specialized needs including, crucially, taking responsibility for the partner fintechs’ compliance with regulatory requirements.

Gilles describes founding Cross River in 2008, when the financial crisis had curtailed many kinds of consumer and small business credit, and talks about how new companies emerged to fill the gap, with either new kinds of products, or new ways of creating access to old products. He points to fintech lenders -- like Affirm, Lending Club, and Sofi -- and also to payments-focused companies like Coinbase, Transferwise and ActiveHours, as innovators that are opening up more inclusive finance.

Gilles is especially thoughtful on regulatory issues, which he calls “by far” the biggest challenge for the fintech world. He emphasizes that the single biggest difficulty is sheer uncertainty, as technology change outstrips traditional regulatory change mechanisms. Gilles cites the Madden v. Midland litigation, with its controversy over national versus state interest rates, and the “valid when made” doctrine, as issues that need clarity so that lenders can build stable business models.

Gilles also has thoughts on the Comptroller of the Currency’s proposal for creating a special fintech charter (note that we recorded this discussion during the tenure of Keith Noreika as Acting Comptroller of the Currency). Gilles laments that we have no fewer than 12 federal regulators involved in these issues (I myself have actually counted twice that many, directly and indirectly involved). Like me, he’s optimistic about the innovation efforts of the regulatory agencies -- he mentions the OCC in particular -- and of congressional leaders like Congressmen Patrick McHenry (R-NC) and Gregory Meeks (D-NY) -- both of whom, I’m delighted to say, are going to be guests on our show.

Cross River’s emphasis on policy issues has led it to a number of leadership initiatives, including creating the Online Lending Policy Institute, which sponsors an outstanding Online Lending Policy Summit in Washington each fall, and also sponsoring the policy programming at the LendIt conference, which is coming up next month -- I’ll be there, by the way, and I hope you will too!

More on Cross River and Gilles Gade

Video about the bank

Gille Gade:

Gilles Gade is a founder of Cross River Bank (CRB) and has served as its Chairman, President and CEO since its inception in 2008 as an innovation-driven state-chartered bank and a provider of fully compliant financial solutions to the marketplace lending and payments sectors. Gilles has over 20 years of experience in investment banking and venture capital including as Co-Founder and Managing Director of Chela Technology Partners and Chela Internet Ventures, a boutique investment bank and venture fund focusing on emerging technologies and telecommunications; technology investment banker at Barclays Capital; and FIG investment banker at Bear Stearns. He started his career in 1990 at Citicorp Venture Capital, after graduating from the MBA Institute IMIP (Groupe IPESUP) in Paris with an MS in International Management.

More for our listeners

Our upcoming shows will include Nerd Wallet CEO Tim Chen; Michael Wiegand, who heads the Gates Foundation’s work on financial services for the poor; and the CEO’s of both Eastern Bank and Radius Bank. As I mentioned we’ll also have shows soon with two members of Congress, one a Republican and one a Democrat, and some other very special guests.

I hope to see you at upcoming events including:

Support our Podcast

As always, please remember to review Barefoot Innovation on iTunes, and sign up to get emails that bring you the newest podcast, newsletter, and blog posts, at jsbarefoot.com. Again, follow me on twitter and facebook.  And please send in your “buck a show” to keep Barefoot Innovation going!



Digitally Native Finance: Starling Bank CEO Anne Boden

Matthew Van Buskirk

Boden 1.png

Today’s episode is like a crystal ball glimpse into the future of banking, narrated by my guest, Anne Boden, the thoughtful and charismatic Founder and CEO of Starling Bank in the UK.

Anne has years of experience at large banks, including in IT roles. At one of them, she led an effort to develop an innovation transformation. It brought her to a critical conclusion:  that the only way to create a really innovative bank is to start “from scratch.” When the UK government in 2013 responded to the financial crisis with a new type of charter, Anne founded Starling.

Starling was the first of what the UK calls “Challenger Banks,” designed to foster increased market competition. It is also a “digitally-native” bank, built as a fully digital business, for the digital age.

Starling is mobile-only. It operates on open platform principles and leverages the new personal data rules in Europe. These say that financial data belongs to the consumer, not the bank, and require companies to implement the customer’s instructions to share account information with any entity the consumer chooses. Among other things, this makes bank accounts “portable,” and also give customers the right to terminate such arrangements and to control how the data can be used.

Building on this is a new emerging business model that is, again, essentially a platform. In Starling’s case, they take deposits and do payments, and then they operate what they call a “marketplace” with specialized partners that offer their customers everything from mortgages to insurance, to an array of financial management tools.

One result is efficiency.  Anne says 100 or 150 people can do work that needs 10,000 at a large bank.

Another is innovation. She talks about how hard it is to seed and propagate an innovation culture at traditional banks, and why they can’t just buy the technology they need and plug it in. As she puts it, “some poor CIO somewhere has to be brave enough to press the button.”

Anne also notes that the as the platform model disaggregates traditional functions, the front end of the chain -- the customer relationship and interface -- might separate off and end up in the hands of Google, Facebook or Twitter.

