Innovation and Inclusion: The Future of Payments with Mastercard Executive Vice Chair Ann Cairns

Today’s guest has her finger on the pulse of global change in the world of payments, including how the COVID pandemic is changing the world. She is Ann Cairns, Executive Vice Chair of Mastercard.

I first met Ann at the Paris Fintech Forum last January, just before the virus turned our world upside down. It’s fitting, then, that we started our discussion with the pandemic, and specifically with how it is affecting women. By the time we finished, we had traveled far into the future of payments.

On the pandemic, Ann shares insights on the economic shocks hitting women as they disproportionately lose jobs, leave jobs to care for children, and struggle as business owners who are often cut off from access to the mainstream financial system, even in good times. She also analyzes how the pandemic will alter financial services overall. She talks about the headwinds hitting many sectors of the economy, and also about the powerful coronavirus tailwinds that are accelerating technology adoption across the board. She’s optimistic for a buoyant recovery on the other side, like “flipping a switch.”

And looking out five to ten years, she sees a wild ride of change in the payments world. Our talk ranges from cybersecurity to 5G to quantum computing -- Mastercard has launched a major quantum project with IBM. She offers insights on how to navigate the massive challenges ahead on data use and making AI fair and ethical, and she contrasts Europe, the US and China in their strikingly different approaches to regulating for privacy.

I loved her thinking about the need to develop global standards for technology and data (she said the lack of them is “madness” and I agree!). And she lays out the bedrock principles that need to guide the journey to developing smart standards, ones that will do more good than harm.

Since we were talking payments, of course, we talked about cryptocurrencies and blockchain. Mastercard is engaging with several countries exploring Central Bank Digital Currency (CBDC). On payments interoperability, Ann sees the world bifurcating, with some regions and countries embracing it and some nowhere near doing so. And she shares a glimpse of Mastercard’s future, far beyond being a card network.

Ann also has wise advice for regulators for how to keep up as technology changes the world.

We ended the conversation near where we started, with her thoughts on financial inclusion and its powerful, but not always obvious link, to innovation, with examples drawn from her project with the Gates Foundation in Africa. 

I think what makes Anne so fascinating is the span and richness of her experience. As a young woman she was an award-winning engineer and the first woman to lead an engineering team on an offshore oil rig. In the years since, she’s pretty much seen the whole world, and thought deeply about it all.

Before turning to my conversation with Ann, I want to share good news. I’m delighted to report that last week, four of our past podcast guests were inducted into the Fintech Hall of Fame by CB Insights. Kabbage President and Cofounder Kathryn Petralia was named as an OG (so cool!). My great friend Brett King was chosen for the Hall of Fame in media. Varo CEO Colin Walsh was named as a 2020 All Star. And Anne Boden, CEO of Starling Bank, was chosen in the category of Women in Fintech.

And, I’m extremely delighted to say, I was too!

Links

Transcript

• Ann’s LinkedIn

• Ann at Mastercard

• CB Insights Hall of Fame

• Podcast with Kathryn Petralia

• Podcast with Brett King

• Bonus Episode with Brett King

• Podcast with Colin Walsh

• Podcast with Anne Boden

More on Ann

In her role as Executive Vice Chair, Ann represents Mastercard around the world, focusing on inclusion, diversity and innovation.  She plays the important role of senior ambassador and executive leader and sits as part of the company’s global management committee. Prior to her current appointment, Ann was President of International Markets responsible for the management of all Mastercard customer-related activities in over 200 countries.

Ann brings more than 20 years’ experience working in senior management positions across Europe and the U.S.  Prior to joining Mastercard in 2011, she was head of the Financial Services Group with Alvarez & Marsal, CEO of Transaction Banking at ABN-AMRO and held senior positions at Citigroup.

Ann is currently chair of ICE Clear Europe, owned by the Fortune 500 company Intercontinental Exchange (ICE).  She is global chair of the 30% Club, the chair of the Financial Alliance for Women and serves as a member of the UK government’s AI Council and the IBDE advisory board. She has a Pure Mathematics degree and honorary doctorate from Sheffield University and a M.Sc. with research into medical statistics and honorary doctorate from Newcastle University.

More for our Listeners

Please follow AIR on LinkedIn and Twitter, and also follow me personally on Twitter @JoAnnBarefoot. And please be sure to leave us a five-star rating on your favorite podcast platform.

