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

My guest today is Sanjay Jain, Chief Innovation Officer at the Centre for Innovation Incubation and Entrepreneurship (CIIE). Among many high-impact achievements, Sanjay helped lead creation of one of the most ambitious government infrastructure initiatives ever undertaken -- the so-called India Stack that is connecting everyone in India to the financial system and mainstream commerce, by providing a biometric ID.

I met Sanjay at the Jakarta international regulator meeting I’ve mentioned before sponsored by the Omidyar Network and Gates Foundation and put on by FintechStage. I sat next to him at dinner one night, and was astonished to hear him explain the project and to hear others at the table describe how it’s already changing India. I’d been vaguely aware of it and knew it was huge, but had no idea how fast and transformational it is. At the conference the next day, we ducked into an idle meeting room to have this talk.

We usually think of innovation as driven by the private sector. We think of government’s role as either to protect people from innovation-related harm or as just to avoid blocking good innovation. In reality, though, government has another critical role, which is to provide the infrastructure within which new technology can work..

A core component of infrastructure is a system through which people can be accurately identified. People need to be able to prove who they are, quickly and easily and inexpensively, and in ways that can’t be faked, so that no one else can pretend to be them, and so that they won’t be excluded from opportunities because their identities are in doubt, or are too complicated to be worth the effort to verify.

This identity infrastructure doesn’t necessarily have to be provided by government -- we’ll do a show at some point with my friend Greg Kidd of Global ID, who argues passionately that it’s better to have a decentralized identity authentication system. Traditionally, though, government has played this role by giving people identity documents like birth certificates, driver’s licenses, and passports, and also unique, standardized identity markers, like social security numbers.

With old technology, that approach was the best we could do, and it worked pretty well for people who had the right documents. However, it’s never worked well for people who don’t, including many new immigrants, and certainly refugees, and of course, the very poor. The very poor have, always, been locked out of the mainstream.

All that has changed today thanks to what is arguably the most democratizing technology ever invented -- the mobile phone. As of 2013, more people have access to cellphones than to toilets. As we’ve discussed before on Barefoot Innovation, we are headed toward total financial inclusion through the phone. This means that, technologically, everyone can be connected, easily and completely and inexpensively, to everyone else. In most of the developing world, a top goal is to enable full access to the financial system and commerce, through the phone, as a primary engine for economic growth and prosperity.

However, people can only connect to the financial system if they can be reliably identified. So UIDAI -- the Unique Identification Authority of India -- has undertaken one of the largest government projects ever -- the collection of biometric identity information on every adult and every child in the world’s second most populous country. They have gathered ten fingerprints, two iris scans and facial recognition data for about 1.2 billion people. And they have done it fast!

The “IndiaStack” is being implemented in phases around four “layers”: “presenceless” identity, paperless records, cashless transactions, and consent-based use of data. At its heart is the Aadhaar card, which contains the person’s unique identity number, authenticated through the biometric ID. With this tool everyone can, among other things, open and use a bank account.

Needless to say, all this has raised concerns about privacy and data security. The project has critics, and even its advocates agree that the challenges are daunting. India’s leaders, however, believe the risks can be managed and that they are massively outweighed by the opportunity to open the doors of the economy to everyone.

I’ve spent time in rural India, including with an NGO called Rising Star Outreach that focuses on micro-finance, education and health services for leprosy communities. India is curing leprosy, but leprosy-affected people and their families still face daunting challenges. As I listened to Sanjay, I found myself remembering people I’ve met in remote villages where families live in one room, sometimes in huts with thatched roofs and dirt floors, and I also thought back to being in Chennai, in southern India, with the streets teeming with cars and lorries and motorcycles carrying five people and bicycles carrying three or four and auto-rickshaws and people carrying bundles of goods on their heads. And I thought about all the languages -- India has twenty-two official languages -- thirty that are spoken by more than a million people -- and hundreds of minor languages and dialects.  What it took these IndiaStack teams to find every single person in this huge country, and document them all -- it’s stunning.

And thanks to their effort, all these people can be connected up with everyone else in India, and eventually everyone else in the world, through a cell phone and a reliable identity.

Listeners outside the developing world may be thinking this is interesting but not very relevant to them. However, the challenge of creating reliable and safe digital identity is one of the top issues facing finance. The digital age is not only enabling new forms of identity, it’s also undermining the old forms. The dark web runs a thriving market in selling and buying personally-identifiable information including social security numbers. In the U.S., the 2015 Office of Personnel Management data breach, alone, compromised identity information like social security numbers for over 20 million people. Banks are increasingly caught up in fighting fraud and crime based on fake identities -- security experts tell me that criminals are more likely that real customers to accurately provide identification information, because they don’t make typos. Meanwhile, regulatory “de-risking” standards for Anti-Money Laundering “Know Your Customer” rules have been cutting off whole sectors of people from financial access because they come from places, industries or groups that raise disproportionate risk, and banks find it too difficult and costly to sort out the good people from the bad ones

Financial companies and regulators everywhere will need better ways to identify people, and India is blazing a trail that will yield fascinating lessons.

Sanjay’s Biography

SANJAY JAIN, Chief Innovation Officer, Centre for Innovation Incubation and Entrepreneurship (CIIE) Sanjay Jain leads efforts to help create, promote, and encourage entrepreneurship in areas around digital technology. Sanjay is also a volunteer with iSPIRT, the software product industry think tank. He has been an active member of the India Stack, Open API, and Cashless teams. He has been working with the NPCI to define the next generation payment systems (the Unified Payment Interface), as well as with regulators and other bodies to help entire processes go paperless. He has been one of the key contributors to help create, and evangelize various government open APIs, which are collectively referred to as the India Stack.