Our conversation included her insights on how this new model will evolve; the roles of each partner; why Starling chose to become a bank instead of offering a prepaid card; and how hard it is to do that -- the high attrition rate among those that attempt it.  

Starling customers (who, by the way, are not just millennials) have a new kind of financial life. They can simply ask Starling, by voice, whether they can afford to buy a car. They can opt to have bank statements itemize by a given shop, right down to the cheese sandwich and the diet coke. Anne says they could add calorie counts to that and can integrate it with health information from the fitness app, and suddenly, money, lifestyle, and health are integrating in new ways.

More on Anne Boden

Three decades ago, Anne Boden pioneered the UK’s first same-day payment service – and in the process transformed the future of electronic money. Today, that revolutionary zeal continues to inform her work at Starling Bank, the mobile-only current account app she launched earlier this year.

Recently recognized as one of the Global Power Women in FinTech, Anne’s worked at a senior leadership level across some of the world’s best-known financial heavyweights, among them Lloyds and Royal Bank of Scotland. It was during her tenure as CEO of Allied Irish Banks, however, that she began to explore the exciting potential of financial technology for transforming customer’s everyday lives.

At heart a tech startup with a banking license, Starling is a challenger bank built on a foundation of disruptive emerging technology, competing with traditional legacy banks and helping people develop a healthier relationship with their money.

More for our listeners

Upcoming shows will include Cross River Bank CEO Gilles Gade; Michael Wiegand, who heads the Gates Foundation’s work on financial services for the poor; NerdWallet CEO Tim Chen; and the CEO’s of two community banks -- Eastern Bank and Radius bank. And there’s much more in the pipeline!.

I hope to see you at upcoming events including:

  • CFSI’s Fintech and the Federal Government: How Policymakers and Startup Companies are Exploring Financial Innovation, March 15, U.S. Senate, Washington

  • Innovate Finance Global Summit, March 19-20, London, UK

  • Regulation and Innovation in the Age of FinTech, with FSD Africa, Cambridge Centre for Alternative Finance and RegHub, March 22-23, London, UK

  • Lendit Fintech USA, April 9-11, San Francisco, CA

  • Bank Director, The Reality of Regtech, April 18, New York, NY

  • Texas Bankers Association Annual Conference, May 3, Houston, TX

  • Women Corporate Directors Global Institute, May 10, New York, NY

  • Comply 2018, May 16, New York

  • CFSI’s EMERGE, June 6-8, Los Angeles, CA

  • American Bankers Association Regulatory Compliance Conference, June 26, Nashville -- I’ll be moderating a general session panel on regulation and AI, and also teaming up again with the ABA for some special podcasts.

As always, please remember to review Barefoot Innovation on iTunes, and sign up to get emails that bring you the newest podcast, newsletter, and blog posts, at jsbarefoot.com. Again, follow me on twitter and facebook.  And please send in your “buck a show” to keep Barefoot Innovation going!

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Collaboration Innovation: Charlotte Crosswell and Dan Morgan of Innovate Finance

Matthew Van Buskirk

I always love it when we find innovation in unexpected places, not just in the financial products and channels and regulatory issues we discuss, but also in people inventing new ways to get things done.

Today’s guests talk about taking a very old kind of entity -- the industry trade association -- and updating it for the 21st century financial world. As often happens with innovation, the thing that’s new is actually very simple, maybe even obvious, and yet when you set it in motion, things change.

That’s what has happened in the UK in 2014 with the creation  of a new trade group called Innovate Finance. As its name conveys, it focuses on fintech innovation. What makes it so innovative and interesting to me, though, is that it has drawn members from the whole financial innovation ecosystem. They have startups, and also banks, and also the other players in the space like consulting and law firms, all actively working with regulators -- and with like-minded companies and governments throughout the world -- all on the same issues at the same time.

My guests are the group’s CEO, Charlotte Crosswell, as well as Dan Morgan. At the time of our recording, Dan was the head of policy for Innovate Finance. He has since moved on to be the FinTech Sector Specialist at the UK Department for International Trade, still working on the same issues. His move was already in progress when we recorded this episode, and I’m glad we were able to get his thinking into the dialogue.

When I find myself admiring innovation outside the U.S., I always have to note that other countries have a simpler system than we do here, in terms of both industry structure and regulatory framework. Our listeners have often heard me worry that the U.S. system, and especially our multi-agency federal regulatory design, is holding us back. The UK has both a less complex banking system and basically only two regulators, which has clearly helped make them the world leader on the regulatory side of innovation (I’ll link to our podcasts with two of their top regulators in the show notes) and also one of the leaders in fintech, too. It may be that this regulatory environment is one reason that Innovate Finance could form around the full spectrum of financial entities.

In the US, our established trade associations are of course working hard to address both industry and policy issues in fintech and regtech. We’ve also had new trade groups form in the last few years, organized by fintechs and/or by big tech companies interested in the financial space. So far, though, we don’t have anything like Innovate Finance (although I know a few people thinking about starting one).