The remaining podcasts in 2020 do not fall short of amazing! We have the legendary Scott Cook, Founder of Intuit; Ross Burhdorf and Lamine Zarrad of ZenBusiness; and Alex Lintner of Experian. We’ll also welcome back former CFTC Chairman Chris Giancarlo, with Daniel Gorfine, to talk about the Digital Dollar Project. And much more.

I am also excited for my remaining speaking engagements of 2020! You can join me at Fintech Americas, and ABA Financial Crimes Enforcement Conference, as well as Fintech Abu Dhabi and the Singapore Fintech Festival, sponsored by the Singapore Central Bank. I’m speaking twice for that event, including a fireside chat with US CFTC Chairman Heath Tarbert. I hope, virtually, to see you all there!

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Breakfast with the Best - Brett King

Brett King and I see each other often, partly because we often speak at the same conferences and partly because we’re both on the board of the Center for Financial Services Innovation. For some reason, though, we went for over a year trying unsuccessfully to find time to record a podcast.

So we we ended up getting together in London. We both participated in the wonderful Innovate Finance Global Summit at the Guildhall, in the old City, where we carved out some early morning time, met at a restaurant and, and over plates of hearty eggs and bacon and mushrooms and tomatoes, had a conversation unlike any previous one in the fifty-four episodes we’ve done so far on Barefoot Innovation.

As most listeners know, Brett is a four-time best-selling author of an acclaimed series of books on the future of banking and hosts the global podcast and radio show, Breaking Bank$ -- on which I enjoyed being a guest in May. He is also the founder of the fintech firm Moven. He is a prominent media voice, and he is certainly the most popular speaker anywhere on the future of financial technology, both for his insightful content and his entertaining, unforgettable style.

In recent years, Brett has also reached beyond banking to become an overall futurist, especially in his book Augmented, looking ahead at how technology will change our lives.

I usually introduce each show by pointing out some highlights of my guests’ comments and sharing some of my own thoughts about them. With Brett, though, I’m going to skip that, because the whole discussion is a highlight. My suggestion is that you listen to all of it, and then listen again.

And maybe take some notes, because this might be the easiest way to get a glimpse of the future of finance, from someone who has been exploring far beyond the mapped frontiers for many years. On that note, be sure to watch for his next book, Bank4.0, which will go even further in predicting a transformation of finance.

More on Brett King

Brett King is a four times bestselling author, a renowned futurist and keynote speaker, the host of "BREAKING BANK$, the First Global Fintech Podcast" and the founder of Moven, with its concept of a downloadable bank account that incorporates mobile payments and banking capability, along with a gamification based money management system.

King was voted as American Banker's Innovator of the Year in 2012, and was nominated by Bank Innovation as one of the Top 10 "coolest brands in banking". His books Augmented, Breaking Banks (based on the podcast), BANK 3.0 and Bank 2.0 have al ranked as a finance bestsellers and have been released in several languages in 19 countries.

King has been featured on FoxNews, ABC, CNBC, Bloomberg, BBC, Financial Times, The Economist, ABA Journal, Bank Technology News, The Asian Banker Journal, The Banker, Wired magazine and many more. He contributed regularly as a blogger on Huffington Post. He has spoken to more than a quarter of a million finance professionals in over 40 countries in the last 3 years alone.

• Breaking Banks Book
• Bank 3.0 Book
• Branch Today, Gone Tomorrow Book
• Bank 2.0 Book

More for our listeners

I hope to see you at events where I’ll be speaking this year, including:  Finovate in New York September 13; Money 20/20 in Las Vegas in October; SourceMedia’s Regtech Compliance Transformed, in New York in October; Fintech Connect Live in London in December; and others -- watch the website.

I’m also speaking at a lot of regulator events. For all the regulators listening, it’s great to see you all at these, and I’m glad that there are more and more of them.  

For everyone, remember to review Barefoot Innovation on ITunes, and please sign up to get emails that bring you the newest podcast, newsletter, and blog posts, at  jsbarefoot.com. Please also join my facebook fan page, and follow me on twitter @JoAnnBarefoot.

Support our Podcast

And watch for upcoming podcasts. These include a special series I recorded from the floor of the ABA’s annual Regulatory Compliance Conference, including one with Gene Ludwig and Alistair Renee of IBM’s Watson Financial on how artificial intelligence and machine learning will transform compliance. We’ll also have a provocative discussion with John Ryan of the Conference of State Bank Supervisors. We have a lively discussion with prominent regulatory attorney Andy Sandler. We’ll  hear from Sanjay Jain, who helped build India’s revolutionary “tech stack” project to capture customer identity on more than a billion people. And we’ll talk with Sopnendu Mohanty, the Chief Fintech Officer of Singapore.