Sanjay has been responsible for the development of many large scale, high impact systems. He was the Chief Product Manager at the UIDAI, where he led the product development efforts from its early days till well after launch. The UIDAI has issued over a billion numbers to Indian residents.

Sanjay was also responsible for the creation and launch of Google Map Maker - a crowd-sourced mapping product that is responsible for Google Maps data for 170+ countries (including India). He’s been a part of many entrepreneurial teams through his career, including most recently at EkStep, Khosla Labs, and as a founder of Novopay Solutions. He holds an M.S. in Computer Science, from the University of California, Los Angeles and a B.Tech in Computer Science & Engineering, from the Indian Institute of Technology, Mumbai.

More for our listeners

I’ll be speaking this fall at these events:   

• Finovate, September 13th, New York City

• SourceMedia’s RegTech -- Compliance Transformed, October 3-4th, Brooklyn, NY

• BAI Beacon/Fintech Stage, October 4-5, Atlanta, GA

• CFSI Network Summit, Fireside Chat with Thomas Curry, October 5, Chicago, IL

• FISCA, October 5-8th, Las Vegas, NV

• Money 20/20, October 25th, Las Vegas, NV

• Monetary Authority of Singapore Fintech Festival, November 13-17, Singapore

• RegTech Enable, November 27-29th, Washington, DC

• Fintech Connect Live, December 6th, London

• S&P’s Fintech Intel, December 13, New York

Please 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. Be sure to follow me on twitter and facebook.  And please send in your “buck a show” to keep Barefoot Innovation going.

Support our Podcast

Keep innovating!

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We Have Less Time than We Think: Singapore's Sopnendu Mohanty

I met today’s guest, Sopnendu Mohanty, about 18 months ago. I moderated a panel on blockchain for last year’s MIT Fintech Conference, and Sop, who is the Chief Fintech Officer of the Monetary Authority of Singapore, was a panelist -- explaining how MAS was building a regional innovation hub that included blockchain strategies. Since then I’ve seen him three more times -- once at Harvard, which he visited with the visionary head of MAS, Ravi Menon; once when I spoke at MAS’s enormous conference last fall in Singapore; and last at a regulator gathering in Jakarta this year, where we recorded this short conversation.

The thing that strikes me most is that, when I first met Sop, he was way ahead of nearly everyone else in thinking about regulating fintech and regtech for regulators -- and that the last time we talked, he had widened that lead even further. On these issues, he might be the most forward-thinking regulator in the world.

The Jakarta meeting was extraordinary. Funded by the Omidyar Network and the Gates Foundation and organized by the amazing Fintech Stage, it drew regulators from six continents, all coming together to share problems and solutions on how to modernize regulation as technology transforms finance. Many were from the developing world, where rapid mobile phone adoption and mobile money services have outstripped traditional regulatory frameworks. Many, though, were from developed countries grappling with how to become innovative, themselves. Notably absent was the United States.

In Jakarta, Sop and I ducked into an empty conference room during a short break and had this talk, as a teaser for a longer episode on his next trip to the U.S.

Singapore is widely regarded as a top world leader in regulatory innovation, right up there with the UK Financial Conduct Authority that started the worldwide movement toward governments adopting innovation agendas. That movement is burgeoning -- recent research by the Aspen Institute finds that more than twenty nations have launched or are exploring regulatory innovation initiatives. MAS was either the second or third one, depending how you count (Australia was early too). MAS has built a “tech stack” that includes giving innovators wide latitude to try new things, as well as “co-creation” of some regulatory change with industry and a sandbox for experimentation.

I’ve become convinced that regulators actually need sandboxes and reglabs, because hands-on testing will be the only way they can learn fast enough to keep up with today’s technology change. Here’s my recent article making that argument!

In our talk, Sop explains MAS’s  “pragmatic” approach, which emphasizes small-scale experimentation, partnering with industry to solve specific problems, and learning from industry which, he says, generally knows more than government does.

When you talk with Sop, you feel a palpable sense of urgency. I think that’s why his thinking is evolving so fast -- he believes we’re running out of time. He worries that the financial system will suffer a calamitous cyber attack and that we have to move much more aggressively to “future-proof it.”

Of course, Singapore has an easier challenge than we do in the U.S., since it’s smaller and has a vastly simpler financial system and regulatory framework (every country has a much simpler regulatory framework than the United States). When I pointed this out to Sop, though, he had a response that has been haunting me ever since. I think you’ll find it thought-provoking.

I’ll be speaking again at the MAS Fintech Festival in November and urge you to come. Last year it drew a stunning 13,000 people. This year, he thinks that could double!  That would surely make it, by far, the world’s largest financial conference. It will be an exciting place to be.

So, enjoy my conversation with Singapore’s Sopnendu Mohanty!

More for our listeners

I hope to see you at some of my upcoming speaker events, including:  

• Finovate, September 13th, New York City

• SourceMedia’s RegTech -- Compliance Transformed, October 3-4th, Brooklyn, NY

• BAI Beacon/Fintech Stage, October 4-5, Atlanta, GA

• CFSI Network Summit, Fireside Chat with Thomas Curry, October 5, Chicago, IL

• FISCA, October 5-8th, Las Vegas, NV

• Money 20/20, October 25th, Las Vegas, NV

• RegTech Enable, November 27-29th, Washington, DC

• Fintech Connect Live, December 6th, London

Meanwhile, 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. Be sure to follow me on twitter and facebook.  And please send in your “buck a show” to keep Barefoot Innovation going.