Whatever structures emerge over time, I think everyone can learn lessons from how Innovate Finance operates, and especially how it brings both incumbents and newbies into the very same discussions, the same problem-solving, together. The more I work with financial innovation, the more I know for sure that the main solution is in collaboration. Choose your metaphor -- it can be breaking down silos, or cross-pollination, or weaving separate strands together. The only way to figure out what to do, and to move quickly, is by getting the disparate kinds of players together, all the time, as a new way of life.

So, you’re going to enjoy hearing Charlotte’s and Dan’s thinking. They talk about the secrets to making this happen, why it’s easier in the UK, and why it’s getting easier for banks to innovate (hint -- that too is about breaking silos). They describe regulators who are not merely accepting change, but are helping to drive it proactively, and who have explicitly adopted an “ecosystem” approach. They describe an emerging world of shared problem-solving in areas like AML, identity and consumers owning their own data. They talk about trends among regulators around the world.

Importantly, they also describe their upcoming conference, the IFGS -- Innovate Finance Global Summit in London, March 19-20. I spoke last year and will this year again, and can say with confidence it’s one of the world’s very best. It will be back again in the beautiful, historic Guild Hall, where somehow old and timeless meets new and thrilling in a very happy mix.

More on Charlotte

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Charlotte Crosswell is CEO of Innovate Finance. She has spent most of her financial services career in market infrastructure roles, including as CEO of Nasdaq NLX (“NLX”), a London-based startup derivatives market, and serving on the board of LCH Ltd. She’s also held management positions at Nasdaq and London Stock Exchange across international capital markets, equities, xed income, OTC derivatives trading and clearing. In addition to her current work with Innovate Finance, Charlotte advises and sits on the boards of a number of technology and FinTech startups. She holds a BA with honors in French from the Southampton University and has been included in the list of top 100 Women in Finance over many years.

More on Dan

Dan Morgan - New Headshot - High Res.jpg

Dan Morgan is the FinTech Sector Specialist at the UK Department for International Trade. At the time we recorded this episode he was Head of Policy and Regulation at Innovate Finance, where he led development of member policy specialist groups in digital currencies and Blockchain, payments, access to finance and data. Dan also led the Innovate Finance FinTech 2020 Manifesto and secretariat support for the FinTech APPG. He previously held senior policy roles at a number of business groups including the CBI, BRC and ABI. Dan has worked across a range of sectors and policy areas including insurance, SME finance and retail tax reform.

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More for our listeners

Here are some of the shows coming up. We’ll have Cross River Bank CEO Gilles Gade, talking about the “sponsor bank” model for fintechs working with banking partners. We’ll be back in London with the CEO of Starling Bank, Anne Boden. We also have conversations with Michael Wiegand, who heads the Gates Foundation’s work on financial services for the poor. Back in the US we’ll have shows Nerd Wallet CEO Tim Chen and the CEO’s of two community banks.

I hope to see you at upcoming events including:

  • CFSI’s Fintech and the Federal Government: How Policymakers and Startup Companies are Exploring Financial Innovation, March 15, U.S. Senate, Washington
  • Innovate Finance Global Summit, March 19-20, London, UK
  • Regulation and Innovation in the Age of FinTech, with FSD Africa, Cambridge Centre for Alternative Finance and RegHub, March 22-23, London, UK
  • Lendit Fintech USA, April 9-11, San Francisco, CA
  • Texas Bankers Association Annual Conference, May 3, Houston, Texas
  • Bank Director, The Reality of Regtech, April 18, New York, NY
  • Texas Banker’s Association Annual Conference, May 3, Houston, TX
  • Woman Corporate Directors Global Institute, May 10, New York, NY
  • Comply 2018, May 16, New York
  • CFSI’s EMERGE, June 6-8, Los Angeles, CA
  • American Bankers Association Regulatory Compliance Conference, June 26, Nashville -- I’ll be moderating a general session panel on regulation and AI, and also teaming up again with the ABA for some special podcasts.

As always, please remember to review Barefoot Innovation on iTunes, and sign up to get emails that bring you the newest podcast, newsletter, and blog posts, at jsbarefoot.com. Again, follow me on twitter and facebook.  And please send in your “buck a show” to keep Barefoot Innovation going!

Support our Podcast


Finance and the Fourth Industrial Revolution: Tim Pawlenty, CEO of Financial Services Roundtable

Jo Ann Barefoot

Pawlenty 2.png

Today’s guest is a familiar name and face for everyone who follows U.S. politics. He is Tim Pawlenty, CEO of the Financial Services Roundtable. Tim was previously Governor of Minnesota and became well-known to most of us when he ran for the 2012 Republican presidential nomination. He’s been a prominent voice on public policy for many years.

He was also a speaker on a panel I moderated last fall at Money 2020 on financial innovation and regulation. We decided to continue that conversation back in Washington at his office at the Roundtable, which is the trade association representing the largest U.S. banks and financial companies.