Meanwhile, keep innovating!

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Heroic Compliance : Treliant's Lyn Farrell

This episode is incredibly special, in two ways.

First, Lyn Farrell is not only my former colleague, but one of my very best friends. We had such fun recording this at my apartment in Boston one weekend late last year. In many ways, it’s just a slice of a long conversation we’ve been having more or less continuously for years, including over countless meals on the road together, in the consulting life we used to share

Second, I love it when our podcast discussions are actual brainstorming sessions. This one hit the jackpot on that front. In our back and forth, Lyn came up with an insight that neither of us had when we started, and both of us have found it reshaping our thinking ever since. It comes late in the episode -- you’ll know it when you hear it. I hope you find it as powerful as we did.  

Lyn Farrell is former Managing Director, and now Advisory Board Member, at Treliant Risk Advisors.  She is arguably the foremost expert in the United States on regulatory compliance matters regarding consumer financial protection. As we note in our discussion, she literally “wrote the book” on compliance as the author, for more than twenty years, of the Reference Guide to Regulatory Compliance, published by the American Bankers Association as the foundation material that candidates must master in order to become Certified Regulatory Compliance Managers. Lyn is an attorney, in-demand public speaker, prolific writer, and consultant who has worked with every imaginable regulatory challenge, from the world’s largest banks to small community institutions and fintech startups, and from positive, proactive clients to cleaning up grizzly enforcement problems. She has, simply, seen everything.

Fortunately for us, she has opinions about it all and shares them with bracing candor in our talk. She describes what’s failing in our current regulatory regime and explains what everybody is getting right and getting wrong, from Congress and regulators to bank CEO’s to compliance and risk professionals to IT departments, to her fellow lawyers, to fintech innovators. She offers a cogent indictment, from the inside, of the weaknesses of what we’ve built -- the disclosures no one reads, the high costs of compliance, and the tragic mismatch between where we expend resources versus what consumers actually need.

She’s also expert in bank IT operations. It’s an open secret that most banks have antiquated IT, often accumulated through decades of mergers and acquisitions in which older systems were never integrated but rather, as Lyn puts it, stuck together with “bailing wire.” (We explored solving some of this through blockchain technology in my earlier Podcast with Blythe Masters of Digital Asset Holdings.) These old systems are a hotbed of compliance errors, for reasons she describes. It’s another area where startups have a counterintuitive advantage over banks, thanks to having no creaky legacy IT.

In our discussion, Lyn explores the regulatory present and past (it’s been a long time since I’ve heard anyone mention Regulation Q!), but she’s most thought-provoking about the future.  She works extensively with innovators and has a vision for how we should be using new data and technology to do better.

I always urge people interested in innovation to break out of their work silos and reach across disparate realms.  Lyn does this better than anyone I know. If it weren’t for her, I would never have attended a LEAN seminar, or done free-writing exercises to inspire creative thinking, or read Deep Work by Cal Newport, or watched the Amy Cuddy Ted Talk on “presence.”

Since we made our recording, Lyn has stepped back from her full time role at Treliant to serve on its advisory board, spend more time in the beautiful house she and her husband Brian are building in Colorado Springs, and lead the Treliant Institute for Strategic Compliance Leadership, her brainchild.  Lyn asked me to speak at it, which inspired me to create a dinner talk I call “Heroic Compliance.”  It’s about the need for compliance officers -- even though they often seem more like Clark Kent than Superman -- to save their banks, customers, and industry by leading them into the high-tech innovation age. No one embodies that leadership more than Lyn, and I’m titling this episode with the same name -- Heroic Compliance.

The same day we recorded this episode, Lyn told me she’s launching her own podcast show, aimed at compliance professionals. She said my dinner speech prompted her to give it the name, “Compliance Heroes.” You’ll find it on ITunes and the Android Market.

Here are two more titles in Lyn’s recommended reading:

Emotional Intelligence 2.0  by Travis Bradberry

Presence by Amy Cuddy  

And here is more on her background….