Support our Podcast

We have great new shows coming up. We’ll be posting the 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 will transform compliance. In addition we’ll have Sanjay Jain, who helped build India’s revolutionary “tech stack” project to capture customer identity on more than a billion people. We’ll have the exciting startup, Petal, and we have several coming up on anti-money laundering.

Keep innovating!

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Banks and Community : CSBS President John Ryan

My favorite episodes of Barefoot Innovation are the ones that take a philosophical turn. That happened with John Ryan, the thoughtful president of the Conference of State Bank Supervisors, which is the organization that coordinates America’s state-level financial regulators.

As you would expect, John and I began by discussing the events that have CSBS in the news these days. One is the launch of its Vision 2020 project to streamline state licensing and examinations for nonbank fintechs, to address the costly and monumental task these companies face in trying to grow to national scale by getting licensed state by state. The other news, and bigger controversy, is CSBS’ litigation against the Comptroller of the Currency, seeking to block the OCC’s proposal to create a national bank charter for fintechs. From these themes, though, we went on to far-ranging pondering about the future of banking, community banks and America’s communities.

On the OCC charter proposal, as John knows well, I’m for it. After talking with him, I still am, but this conversation is the best case I’ve heard anywhere about what could be at stake if such a charter were to bring more consolidation of the banking system. I don’t think it would, but his insights are hearty food for thought.

On Vision 2020, let me say that CSBS’s innovativeness amazes me.  At one point in the podcast John said, “we’re not very imaginative, but we get the job done.” Actually, I think they’re very imaginative, and I think the 2020 effort deserves its “visionary” labeling. CSBS is a century-old body and it is, after all, a body of regulators. Neither of those factors makes it a likely leader in innovation, nor does its daunting mandate of coordinating fifty wildly diverse state regulatory systems. And yet it plans to design and execute a high-tech transformation of how states license and supervise nonbanks (a process that, as John notes, is often still paper-based). I think other regulators can learn a lot from watching this model, both in how to design new systems and how to build buy-in from a complex set of stakeholders.

This innovativeness shouldn’t be surprising because, since these states are the regulators of financial innovation. With some exceptions, the cutting edge of innovation is not in the banking system (partly because banks are so highly regulated), but rather in the nonbanks -- the startups and some of the large tech firms. And those are all almost entirely regulated by the states -- the federal government plays almost no direct role and in fact has very little contact with them. (This is one reason I support the OCC fintech charter -- because it would be the single best way for the federal regulators, who dominate national financial regulatory policy, to become expert about the technologies that are rapidly transforming all of finance. Today, they have little first-hand interaction with it. All that expertise resides in the states that license and oversee the firms that are pushing out the frontiers of the financial industry. For me, this puts a huge priority on the need for the U.S. to evolve new regulatory models, because our uniquely complex and fractured regulatory structure cannot effectively cross-fertilize the rapid learning regulators need to keep up with today’s technology.

John offered plenty of philosophical thinking about all these topics, but late in the discussion we moved on to even bigger challenges, including the stresses facing America’s rural communities -- the kinds of places where people voted for disruptive change in last year’s election. John grounds his thinking about CSBS in his concern about the seemingly inexorable centralization and consolidation of banking. He worries about the role regulation plays in that, and about the future of local lending, and about the future of America.

My home in New Mexico is in a small town, and I’ve done a lot of consulting in them. Years ago, I did extensive strategic planning consulting with small banks, mostly in the Midwest. I spent a many days in little towns where, when lunchtime comes and you walk to the sandwich place with the bank president, half the people on the sidewalk greet him by his first name. There’s a reason why these banks are called “pillars of the community.”  It’s because if they disappeared, things would collapse. Talking with John made me remember one holiday-season visit with a little bank, where the management team told me they’d had to cover an emergency year-end budget shortfall for three local nonprofits, which would have failed without the help. One was a health clinic, one the library, and I can’t recall the third. The giving was a significant hit to the banks earnings, but they’d done it anyway because, quite simply, no one else could -- and because without these facilities, the town’s population would continue to shrink, and age.

Think about this question….What would happen to America’s rural communities if they lost their banks?

And what would happen to America, if we lost our rural communities?

These places are the wellspring of much of our unique national heritage. It seems to me they matter, in ways both visible and invisible.

Their problems are hard to solve. They deserve new thinking, and the future of community banks has to be part of it.

More information on John Ryan

John Ryan is president and chief executive officer of the Conference of State Bank Supervisors, the national organization of financial regulators from all 50 states and U.S. territories.  Prior to becoming president and CEO in 2011, he was CSBS’s Executive Vice President, and Assistant Vice President of Legislative Affairs. Mr. Ryan also led the financial services consulting practice at a public affairs firm and worked on the U.S. House Banking, Finance and Urban Affairs committee. He has a B.A. in political science and economics from the University of California at Berkeley.

More links

Banking Exchange - Reglabs: Time for a major regulatory experiment? (My new article advocating for a new collaboration model for U.S. bank regulators, including through reglabs and a new alternative regulatory channel.)

Karen Mills’ Harvard paper on small business lending and fintech, and my podcast with her.

More for our listeners

I hope to see you at some of my upcoming speaker events, including:  

• Finovate, September 13th, New York City

• SourceMedia’s RegTech -- Compliance Transformed, October 3-4th, Brooklyn, NY

• BAI Beacon/Fintech Stage, October 4-5, Atlanta, GA

• FISCA, October 5-8th, Las Vegas, NV

• Money 20/20, October 25th, Las Vegas, NV

• RegTech Enable, November 27-29th, Washington, DC

• Fintech Connect Live, December 6th, London

Meanwhile, 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. Be sure to follow me on twitter and facebook.  And remember, on the website, to send in your “buck a show” to keep Barefoot Innovation going.