Tim is one of the most thoughtful people we’ve had on the show, with perspective on all the issues and strong opinions, clearly expressed. He shared his predictions for how fintech will, and won’t, change banking, including its competitive structure, and including the likelihood of rising competition for the customer’s trust. He talks about the big tech companies competing with banks not in terms of whether it will happen -- he thinks that’s a given -- but rather when and how, and how that will ultimately be regulated. He has thoughts on the respective strengths and weaknesses of banks versus companies like Amazon or Apple.

He thinks cybersecurity is the top challenge and talks about the foundational, structural difficulty of taking the internet -- which was designed to be open and distributed -- and trying to plug its security gaps with patches (he cites a Roundtable event where Steve Wozniak offered somewhat discouraging advice on this).

Tim is an optimist that technology will make financial services vastly better for most people. He’s also an optimist about banks and fintechs finding synergies and increasingly partnering. He thinks a few -- a very few -- fintechs, will change the world.

He’s less optimistic about U.S. financial regulators getting good at truly coordinating as technology changes finance. As he puts it, the regulatory structure is horizontal, not vertical. That will make it hard to develop the harmonized thinking, and actual standards, that could help the system move forward.

Big banks will play an enormous role in shaping the digital transformation of finance. More than small banks, they have the resources to be innovation leaders. More than fintechs, they have both resources and also expertise in how to be regulated companies, which takes some learning. More than either, they’ll be going head-to-head with big tech entrants into finance. At the same time, more than any of these other players, big banks are hard to change, by virtue of sheer size and history and also the legacy of being, in some ways, creatures of regulation. They are often on the defense on regulatory and political and public concerns about banking.

Tim Pawlenty says banking is the “plumbing” of the economy, and therefore needs to work. I would add that big banks are the main pipes. When they do innovation well, their many millions of customers will benefit -- most financial consumers today are served by these large institutions. If they do innovation badly, or if the regulatory process impedes the move to modernize them, the future will be a whole lot more complicated. As he says, the plumbing has to work.

Here are other episodes we’ve done with innovation leaders at large banks -- Wells Fargo, Citigroup, and US Bank.

More on Tim Pawlenty

Tim Pawlenty is President and CEO of the Financial Services Roundtable, which

represents the leading financial service companies in the United States. He previously served as Governor of the State of Minnesota (2003-2011), overseeing a $50 billion biennial budget, 30,000 employees and over 20 agencies and departments. As governor, he was also responsible for disaster preparedness and response, appointment of judges, and serving as Commander-In- Chief of Minnesota’s National Guard. His work as governor included promoting international business opportunities through trade missions to nine countries. He chaired the

State Board of Investment, which addressed more than $60 billion in investments. His education, health care and energy initiatives were widely cited as among the most innovative in the nation.

Mr. Pawlenty served as Chair of the National Governors Association (2007-2008), Chair of the Education Commission of the States (2008-2010), and Chair of the Midwest Governors Association (2006-2007). From 1986 to 2000, Mr. Pawlenty practiced law in the areas of criminal prosecution, civil litigation and appeals. He was also Vice President of Corporate Development for Wizmo, an early stage technology services company. He has been a board member of numerous companies.

Mr. Pawlenty served in the Minnesota House of Representatives (1993-2003) where he was elected Majority Leader by his colleagues (1999-2003). He received a B.A. from the University of Minnesota with Phi Beta Kappa and PhiKappa Phi honors. He received his J.D. from the University of Minnesota Law School.

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In case you missed it...be sure to listen to our recent show with Nick Cook of the UK Financial Conduct Authority on The Future of Regulation. Especially if you’re a regulator, or know some regulators, this one is recommended listening on how we can move to digitally-native regulation.

We have wonderful shows coming up. One is with Cross River Bank CEO Gilles Gade, talking about the “sponsor bank” model for fintechs working with banking partners. We’ll have two in London, with the CEO of Starling Bank, Anne Boden and another with Innovate Finance CEO Charlotte Crosswell. We also have conversations with Michael Wiegand, who heads the Gates Foundation’s work on financial services for the poor and Nerd Wallet CEO Tim Chen.

I hope to see you at upcoming events including:

Support our Podcast

As always, please remember to review Barefoot Innovation on iTunes, and sign up to get emails that bring you the newest podcast, newsletter, and blog posts, at jsbarefoot.com. Again, follow me on twitter and facebook.  And please send in your “buck a show” to keep Barefoot Innovation going.



The Data Economy: A Lively London Debate on Fintech in Europe and Africa

Jo Ann Barefoot

This is the most fun show we’ve done in ages, or maybe ever. My friend Jean-Stephane Gourevitch offered to gather some really interesting people in London to talk about the data economy. We finally sat down last fall, during London’s Regtech Rising conference, and wow, did we talk.

Jean-Stephane himself is French, based in London, and works with fintech startups throughout the world. His guests were, first, Edward George, who leads both research and the UK representative office for the pan-African bank, Ecobank. We also had Fiona Ghosh, a top London lawyer in the financial and fintech space -- Fiona is a partner at Addleshaw Goddard. Our other two participants have both founded young fintechs. Lukas Zoerner is CEO of Mespo, a fully independent robo money saver. And Luca Schnettler, from Germany, has founded HealthyHealth, which uses data to change the insurance world and to make people...healthier.