Kathlyn L. Farrell, CRCM, CAMS, AMLP

Senior Advisory Board Member

Lyn Farrell is an experienced Regulatory Compliance executive, with over 35 years of experience in banking law and compliance. She is a Senior Advisory Board Member at Treliant Risk Advisors, LLC. Lyn has led many diverse and complex compliance projects for large financial institutions, including:

• Developing a regulatory compliance strategic plan for a financial institution that primarily operates in the Fintech space;

• Assisting the CCO of a top 10 U.S. bank to make the regulatory compliance program more proactive, strategic and integrated with the businesses and other risk management disciplines within the organization;

• Designing and building a comprehensive Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) audit program for the internal audit division of a top 10 U.S. financial institution, including developing the annual audit plan, scoping the individual audits, and writing the audit scripts;

• Assisting a top 20 bank implement all aspects of the TILA-RESPA Integrated Disclosure Rule (TRID), including revamping business processes, enhancing risk controls, writing policies and procedures and creating job aids to assist first line staff to implement this complex regulation;

• Developing the “UDAAP University” training program for the compliance departments at three of the top 20 financial institutions and for the internal audit departments at 3 of the top 20 US banks;

• Overhauled the Community Reinvestment Act (CRA) program for a top 20 US financial institution, including writing a new program document, reviewing its assessment areas and investments, and implementing a shift in the critical focus of its nationwide community development staff;

• Reviewing the potential acquisition by a top 20 U.S. bank of a large non-bank financial organization and provided advice on limiting the company’s regulatory risk by integrating and expanding the current compliance function and making it more strategic in its execution.

Lyn has a passion for leadership development and has designed the Treliant Institute for Strategic Compliance Leadership, a leadership program exclusively for compliance professionals in financial institutions She is a frequent speaker at banking events and regularly publishes articles on a variety of banking-related topics. Her recent publications include:

• “Strengthening the First Line of Defense” in ABA Bank Compliance magazine, September-October 2016“TRID: A Checklist for Successful Compliance” in Mortgage Banking magazine, March 2016

• Reference Guide to Regulatory Compliance, published by the American Bankers Association, the official study guide to the CRCM examination

• “Is this UDAAP or Not?” in  ABA Bank Compliance magazine, July-August 2015

• “FCRA: A Sleeping Regulation Awakes” in Banking Exchange, August 2015

• “Effectively Managing UDAAP Compliance in Mortgage Servicing” in Mortgage Banking magazine, April 2015

• “Managing UDAAP Compliance Risks in Financial Institutions” in Journal of Taxation and Regulation of Financial Institutions, Nov/Dec, 2013

She received her undergraduate degree from Texas A&M University and her JD from the University of Houston.  Lyn is a Certified Regulatory Compliance Manager (CRCM), and an attorney, licensed in the state of Texas.  

Lyn was the 2012 recipient of the ABA’s Distinguished Service Award.

More for our listeners:

I'll hope to see you all this week at FinXTech Summit in New York and of course CFSI’s Emerge in June.

Remember to review Barefoot Innovation on ITunes, and please sign up to get emails on new podcasts and my newsletter and blog posts at  jsbarefoot.com.  

Also go to jsbarefoot.com to send in your “buck a show” to keep Barefoot Innovation going. Please also join my facebook fan page, and follow me on twitter.

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I’m just back from London -- more on that later -- but one highlight is I recorded an episode with the one and only Brett King. Coming soon!

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Financial Inclusion is Coming Fast - AFI Executive Director Alfred Hannig

I’m excited to share today’s conversation with Alfred Hannig, Executive Director of AFI.

When you hear of an organization with a name like The Alliance for Financial Inclusion, you might picture a nonprofit advocating for credit opportunity or community reinvestment. AFI, though, is unique. Its members are governments -- central banks and financial regulators -- representing over 90 countries in the developing world. They all work at the cutting edge of financial transformation, because the mobile phone is suddenly bringing real financial inclusion.

Think about that statement. Throughout history, a large percentage of people have been excluded from, or marginalized by, the financial system. That’s mainly because it simply hasn’t been very profitable to serve them. Finance evolved with a business model that serves people in buildings -- traditionally it was grand buildings with lots of marble -- and by giving them personalized attention. It was mainly for wealthy people, and then for the middle class as technology -- streamlined branches, ATM’s, and telephone and online banking were added to the mix. Generally, though, finance, and especially banks, could not readily reach people with lower incomes, including the rural poor, or at least could not offer them affordable pricing. A lot of public policy has aimed at getting banks to serve those customers despite the challenging economics.