Support our Podcast

SUPPORT OUR PODCAST

We have new episodes coming up. We’ll be posting the 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. Those also include an interesting discussion with prominent regulatory attorney Andy Sandler. In addition we’ll talk with 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.

Keep innovating!

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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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From Analog to Digital Regulation - CFTC Acting Chairman Christopher Giancarlo

Today’s program is a very special one -- a conversation about regulatory innovation, with the very innovative acting Chairman of the Commodities Futures Trading Commission, Christopher Giancarlo.

As regular listeners know, I’ve spent many years in and around Washington where there is a deeply entrenched belief that regulations, and regulators, simply can’t change very much. Regulators are generally, by both nature and design, deliberate, and cautious, and risk-averse. That’s exactly how they’re supposed to be. The slowness of regulatory change can be frustrating, but I think most would agree that, broadly speaking, it’s been better to err on the side of carefulness than boldness, or inventiveness, when taking regulatory actions that will ripple through big swaths of economy and often force change on whole industries and, often, millions of customers.

Today, though, the tilt toward slow and careful under stress in finance, because the world that our regulators oversee is changing too fast for the old system to work well. Our familiar regulatory models -- stable, steady, solidly-rooted -- are being bombarded by technology that is knocking them off their axes. These technology trends, which are much bigger than finance, are developing so fast, and are so powerful, that they are moving us toward a tipping over, into a new world. And in that new world, we’ll face a new paradigm -- namely, that if our regulators are going to be risk-averse, they will have to address not only the dangers of changing, but also the rising dangers of not changing. Technology is growing exponentially, pulling finance along with it, and we’re still trying to regulate it with brains and institutions hard-wired for linear change. We will increasingly face the danger of getting things wrong -- very wrong -- due to falling behind.

Fortunately, a growing group of regulatory leaders, in the United States and other countries, see this shift and are taking on its challenge. One of them is Christopher Giancarlo. Last summer, he and I spoke at the same conference in New York  and happened to sit together at lunch, where he began talking about technology and innovation in ways I’d never heard before from a financial regulator. At the time, he was a commissioner at the CFTC -- he’d been named to that role by President Obama and confirmed unanimously by the Senate. This year, President Trump appointed him Acting Chairman and has now nominated him to be the Chairman going forward. Senate action is expected soon on that -- it may well be that, by the time this show is posted, he’ll be confirmed as the Commission’s chairman.

This spring, he launched an initiative that’s called LabCFTC. Its goal to focus and build the Commission’s extensive work in fintech and regtech innovation. As he explains in our conversation, the Lab will pursue a wide range of activities, from guiding innovators about how to work with regulatory requirements, to participating in research, to building stronger collaboration among financial agencies.

I knew it would be fascinating to have Chairman Giancarlo as a guest on Barefoot Innovation, but I wasn’t prepared for the full vision that he laid out in our discussion. I think this is the single most thought-provoking and eloquent case I’ve ever heard from a senior official about why and how regulators, of all kinds, absolutely have to change.

Remember...the CFTC plays an enormous role today in overseeing financial markets. Its mandate was expanded after the financial crisis, far beyond its traditional focus on commodities. It now oversees the derivatives markets and works to reduce risks to the economy associated with the futures and swaps markets -- areas where, as he explains, technology is rapidly changing everything.

I know you’ll enjoy hearing the Chairman’s far-ranging insights, from the historical reasons why payments are cleared in three days to his eye-opening experience visiting a modern-day, high-tech family farm.

More for our listeners

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.

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; will hear from Sanjay Jain, who helped build India’s revolutionary “tech stack” project to capture customer identity on more than a billion people; and last -- but not least --  we’ll have breakfast in London with the great Brett King.

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Regulators & Sandboxes: Wai-Lum Kwok on Abu Dhabi's Reglab

“Sandboxes.” “Greenhouses.” “Pilot tests.” “Labs.”

These are not words we normally associate with financial regulation. Yet suddenly, all over the world, regulatory agencies are giving these novel names to a new,  unconventional kind of initiative.

The break from tradition is being driven by a realization:  they are going to need to find new ways to do their jobs well, in the face of fast-moving technology change and fintech innovation.

My guest today oversees one of these fascinating programs -- Abu Dhabi’s Reglab. He is Wai-Lum Kwok, Executive Director for Capital Markets at the country’s Financial Services Regulatory Authority.

The world’s most famous regulatory sandbox is run by the UK’s Financial Conduct Authority (which was inspired, in turn, by the CFPB’s Project Catalyst in the United States). We will have a podcast this fall with the FCA, which has just put out a new progress report. Speaking as a former regulator myself -- I was once Deputy Comptroller of the Currency -- I view the FCA’s effort as a remarkable case of regulatory leadership. (Here’s an article I wrote about it for Fintech Law Report.)

When the FCA’s initiative was launched it quickly caught the attention of other regulators around the world. As of today, approximately twenty countries have some form of innovation hub or sandbox underway or on the drawing board, including notably Australia, Singapore, and Hong Kong. The Aspen Institute will soon issue a report with a global overview, which we’ll link to in this episode’s show notes when it’s published.

These sandboxes have a wide variety of designs and specific objectives. As Wai-Lum explains in this episode, the Abu Dhabi initiative accepts a wide range of companies and gives them two years to demonstrate that their innovations will be beneficial and safe. The Abu Dhabi approach, like the UK’s and others, links to a wider national strategy to attract capital and companies wanting to do business in a regulatory climate that welcomes responsible innovation. Some of these countries are cultivating regional and even global leadership positions in fintech.