We had an incredible conversation. We talked about how Europe’s new data regulations -- PSD2 and the GDPR -- will change banking and fintech (which, by the way, is a revolution that’s being under-discussed in the United States). We covered the opportunities that fintech is opening up in the developing world and especially Africa, where suddenly it’s possible, through the mobile phone, to bring banking to hundreds of millions of people who couldn’t be profitably served before. We talked about the future of cash. We figured out what regulators need to do.

For me, probably the most riveting moments were a debate that broke out between the two fintech CEO’s -- both millennials -- who turned out to have strikingly different views about how data should be used, and also about consumers’ responsibility for securing their own wellbeing. I’ve never heard a discussion quite like it.

So, we had six people around the table, counting me. It was a yeasty mixture of nationalities, languages, ages, continents, professional expertise, products, and target markets -- and with everyone having a whole lot to say.

More about today’s guests

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Jean-Stephane Gourévitch

Jean-Stéphane is an expert of the strategic, public policy and market aspects of digital/mobile payments, mobile money, digital/mobile banking, digital/mobile commerce, fintech, the data economy and innovation ecosystem with over 25 years global experience at senior management levels and a mix of corporate and entrepreneurial experience. He has held senior management positions with International telecom operators including Everything Everywhere Ltd. (EE), Orange, France Telecom, Verizon Business, Colt Technology Services Ltd. He has worked for OFCOM, the UK digital communications regulator. He also has held senior positions with Deloitte Consulting and with strategic marketing and PR/Communications firms.

Jean-Stephane created his own management consulting company 5 years ago, combining strategic, public policy and commercial vision about digital convergence, fintech, insurtech and the data economy. He also has global experience mentoring and advising entrepreneurs and start-ups, in particular very young entrepreneurs.

A frequent speaker on fintech, payments and insurtech, Jean-Stephane has addressed events such as Fintech Connect Live, Pay Expo, and Money2020. He is also an independent conference director, creating programs/content for major conferences such as Fintech Connect Live in London, INPAYCO Digital Payments in Toronto and Paris, Mobile Payments: Regulation, Risks and Opportunities in Berlin and London, the Africa Fintech Forum in Abidjan, Ivory Coast.

As a mentor and advisor to 24 fintech, insurtech and digital technologies startups and to young entrepreneurs in Europe, Africa, Asia, Latin and North America, Jean-Stephane’s expertise lies in strategy, business development, regulatory affairs, public policy, Government Relations, stakeholder relationships management, communication and PR.

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Edward George

Twitter @DrTeddGeorge

Dr. Edward George is the head of the UK representative office of pan-African bank, Ecobank, as well as being head of group research. Edward oversees the teams in the London office, with a focus on corporate banking, financial institutions/international organisations and research. As head of research he also manages a team of nine analysts based across Middle Africa covering the fixed-income, currencies and commodities space. His specialties include soft commodities and agribusiness, trade and trade finance, and disruptive technology.

Edward is also the bank’s specialist on Francophone West Africa and Lusophone Africa. Prior to joining Ecobank in March 2011 he worked for The Economist Intelligence Unit (EIU) for seven years as a Senior Editor in both the Commodities and Africa Departments. There he was responsible for producing and editing reports on Lusophone and Francophone Africa, as well as on 25 industrial raw materials, food, feedstuffs and beverages. Before joining the EIU, Edward worked as a freelance writer covering the politics and economics of Sub-Saharan Africa. A linguist by training, Edward is fluent in French, Spanish and Portuguese and holds a PhD in Political Science from the University of Bristol. His PhD thesis on the Cuban intervention in Angola was published as a book by Routledge in 2005 and as a paperback in December 2012.

Luca.jpg

Luca Schnettler

Luca started HealthyHealth  in January 2017 to realize his vision of using digital means to innovate the insurance sector and help customers become healthy individuals. Before having any partners or advisors, Luca was able to persist and focus on the objective, following his goal and passion of building a company that truly changes customers perception on Insurance and helps them to improve their health.

Lukas Zoerner.jpg

Lukas Zoerner

Twitter @lczoerner

Lukas Zoerner is the Founder and CEO of Mespo, a fully independent robo money saver that detects and executes savings opportunities for consumers. Mespo has established a UK's market first partnership between a FinTech such as Mespo and a Credit Union, My Community Bank. Mespo won the UK's Fintech For All 2017 Financial Inclusion challenge in the category "New Fintechs".

Lukas previously worked in Morgan Stanley's investment banking division advising Power & Utility companies across EMEA. He holds a degree in business administration from the University of Mannheim in Germany.