The cell phone is changing that, and fast. The World Bank has a goal of enabling every adult in the world to have a bank account by 2020 -- three years from now. Whether or not that deadline is met, the fact is that access is spreading fast.

Significantly, it’s spreading fastest in the developing world. One reason is that cell phone adoption has been so rapid there, mainly because most people never had landlines. Another is that telcos began offering financial services through those phones, creating a fast and efficient delivery channel. A third is that these new systems often arise in settings that lack traditional regulatory systems, making it easy for innovators to move quickly, but of course raising many kinds of novel regulatory risks.

AFI and its members are dealing with all of this -- both the opportunities and the risks. They’re doing this from the perspective of financial regulators and also with the insight that financial inclusion is a key engine of economic growth, and of empowerment for women and other groups that have historically lacked access.

I had the chance to join in this dialogue at AFI’s Global Policy Forum in Fiji last year, a beautiful event highlighting traditional cultures of the Asia Pacific. More than 80 countries participated, working across diverse languages, cultures, demographics, and economic challenges to distill the keys to fostering inclusion and regulating change. While there, I recorded this episode with AFI’s visionary leader, Alfred Hannig. I’ll leave it to him to tell you his story.

For more information, also check out our episode with Theo Cosmora, CEO of the One Dollar Smart Phone. And here’s a (bad) photo of me with Vuli the Vanu, Fiji’s mascot for financial literacy!

More for our listeners:

This month I’ll be in Jakarta for a global discussion of regulation and financial inclusion. In April I’ll speak at the FinXTech Summit in New York, and in London at both the Innovate Finance fintech conference and the International FinTech Investor Conference sponsored by the Financial Conduct Authority. And I hope everyone is registering to come to CFSI’s Emerge in June.

Remember to review Barefoot Innovation on ITunes, and please sign up to get emails on new podcasts and my newsletter and blog posts at  jsbarefoot.com.  My latest post tells you about Hummingbird, the RegTech firm I cofounded late last year. We’re aiming to use new technology to transform both halves of the regulatory equation -- both how to regulate and how to comply -- starting with anti-money laundering. We’ll do a podcast on this, sometime soon.

Also go to jsbarefoot.com to send in your “buck a show” to keep Barefoot Innovation going. Please also join my facebook fan page, and follow me on twitter.

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And watch for upcoming podcasts, including with Wai Lum Kwok, Executive Director of the Financial Services Regulatory Authority of Abu Dhabi Global Market, Colleen Briggs of JPMorgan Chase, Bill Harris, former CEO of both PayPal and Intuit, and now CEO of Personal Capital, and Jonathan Dharmapalan, founder of eCurrency.

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Insights from Michael Barr

I am absolutely delighted to share today's episode -- my conversation with Michael Barr.

Most of our listeners know Michael as the former Assistant Treasury Secretary for Financial Institutions who shepherded the Obama administration's efforts on the Dodd-Frank financial reform law. Fewer people may know of his role in developing the proposal for, and negotiating the enactment of, the Consumer Financial Protection Bureau, which is when I got to know him.  He is now back at the University of Michigan (my own alma mater) as a law professor, and continues to be very active across a wide spectrum of consumer finance and financial regulation activities, and also on lending to small businesses.

Michael has thought hard about the toughest challenges in consumer finance, drawing on both his government experience and his academic activities (among other things, he's a Rhodes Scholar). He also works extensively with innovators and nonprofits.

In our conversation he offers insights on some of the most critical topics facing consumer finance.

Perhaps the most central principle driving his ideas is behavioral economics - coming to grips with the reality that consumers are not perfectly rational, and don't have perfect information, in making financial decisions. "We ought to design both products and policy around the way human beings actually make decisions and behave," Michael tells me. See below for links to his research on this, including his paper "Behaviorally-Informed Regulation."

One result of his behavioral focus is a refreshing readiness to rethink consumer financial education. At one point he says, "just as we couldn't explain how our smartphones operate," financial consumers don't necessarily need to know how financial products are designed, in order to use them effectively. He thinks, as I do, that today's technology can create simple new tools that nearly anyone can use, whether they have a sophisticated financial education, or not.

Another issue he raises is his involvement in developing the "small business borrowers' bill of rights" (see our earlier podcast discussing this with Brian Graham of BancAlliance). There is growing concern that online small business lending is creating borrower risks as well as opportunities, especially as America shifts toward the so-called 1099 economy and more people run small businesses in ways that closely parallel consumer finance.