Note that we recorded today’s episode late last year. In May of 2017, the Abu Dhabi Reglab announced its first cohort of companies.

We had this conversation in the bustling exhibit hall at the Fintech Festival sponsored last fall by the Monetary Authority of Singapore (think about that for a moment -- a central bank ran a 14,000-person fintech meetup, and this year’s will be even bigger).  Our discussion was short, but the topic is one of the most important ones we’ve ever discussed on Barefoot Innovation. I’ve been thinking hard about how regulators are going to keep up with technology innovation in finance, and the answers are not going to be easy. Our regulatory frameworks are designed to be deliberate -- and therefore slow-moving. And to be conservative, and to focus on preventing risk, not fostering change. Some countries have mandates to foster competition, but most, including the United States, don’t. I’ve been researching this challenge in the book and paper I’ve been writing for the past two years as a Senior Fellow at the Harvard Kennedy School Center for Business and Government. Over that period I’ve talked with regulators, innovators, and incumbent companies throughout the United States and all over the world.

I’ve come to an opinion that might be controversial, but here it is. I think regulators will not be able to do a good job of overseeing emerging technology change, unless they create mechanisms for doing empirical testing. I think sandboxes, in some form, are not just helpful, I think they’re necessary.

Of course, it’s far too early to tell how well they will work and which models are best. The regulators running them emphasize that they are figuring this out as they go along. No one thinks sandboxes are panaceas. Nevertheless, the very process of undertaking these experiments is moving a community of regulators forward in deeply understanding fintech innovation -- both its promise and, importantly, its perils.

Despite the sandbox movement sweeping the world, the term sandbox, itself, has fallen out of favor among many in the United States. For one thing, sandboxes sound, well, unserious. For another, there has been talk of using sandboxes to waive or suspend consumer protection rules while companies experiment on real, live human customers. In practice, such suspensions aren’t happening anywhere to my knowledge, but the issue is obviously politically sensitive. (Also, Innovate Finance in London is working on a “virtual sandbox” that could work by modeling innovations using pooled data, so that real consumers would not be affected).

So, fine. Let’s not suspend consumer protections (even though a lot of these laws don’t actually protect people very well). And let’s call these initiatives greenhouses, or pilots, or, as Abu Dhabi does, laboratories. In our conversation, I told Wai-Lum that I too came up with the name “RegLab” for a project I’m working on, exploring the idea of creating a non-profit that could function as an interagency regulatory sandbox in the United States. The U.S. is unique in the world in our dizzingly complex, fractured regulatory structure (five federal financial supervisory agencies, plus dozens of other federal agencies, plus 50 states). We’re going to have to figure out two things -- how to coordinate a coherent fintech regulatory strategy and how to keep up with exponentially growing technology change. If we don’t, we’ll lose our global competitive edge.

There is much more to say on all this -- again, I think it’s one of the most important issues facing the regulatory community -- and we’ll have more shows on it coming up. For now, please listen to my fascinating conversation with Wai-Lum Kwok about the Abu Dhabi RegLab.

More about Wai-Lum Kwok

Wai Lum joined the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) in June 2015.  He heads up the Capital Markets division responsible for admission and supervision of financial market infrastructures and capital market intermediaries.  The division also regulates the offering of securities, collective investments schemes.

Wai Lum also spearheads FSRA’s strategy and efforts to support the supervision of innovation in Financial Technology (FinTech) and development of the FinTech ecosystem in ADGM.

Wai Lum has more than 10 years of supervisory experience.  Prior to ADGM, Wai Lum served as the Director of the Capital Markets Intermediaries Division of the Monetary Authority of Singapore.  Wai Lum graduated from Imperial College, London with an M.Eng in Electrical Engineering and holds an M.Sc in Applied Finance from the National University of Singapore.  He is a CFA charterholder.

More links

•  The Abu Dhabi Reglab -- www.ADGM.com, or email fintech@ADGM.com
•  ADGM’s Reglab consultation paper
•  My podcast on sandboxes with BMO’s Nitish Pandey
• June 2017 Treasury Department  summary of proposed financial reforms including enhanced interagency coordination
• Bill proposed by Congressman Patrick McHenry (in last Congress) to require financial regulators to coordinate on fostering innovation

More for our listeners

Please remember to review Barefoot Innovation on ITunes, and sign up to get email notifications for new podcasts, the newsletter, and blog posts at jsbarefoot.com.  

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

Support our Podcast

Meanwhile, watch for a summer of amazing shows, including CFTC Acting Chairman Christopher Giancarlo; John Ryan of the Conference of State Bank Supervisors; and breakfast in London with the one-and-only Brett King. And watch for our special show that I recorded at the ABA’s Regulatory Compliance Conference in Orlando, including a talk with Andy Sandler and one with Gene Ludwig and Allistair Renee of Watson Financial.

Here’s my perhaps counter-intuitive takeaway from the ABA conference:  #ComplianceIsCool!

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Colleen Briggs : Financial Inclusion Innovation Powered by JP Morgan Chase

Today’s guest is Colleen Briggs, Executive Director for Community Innovation and Corporate Responsibility at JPMorgan Chase. Colleen leads a visionary effort that is part of JPM’s commitment to building “more inclusive growth,” globally, by finding innovative models that build financial access and economic expansion.

Our timing is great because just last week, the Center for Financial Services Innovation announced its new class of winners for the Financial Solutions Lab competition. The Finlab is funded by a $30 million, five-year commitment from JPMorgan that Colleen oversees, aimed at finding, supporting, and scaling innovative ways to promote consumer financial health. This is part of a $1 billion program that the bank has undertaken globally.  