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Fiona Ghosh

Fiona is a Partner in Addleshaw Goddard's Commercial Group, specialising in complex commercial, IS, payment and FinTech arrangements, particularly in the financial services sector where she has focused her practice for more than a decade. Fiona heads the firm’s FinTech Group. Her work has included bringing new payment solutions, including ApplePay, Samsung Pay and Android Pay, to market. She is an appointed expert on the editorial board of the Payments & Fin Tech Lawyer journal. Fiona's expertise also includes outsourcing and other complex commercial arrangements in the investment banking, retail banking, insurance and asset management sectors. She has longstanding experience in strategic advisory work, negotiation and drafting of multijurisdictional business process outsourcings, including back and middle office, platform integration, facilities management and global administration services for multinational corporations, banks, asset managers and global insurers.

A leader in her field on advice relating to strategic alliances and joint ventures, Fiona has led several international joint venture arrangements for the provision of pensions, credit cards, loans, mortgages and related insurance products acting for both retailers and for providers. She also specialises in advising in the field of retail payments including payment services and commercial arrangements relating to digital and mobile payment solutions, payment aggregation and merchant acquiry in the UK, US and further afield. Fiona is a regular speaker at international conferences and events on FinTech and payments law including Pay Expo Europe, the Westminster Forum Projects and Digital Payments Intensive.

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More for our listeners

Watch for our upcoming shows, including two more from London. One is with the charismatic CEO of Starling Bank, Anne Boden (who was referenced in today’s show with high praise), and the other is with Innovate Finance CEO Charlotte Crosswell. Back in the U.S., we’ll have three fascinating CEO’s -- Financial Services Roundtable head Tim Pawlenty; Nerd Wallet CEO Tim Chen, and Cross River Bank CEO Gilles Gade. We also have an inspiring conversation with Michael Wiegand, who heads the Gates Foundation’s work on financial services for the poor. And we’re going to do a special one in San Francisco with my cofounders of Hummingbird Regtech -- so, stay tuned!

I’ll hope to see you at upcoming events where I’ll be speaking:

As always, please remember to review Barefoot Innovation on iTunes, and sign up to get emails that bring you the newest podcast, newsletter, and blog posts, at jsbarefoot.com. Again, follow me on twitter and facebook.  And please send in your “buck a show” to keep Barefoot Innovation going. Till next time, keep innovating!

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The Future of Regulation: The FCA's Reg-Tech Leader, Nick Cook

Jo Ann Barefoot

Nick Cook 2.png

What if regulation, as we know it, might disappear? Regulation will never stop, of course, but what if some of it will take on a new form, shaped by technology?  What if we’re entering into a new era of what we could call “digitally-native” regulation, that’s as agile and intuitive about regulation as digitally-native consumers are about consumer technology?

Of all the shows we’ve ever done, I think this is the most mold-breaking and thought-provoking. My guest comes from the agency that is leading the world in modernizing financial regulation for the digital age, and he leads the team that’s doing it.

Nick Cook is the head of Regtech and Advanced Analytics for the United Kingdom’s Financial Conduct Authority. The FCA’s innovation leadership is world-renowned, especially for their Project Innovate and its “regulatory sandbox,” which allows careful testing of new financial technology that could benefit consumers. Less well-known, though, is a newer initiative, launched about 16 months ago, to explore regtech.

As we’ve discussed in other shows, the term “regtech” is used in two ways. It refers both to regtech for regulators -- technology to enhance their own activities, and to regtech for the industry, to improve or streamline regulatory compliance. The FCA is working on both halves of this equation, and true to form, they’ve invented an innovative way to explore it. They aren’t using a sandbox for regtech (although the Bank of England has a sandbox-like “Fintech Accelerator”). Instead, Nick’s team has been convening what they call “tech sprints.” They invite a diverse set of participants -- banks, fintechs, tech companies, lawyers, consultancies, academics and others -- to come together for problem-solving exercises designed like hackathons. Sometimes for a day or two, and sometimes longer, they work on how new technology could be applied to a regulatory challenge like “digitizing” the rule book or streamlining regulatory reporting.

Nick and I recorded this discussion at the Regtech Enable conference in Washington in December, where he had just shared an update on their work from the stage. At the time, they were in the midst of a two-week sprint that had two objectives.

The first is to try to make regulatory reporting requirements “machine-readable,” and therefore much easier to navigate, including for innovative companies that often struggle just to know what rules apply to them.

The second -- even more profound -- is to explore whether some regulations can also be made “machine-executable” -- could regulatory guidance, in some cases, be issued in the form of computer code, and therefore be self-implementing?

This is an idea that’s been under discussion for about a year, including at a regtech roundtable I hosted last spring as a Senior Fellow in the Harvard Kennedy School Center for Business and Government. The same conversations have included a second concept the FCA is also pursuing, namely that new, high-tech regulation should be introduced gradually and should be optional for the industry. Gradual rollout would enable policymakers to start small and learn, while voluntary adoption opens up a practical road to changing our complex system with minimal disruption.  

The FCA’s tech sprint on machine executable reporting ended a few days after we recorded this podcast. They will be sharing its results in the coming months, so be sure to watch for it!