Michael also explores the challenge of crafting regulation that enables innovation while still blocking harm. He says regulators sometimes allow harmful practices to emerge and grow until they hit a "tipping point," at which point they drive industry standards so low that good companies can't survive without adopting activities they would rather avoid.  I agree with him that this is a key challenge, especially as innovation accelerates.  If regulators intervene too early and aggressively, we'll have the government designing our financial products, instead of the market doing so.  On the other hand, if they are too passive or too late in addressing really harmful practices - especially if they wait until after that tipping point has actually tipped - they will fail to protect large numbers of people from harm, and they may also find it difficult to act.  Once products are widespread, there are strong political forces ready to defend them, as well as practical problems with potential regulatory impacts on businesses and sometimes even the financial system itself.

I asked Michael for his advice about these kinds of challenges, for all the players in this ecosystem. I think you'll find his answers really interesting, including some thoughts he shares about the logic behind the design of the CFPB.

I also asked him whether we might be moving toward a fundamentally new market model, in which technology-driven transparency will require financial companies to compete mostly on winning and keeping people's trust. His answer to that is thought-provoking, too.

Michael was Assistant Secretary of the Treasury for Financial Institutions from 2009-2010. He previously served as Treasury Secretary Robert Rubin's Special Assistant, as Deputy Assistant Secretary of the Treasury for Community Development Policy, as Special Advisor to President Bill Clinton, as Special Advisor and Counselor on the Policy Planning Staff at the State Department, and as a law clerk to U.S. Supreme Court Justice David H. Souter.  He received his J.D. from Yale Law School, an M. Phil in International Relations from Magdalen College, Oxford University as a Rhodes Scholar, and his B.A., summa cum laude, with Honors in History, from Yale University.

His activities today include serving on the boards of Lending Club (in Episode 5 we interviewed CEO Renaud LaPlanche) and Ripple, as well as ideas42, a behavioral economics research and development lab. He's on the FDIC Advisory Committee on Economic Inclusion and the Washington Center for Equitable Growth. He's on the advisory board of CFSI and has advised its U.S. Financial Diaries Project (see our interview with Jennifer Tescher of CFSI for more). He is also a fellow at the Filene Research Institute.

In his current role as Roy F. and Jean Humphrey Proffitt Professor of Law at the University of Michigan Law School, Michael teaches courses in domestic and international financial regulation. He's also been instrumental in forming the University of Michigan's Center on Finance, Law and Policy, which integrates finance, law, business, and computer science to work on difficult problems facing the world, including how to make the financial system fairer and safer. I highly encourage you to peruse his faculty website to find more resources.

Below you can find links to works referenced in the episode:

• Small Business Borrowers' Bill of Rights
• Michael's latest book "No Slack: The Financial Lives of Low-Income Americans"
• Hamilton Project paper on increasing access to capital for minority and women entrepreneurs
• Michael's paper on Behaviorally Informed Regulation co-authored with Sendhil Mullainathan, Harvard University and Eldar Shafir, Princeton University
• And here is the site of the FDIC's Advisory Committee on Economic Inclusion
                  
  Enjoy my conversation with Michael Barr!

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The Secrets of FinTech: Jesse McWaters and Rob Galaski, World Economic Forum

If I had to choose just one episode of Barefoot Innovation to introduce listeners to the series, this is it.

My guests are Jesse McWaters of the World Economic Forum and Rob Galasky of Monitor Deloitte, who co-led the WEF's landmark research project on financial technology (executive summary here).  Switzerland-based WEF focuses on public/private collaboration and is best known for hosting the annual global forum in Davos.

When I first read news accounts of this report, I reached out immediately to Jesse and (new father) Rob to ask them to join our dialogue. It took some time to get together, but we finally met at the WEF offices in New York. It was more than worth the wait.

They launched their study of the global evolution of fintech at the Davos meeting in 2014. By the summer of 2015, they had crystallized the keys to understanding it. Their work is built on extensive interviews and on the technique I increasingly see as the key to progress -- convening disparate participants. They held six meetings with traditional financial institutions, disruptive innovators, and regulators in the same room, grappling with the coming change.

In their early meetings, the financial industry executives were interested in fintech and wanted to monitor it, but were not worried - Jesse and Rob call them "tepid" about its urgency. By the end, this view had reversed. My guests use words like "bewilderment," "paranoia," "enemies" and "invading the fortress" as they describe the financial industry's rising concern. They also see these concerns starting to give way to hopefulness about the opportunities.