Here is a link to the JPMorgan press release on this year’s competition, which includes an overview of the winners, and here is a further article by the American Banker.

Colleen comes to this work from a diverse background at nonprofits, on Capitol Hill, and now in the private sector, searching for better solutions for lower-income financial consumers. In listening to her, I was struck by the degree to which she has her finger on the pulse of the trends underway, both globally and in the U.S.  She shares insights on how to make it profitable to serve low income customers; how to win the trust of consumers who are wary of digital products; on the failures of traditional financial education; on the primacy of behaviorally-based product design; on the need for new business models; on how to build partnerships between banks, fintechs and community organizations; on how innovative cultures can take root in big banks; on platforms that can get new solutions to scale; on the business opportunity for banks -- and their corporate customers -- from building global inclusion; on mixing high tech and high touch and the limits of automation; and on how to shift the whole marketplace. She has wise advice for all the players.

Since we recorded this episode, I’ve become the board chair at CFSI. Last week we held the Emerge Forum in Orlando, where a record audience talked about exciting new ideas for financial health. There was huge enthusiasm there about the new Finlab winners. In a sign of the maturing of the fintech startup world, three companies in this year’s class are reaching beyond the typical millennial customer base and instead building new tools for seniors. Watch for their progress.

Here are my other podcasts with the Finlab and past winners Digit, Ascend, and Bee.  

More on Colleen Briggs

Colleen Briggs is Executive Director of Community Innovation within the Office of Corporate Responsibility and Global Philanthropy at JPMorgan Chase & Co, a global leader in corporate philanthropy with $200 million invested in communities annually. She is responsible for helping establish and execute the firm’s global philanthropic and corporate responsibility financial capability, including the Financial Solutions Lab, and community development strategies, including PRO Neighborhoods. The Lab is a $30 million, five-year initiative that convenes leading experts in technology, behavioral economics, and design to improve consumer financial health. PRO Neighborhoods is a five-year, $125 million program that works to increase the availability and accessibility of vital economic opportunities in vulnerable neighborhoods across the country. Colleen also manages the Foundation’s portfolio of global financial inclusion grants, impact framework and grant guidelines and works with the lines of business to share best practices to improve the firm’s products and services.    

Prior to joining, Colleen was the Economic Policy Advisor to Senator Debbie Stabenow. In this role, Colleen managed the Senator’s economic portfolio, including policy related to financial services, tax, small business, job creation, community development, manufacturing, and housing. Colleen managed the Dodd-Frank market reforms for the Senate Agriculture Committee, and helped draft the Recovery Act, TARP, the Dodd-Frank Act, and healthcare reform.

Colleen is a member of the Asset Funders Network Steering Committee and the Innovations for Poverty Action Policy Advisory Group. She earned an MBA from the Yale School of Management and a B.A. from the University of North Carolina at Chapel Hill.

More links

Some organizations Colleen mentioned:

Neighborhood Trust / FlexWage / Lending Club / LendStreet / Propel

And more for our listeners

Please 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.

Support our Podcast - Send "A buck a show"

And watch for upcoming podcasts. My guests include Christopher Giancarlo, Acting Chairman of the CFTC; Brett King, founder of Moven; John Ryan of Conference of State Bank Supervisors; and a special series we recorded at the American Bankers Association Regulatory Compliance Conference this month. The ABA show includes a conversation with Promontory CEO (and former Comptroller of the Currency) Gene Ludwig and Alistair Renee of IBM Watson, who have teamed up to bring artificial intelligence to compliance through regtech.

See you soon!

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Making it Easy : Intuit's Al Ko

Here’s a question: Would you like to file your taxes with just a keystroke, after your electronic devices automatically organized all your information and prepared the return? Here’s another -- do you think you’ll still be driving, five years from now?

Today’s episode is a far-ranging conversation with Al Ko, Senior Vice President and Managing Director of the Consumer Ecosystem at Intuit. Among other things, he heads up Mint, which is deeply innovating about healthier ways for us to live our financial lives.

Al reminds us that Intuit founder Scott Cook pioneered PFM -- personal financial management that leverages technology to simplify financial tasks (That story is recounted memorably in Eric Ries’ book The Lean Startup.)  Intuit then acquired Mint. PFM tools work wonderfully, if you have the time and motivation to pay active attention. Unfortunately, though, most of us don’t. It’s been estimated that maybe two percent of people actively use PFM tools. The other 98% struggle, and juggle our many financial tasks, and sometimes drop those balls. Al says American consumers pay $77 billion a year, just in credit card late fees. Just for, basically, forgetting to send in even the minimum payment by the due date.

Fortunately, big trends are bringing new solutions are starting to make the juggling easier, or even unnecessary. Finance will still be complicated, but it will feel simple.

This is critical, because complexity is one of the main drivers of people’s financial problems and bad financial health. Financial services are just inherently complicated, intrinsically hard to understand and hard to manage. If we can make it easy, a lot of problems simply go away.

The foundational breakthrough is that technology can now easily consolidate our disparate financial information in one place, electronically. Once it’s all there, technology tools can easily organize and analyze it. Then that consolidated information can be teed up, through new PFM tools, to give us at-a-glance insight on where we stand -- comprehensively, always up to date, and also benchmarked, if we want, against our goals, like what we’re saving for, or against emerging standards that can help us know whether we’re financially healthy, or not.

Next, and crucially, new tools can also easily take the initiative to send us alerts, reminders, to do things like paying a bill, or like pausing before we make a payment that will cause us to fall short on the next rent payment.  Not wait for us to look up a bill or find a statement, but initiate a reminder, in the midst of our busy lives.