Let’s step back and think about what’s underway here. Finance is being transformed from analog to digital design. And, right behind it, so is regulation. Digitization will do for both -- for finance and financial regulation -- what it does for everything else. That is, it will make them faster, better, and cheaper, and will create a new foundation on which people will innovate further, in ways we cannot yet envision.

A striking thing about my talk with Nick is how different he sounds from traditional regulators. It’s hard to put your finger on exactly why, but I think it’s mainly the comfort he displays with uncertainty. The same trait was evident in my earlier podcast with Christopher Woolard, who heads the FCA’s innovation strategy. Somehow this agency manages to be simultaneously bold and humble. They know they don’t have this all figured out. They even know they can’t figure it out by themselves. But they also know they can move forward, and that the way to do so is by engaging a community of diverse experts to work together. As Nick says, that can be scary, but the risks come way down, for regulators and everyone else, when solutions are developed collaboratively by people who believe in its potential to make regulation better.

I hope this episode finds its way to many regulators, including those in the US where our agencies are actively exploring innovation agendas. Nick says regtech should be easier for regulators than fintech change is. For one thing, the companies leading it are generally not regulated entities, which makes them easier to work with. In addition, no consumers are affected by regtech experimentation. It’s about how the regulators can do their own jobs better, and/or can enable financial companies to do the same. As he puts it, regulators can, therefore, put “a toe in the water,” in regtech, and then move forward.

My friend Andrew Burt of Imuta and Yale Law School helped design the FCA’s December sprint and has put out a white paper on it. And here is the FCA’s great video on how tech sprints work.

So, I’m not naive. I’ve been a bank regulator, a U.S. Senate staffer, and I’ve worked in regulatory compliance for decades. Technology won’t magically make regulation easy. These solutions won’t fit some types of regulation, and where they do fit, they will inevitably create new problems. We all know all that.

Still...Digitally-native regulation. Think about it.

More on Nick Cook

Nick leads the FCA’s RegTech activities, including the FCA’s TechSprint events - the first events of their kind convened by a financial regulator. He is responsible for creating the FCA’s Analytics Centre of Excellence to drive the organization’s use of data science, machine learning and artificial intelligence.  Nick is the FCA’s representative on the European Securities and Markets Authority’s (ESMA) Financial Innovation Standing Committee and an advisor to the RegTech for Regulators Accelerator Programme. Nick joined the Financial Services Authority (the FCA’s predecessor) in 2009, initially in its Enforcement and Market Oversight Division. Prior to joining the regulator, Nick qualified as a chartered accountant at KPMG Forensic.

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Just before Christmas, I finished my 7 week, three-continent “World Tour.” I think 2017 was the pivotal year for moving both fintech regulation and regtech toward becoming priority issues at regulatory agencies throughout the world. 2018 will take it all to the next level.

We’re starting the year with amazing shows in the queue. We’ll have a fascinating London conversation with the charismatic CEO of Starling Bank, Anne Boden; another with Innovate Finance CEO Charlotte Crosswell; and another with a group of amazing innovators working in Europe and Africa, including Ecobank. In the U.S. we’ll have one with Cross River Bank CEO Gilles Gade; with Michael Wiegand, who heads the Gates Foundation’s work on financial services for the poor; with Financial Services Roundtable CEO Tim Pawlenty; and with Nerd Wallet CEO Tim Chen...and many more!

I hope to see you at upcoming events including:

  • OCC Bank Information Technology Conference, January 9-12, Washington, DC

  • Innovate Finance Global Summit, March 19-20, London, UK

  • Bank Director, The Reality of Regtech, April 18, New York

  • Texas Bankers Association Annual Conference, May 3, Houston, Texas

  • Comply 2018, May 16, New York

As always, please remember to review Barefoot Innovation on iTunes, and sign up to get emails that bring you the newest podcast, newsletter, and blog posts, at jsbarefoot.com. Again, follow me on twitter and facebook.  And please send in your “buck a show” to keep Barefoot Innovation going. And keep innovating!

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Innovating in Payments: Wells Fargo Head of Partnerships and Industry Relations - Braden More

Jo Ann Barefoot

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I could tell I was walking into an innovation lab even before I saw the space, because I could hear the ping pong game underway as I stepped off the elevator. It was great fun to be in San Francisco, on a sunny day in early fall, to talk with Braden More, Wells Fargo’s head of partnerships and industry relations -- and to see their fascinating innovation facility, which includes what they call their R&D Garage.

As Braden explains in our talk, Wells Fargo has reorganized to establish an integrated digital strategy for payments, under the leadership of their famous innovation head, Steve Ellis -- whom Braden described as the Steve Jobs of banking. They know that today’s customers expect a great digital experience, which means they won’t put up with processes that break down as they hit the old silo walls between traditional bank product groups, nor processes that merely automate old paper based, linear designs. Banking has to become fully digitized -- with all the gains in speed, cost, accuracy, and innovation that comes with digitizing anything.