The 193-page study has a global scope, emphasizes the developed world, and looks at eleven areas where innovation is driving transformation.

What's working?

Here are some of the insights Jesse and Rob share in our conversation:

• While today's banks feel besieged by disruptors on all fronts, the study shows that innovators are actually mainly targeting specific spots where two key factors intersect - that is, where high friction and customer frustration exist in products that are highly profitable. One participant said they are, "skimming the cream." Recognizing these points of vulnerability can guide traditional companies in what to defend and where to allocate capital.
• The emerging models have certain key attributes -- they are platform-based, modular, data-intensive, and "capital-lite."
• The disruptors focus on "shadow" or "fringe" areas, avoiding the heavily regulated core world of deposit-taking financial institutions. They are serious about complying with regulations, but strategically choose the rules to which they will subject their businesses.
• They are using established assets to scale up, a la Uber, rather than investing in a long, expensive process of creating their own products and infrastructures.
• They are actively partnering with established institutions for this leveraging of both existing assets and infrastructure and also "regulatory permissions." (Interestingly, this is drawing some major investment companies into retail markets for the first time.)
• They are focused on controlling the customer experience, using their superior platforms and data analytics.
• A key subset are "mission-oriented" entities creating inclusive and affordable services to consumers and small businesses. Jesse and Rob mentioned Active Hours and LendUp as U.S. examples, in addition to the huge global potential in emerging markets.

Advice to industry:

Jesse and Rob discuss how all this is impacting the traditional industry, including this advice:

• Don't count out banks as an "old world industry."
• Address the twin pressures of having aging legacy operating systems and processes, clashing with the high demands of today's consumers, especially millennials. People increasingly want personalized, bespoke, low-cost services and are ready to trust online providers.
• Review and clean out the accumulation of old policies and procedures that prevent banks from creating a great customer experience.
• Don't make the mistake of viewing fintech as a one-year budget issue. Create a new enterprise-wide, multi-year investment model that is not controlled by the current owners of the business line P&L's.
• Explore merging models for learning, partnering, and "coexistence."
• Evaluate the wisdom, or folly, of essentially "outsourcing R&D" to the venture capital world until it figures out the winners and losers.
• Consider that financial institutions may be major players in shaping what will win and what will lose, especially since they have capital.
• Use their suggestions on how do innovation inside a traditional company.
• Expect upward age migration of fintech adoption - don't expect to retain even older customers to the end of their lives in old-style products.
• Watch for big changes in insurance offering options for bespoke, advisory, concierge models and radically new value propositions (they mention Oscar in the U.S. and Vitality in the UK).

Understand the likely sequence in which products will be forced to change, and why - they explain this in our discussion

Impacts on consumers:

Rob and Jesse predict big changes for consumers, including vastly more choice, hugely better customer experience, better pricing, and much better insight into and control over their own financial lives. They also see rising risks and regulatory needs, including that consumers will be harmed by unsuitable, high risk products.

Advice for regulators:

Jesse and Rob also have insights for and about regulators. Some of the regulators who joined their meetings were among the most thoughtful people they encountered, but they also warn of a very wide delta between the "leaders and laggers" in the regulatory world. They predict likely regulatory arbitrage if that gap does not close quickly. They also emphasize the need for "regulatory sandboxes" (on that point, watch for our upcoming Barefoot Innovation episode on sandbox innovation with Nitish Pandey of BMO Harris).

What next?

The project plans to leverage its convening power to tackle further priorities. One is exploring the revolutionary potential of block chain technology and distributed ledgers, including and beyond bitcoin.

Another is seeking innovation in managing digital identity, including expanded roles for banks.

Might our bank someday help us buy a bottle of wine by sending not only the money, but by verifying our age!

Enjoy the episode!

References:

Here are some of the resources and companies we discussed in this episode:

• World Economic Forum
• Full WEF report on The Future of Financial Services
• ActiveHours (accessing pay that's already earned)
• LendUp (online lending)                                                                                
• Transferwise (payments innovation)                                      
• Oscar (health insurance in U.S.)                                                 
• Vitality (health and life insurance in U.K.)   

Please subscribe to the podcast by opening your favorite podcast app and searching for "Jo Ann Barefoot", or in iTunes.                        

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