Now add in behavioral science-based tools, so that, instead of being boring, our financial management can become engaging, even entertaining and fun, or even funny (see my past podcast with Digit). Behavioral science can also “hook” us on good behavior through rewards and reinforcement that are psychologically effective.

And then, as Al explains in this episode, all this will become universally accessible across all our devices.  We’ll be able to get those reminders, or get our questions answered, anywhere, anytime, all the time -- in our house, our car, our phone, our watch.

And we’ll be able to do it, when we want to, just by talking. We’ll use smart voice assistants like Alexa, the Amazon Echo, or Google Home.  No need to open apps, or look things up. No need, even, to find the phone, or even press a button. We’ll simply be able to speak, into the air. That may not seem like a big deal to you if you’ve been using, say, Siri, but back to the point on behavioral psychology, the tiny nuance of easiness can make a huge difference in actually using a solution.

Your voice assistant increasingly will be your full financial assistant (Capital One customers can already use Alexa for banking). If you want it to, it will greet you as your pour your morning coffee and say, “The electric bill needs to be paid today. It’s $28.” And you’ll say, “Okay, pay it.” And then you can say, “What’s my account balance?” And, “Have I saved enough for my vacation?” And, “Where am I on my savings goals?”

Now add in geolocation. For better or worse, our phones know where we are. So we’ll soon have financial apps that will send us a text, or vibrate the watch on our wrist, with a message:  “I see we’re at the grocery store. We can spend $75 here today.”  Or, “I see we’re walking toward the coffee shop. You asked me to remind you that this week’s latte budget has already been spent. Keep walking!”

We’ll also be able to give our assistant, our helpful bot, a personality, an avatar, with a persona that is most motivating for us, whether it’s, say, a basketball coach or a friendly dog.

As Al explains in today’s show, Mint has a new bill-pay app that already does some of these things,  and it has many more tools like these on the drawing board. They are not science fiction. These technologies already exist, and innovators are working fast to bring to us.

Are there new risks in these new tools? Sure. There are risks and drawbacks in all innovations, and we should be working on addressing them.

But here’s how I view that trade off. I’ve spent my whole career working with efforts to protect and empower financial consumers through regulation. And now, I look at these new technologies and realize, these are the solutions. With tools like these (and many more that are emerging) everyone will be able to live a healthy financial life, in the sense of easily understanding and managing their money. Easy budgeting, easy bill-paying, easier saving, easier investment, easier selection of the best product, easier self-discipline -- all of it.

To make that happen, there’s a key challenge to solve for:  how will tools like these become profitable enough that providers will offer them to everyone? What are the business models that will evolve, and how can we be sure they’re transparent and fair?

I talked about that with Al Ko, and about the need for consumer empowerment on using financial data, and about what Mint does today, and will be doing soon, and about its ambitious future vision around for Powering Prosperity and Financial Freedom, globally.

More information

My past podcast with Colin Walsh of Varo, which offers a financial assistant chatbot.

More for our listeners

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.  

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.

Support our Podcast - Send "a buck a show"

And watch for upcoming podcasts including John Ryan of Conference of State Bank Supervisors, Colleen Briggs of JPMChase, and a series I’ll be recording from the ABA Regulatory Compliance Conference in Orlando. My guests will include Andy Sandler of BuckleySandler, and also Gene Ludwig and Alistair Renee of IBM’s Watson Financial on how artificial intelligence and machine learning will transform compliance.

Last but not least, I’m now the chair of the board of CFSI, the Center for Financial Services Innovation. Be sure to join us at the Emerge conference in Austin. There’s nothing else like it!

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Fiat Currency Can be Virtual Too: Jonathan Dharmapalan, CEO of eCurrency

Bitcoin began in 2009 -- only eight years ago -- and set forces in motion that are only starting to show their potential power. One was a byproduct -- the creation of the blockchain, or distributed ledger technology, DLT, is now on its way to disrupting activities far beyond payments, from  value chains to contracts. The intentional innovation was establishing a new form of currency -- virtual or digital currency -- that functions as alternative payments system that operates on the internet rather than through banks and the ACH.  The financial system is still in the early stage of grappling with the potential benefits and risks arising from this mold-breaking model (I wrote about some of those issues three years ago in my blogpost on The Benefits of Bitcoin.)

My guest for today’s show brings yet another angle -- a unique one -- to rethinking money. He is Jonathan Dharmapalan, Founder and CEO at eCurrency Mint, Ltd. Jonathan spent 25 years in telecommunications field, including becoming Head of Enst & Young’s Global Telecommunications Center in 2011. His insight, at eCurrency, is that the best way to capture the power of digital currency is to have governments, themselves, issue it.

Jonathan and I met during the annual meeting of AFI, the Alliance for Financial Inclusion, in Fiji, and he explained his vision for building a new system based on government-issued e-currency. He argues that this concept can capture the best of both worlds, combining the stability and confidence that comes with well-managed traditional currency, and adding the advantages of virtual money such as speed, ease of use, and infinite divisibility.

I loved this conversation because it exemplifies how innovative thinking in finance, once it gets “released into the wild,” can spark more and more creative thinking, far beyond what the originator innovators had in mind. Often, it leads to solving problems we don’t even realize we have, because, well, we just assume the world is a certain way and we can’t picture anything else.

It reminds me of the quote attributed to Henry Ford -- apparently erroneously -- that if he had asked his customers what they wanted, they would have said, faster horses.