Not surprisingly, a lot of this episode focuses on the challenge of how you change a large organization. Big banks are anything but nimble. It’s not their fault, it’s just their nature -- their size, their complexity, and their reliance on legacy IT systems that have accumulated, in most cases, over years and decades of mergers and acquisitions, and never been fully integrated with each other. On top of that, every move that big banks make faces regulatory requirements and close regulatory scrutiny, and regulators, for good reason, tend to frown on fast change -- especially the kind championed by small fintech innovators who love concepts like “minimum viable product” and (God forbid), “fail fast.”

However, all the big banks know they do have to change, and also that they have to speed up -- dramatically. That’s because the technology change is speeding up. Its curve is exponential, which means that both the opportunities and risks are outstripping organizational models and cultures that were hard-wired many years ago -- even decades or centuries ago -- for linear change.

A big bank innovation model is now emerging. It usually has a few elements. There’s an innovation team, which is usually small, is charged with rapid learning. Some of it is typically walled off, so that the big organization won’t accidentally smother it. There’s a lab-type effort, with a mandate to reach beyond short term, practical applications and do some dreaming. These sometimes have an actual playful edge to them -- hence the popularity of ping pong tables and bean bag chairs. Meanwhile, other parts of big banks today are busy with projects trying to smash down some silo walls and push people into the same rooms, to work knee-to-knee on shared challenges. And there’s usually an accelerator or incubator that brings in startups and tries to learn from them, sometimes making venture investments.

Wells Fargo has all this underway, and Braden explains their philosophy on how to get the best of both worlds -- both isolating ninja-style disruptors while also making innovation central to everyone’s job. If you’re a fintech, he describes their accelerator and some of its successes, including Eye-verify, which verifies customers’ identity by scanning the whites of their eyes with a phone camera, and which has been acquired by China’s huge payments innovator, Ant Financial -- Alibaba. He also tells the story of Wells Fargo incorporating Zelle’s instant payment service into the bank, and its importance to customers who need quick cash. Our conversation ranges widely, from the future of fast payments and crypto-currency to the evolution of skills needed at banks.

Braden also previews coming attractions for 2018. One key:  he says active online and mobile users connect with the bank every 42 hours on average -- vastly more often than traditional branch customers. Converting this rich relationship into more value for both customer and bank is a key to the future.

Big banks have unique challenges in embracing innovation, but they also unique resources for solving them.

A highlight of my visit was seeing the toy room. Pepper is there -- the charming talking robot. So are 3-D printers, biometric safes, and drones -- Braden gives an example of how bank can use a drone. He even talked, intriguingly, of occasionally seeing the folks in The Garage busy making things with soldering irons. You hardly ever used to see that, in a bank office.

More Information

More on Braden More

Braden More is the head of payment strategy at Wells Fargo. He and his team work across Wells Fargo to coordinate payment strategy, incubate new initiatives, and represent Wells Fargo in the payments industry. Braden also serves as the portfolio manager for the Wells Fargo Startup Accelerator, a program that mentors and invests in innovative companies.

Before assuming his current role, Braden was the head of strategy and planning for Wells Fargo Treasury Management. Previously he was with Wells Fargo’s Internet Services Group, and before that held positions in public accounting, management consulting, venture capital, and competitive strategy with Deloitte, Wit Capital, and Intel.

Braden graduated magna cum laude from Bowdoin College with a degree in government and legal studies. Subsequently, he earned an M.B.A. with distinction from NYU’s Stern School of Business, and a CPA license from the state of New York.

Braden lives in San Francisco, where he is active as an advocate for experiential science education. He has served on the board of directors for the Exploratorium Lab and Marin Academy. His Twitter handle is @BradenMore.

More for our listeners

I’m about to finish what I’ve called my World Tour -- travels all over the world this fall making speeches, meeting fascinating people and, happily, collecting podcasts. I’ve learned so much, so fast, about fintech and regtech, it’s hard to absorb it all. I’ll be sharing lots of thinking in the new year.

The upcoming podcasts are amazing. We’ll have one with Nick Cook, who leads the FCA’s innovation work on regtech, recorded at Regtech Enable in Washington. We’ll have Nerd Wallet CEO Tim Chen, and Cross River Bank CEO Gilles Gade. We’ll have one in London with the charismatic CEO of Starling Bank, Anne Boden and one with Innovate Finance CEO Charlotte Crosswell. We’ll also have a lively discussion with a group of amazing innovators working in Europe and Africa. We’ll have one with Michael Wiegand, who heads the Gates Foundation’s work on financial services for the poor. And back in the U.S., we’ll have a show with Financial Services Roundtable CEO Tim Pawlenty...to name a few!

The 2018 schedule is filling up fast. I’ll share those events next time.

As always, please remember to review Barefoot Innovation on iTunes, and sign up to get emails that bring you the newest podcast, newsletter, and blog posts, at jsbarefoot.com. Again, follow me on twitter and facebook.  And please send in your “buck a show” to keep Barefoot Innovation going. And keep innovating!

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I want to thank you for all your wonderful support this year, and I wish you a peaceful and joyous holiday season to you and yours!

Jo Ann