More about eCurrency

Jonathan’s Background:

Jonathan Dharmapalan is Founder and Chief Executive Officer at eCurrency Mint Limited. He became Head of the Global Telecommunications Center at Ernst & Young LLP in May 2011, responsible for leading a team of over 2,000 telecoms specialists across the world. He has had a 25 year career in telecommunications and the related sectors of technology, media and entertainment, and led Ernst & Young's Telecommunications Center in Beijing. He began his career in telecommunications at AT&T Bell Laboratories. Mr. Dharmapalan holds a Bachelor of Science degree in Electrical Engineering from Northeastern University and a Masters of Science degree in Electrical Engineering from The California Institute of Technology.

More for our listeners

Many exciting things are happening.

First, I’m happy to say that I recently became chair of the board of directors at CFSI -- the Center for Responsible Innovation.  If you haven’t signed up yet to come to our Emerge conference in June, be sure to do so!

Also come, that same week, to the ABA’s Regulatory Compliance Conference. The ABA is innovating in its format this year, including by having me record some very special podcasts straight from the conference floor. I’ll also be holding a fireside chat on the main stage with Gene Ludwig of Promontory and Alastair Renee of IBM Watson, on how regtech will change compliance, including through their formation of IBM Financial to bring Watson’s artificial intelligence to regulatory challenges.

And it’s not too early to put Money 2020 U.S. on your agenda for October. I’m going to MC the conference regulatory track, which has some fabulous speakers.

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.

Support our Podcast - Send "A Buck a Show"

See you soon!

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Outspoken: Bill Harris, Founder and Chairman of Personal Capital and former CEO of Intuit and Paypal

In the early days of Barefoot Innovation, one of my guests said something very provocative, that I knew would not sit well with some of our listeners. I considered whether to edit it out. Someone on my team pointed out that my website features a quote from Carl Sagan about the importance of truth-telling, and we decided that it’s the essence of this show to have a wide range of guests and let them speak as they want, without editing, and with the understanding that it’s their opinions rather than mine.

It’s a good thing we have that policy, because otherwise, I would have quite the project figuring out what to do with my very lively conversation with Bill Harris, the former CEO of Paypal and Intuit, and Founder and Chairman of Personal Capital. Bill and I got together, in a little office I was using at Harvard, and had a very far-ranging conversation. By the time we finished, I told him I’ll probably have to offer equal time to all the people he -- shall we say, critiqued -- during our talk.  

Seriously -- if anyone Bill mentions would like to come on the show to offer opposing views, please reach out.

A lot of Bill’s outspoken views these days focus on the controversy over customers’ right to use and share their financial data. Much of today’s most promising innovation works by having people give permission to a fintech to access their bank account, so that the fintech can help them save, invest, or manage their money. This is the model behind everything from Mint (podcast with them is coming soon), to Digit (see our past episode with Ethan Bloch). For the past year or so, banks have been raising concerns that these arrangements can be risky to customers because the fintech may have inadequate security, and/or because there may weak controls on how the fintech uses the data.

The innovators are countering that many of them have better security than banks do -- basically because they have new technology rather than the aging, siloed IT at most banks. They also argue that the potential risks can be managed, including through best practice by data aggregators like Yodlee. Bill is part of a newly-formed fintech group on Consumer Financial Data Rights  (which I have advised) and which is trying to build consensus on how to provide consumer protection while also assuring that consumers can access and use their data freely. The core argument is this information belongs to the consumer, rather than to the company that’s holding it.

There are huge stakes in this, because data is the life’s blood of financial innovation. Regulators and the financial community must assure that it’s protected and not abused, but also have to enable it to flow freely, with the consumer’s permission. If it doesn’t, most of the best innovation underway with wither and die.

In our discussion, Bill talks about this challenge, including the fact that the Dodd-Frank law authorized the CFPB to set out guidance on it. (Here is the CFPB’s request for information on the data rights issue.) Even more basically, he talks about the underlying problem, which is how to actually secure consumers’ data and establish reliable identity verification. Bill has helped to found three major security companies and shares his deep thinking about a security world beyond passwords (which he calls “stupid”).  He also warns against universal data security standards that are rigid or one-size-fits-all. And he offers a vision for how we will really solve identity authentication and security problems -- through the phone.

We talked about his current company, Personal Capital, which provides personal financial management software to about 1.3 million users, for free. For customers that want more help, the company then provides fee-based investment advisory services tailored for people with complex financial situations. It arose from Bill and colleagues deciding that people’s biggest financial challenge is the “chaos” that leaves people leading “unexamined financial lives.” Personal Capital has designed a solution that is simultaneously high-tech and high-touch.

Bill has wide-ranging views (including some praise) about new models emerging in investment management and robo-advising. (Here is the earlier podcast I mention in our talk, with Jon Stein of Betterment.)  Our discussion also included a look into how Bill starts businesses and scales them up, and about the challenges of legacy bank IT systems (stuck together with “bubble gum and sealing wax”).

I think you’ll especially enjoy his stories about past adventures, including the early days at Intuit, and the hair-raising startup of PayPal with Elon Musk, Peter Thiel and Max Levchin, in a “small second floor thing over a bakery on University Street outside of Stanford.”

And listen closely as he recounts an intriguing dinner conversation with Steve Jobs, about financial services.

More for our listeners:

Watch for our upcoming shows, including Colleen Briggs of JPMorgan Chase; Wai Lum Kwok, who leads the regulatory sandbox in Abu Dhabi; Jonathan Dharmapalan, founder of eCurrency; Al Ko, who leads Mint; and the one and only Brett King, among others.

Please review Barefoot Innovation on ITunes. Also sign up to get emails when the new podcasts come out and to get my newsletter and blog posts at  jsbarefoot.com. And go there to send in your “buck a show” to keep Barefoot Innovation going.

Support our Podcast - Send "a buck a show"

I hope you’ll also join my facebook fan page, and follow me on twitter.

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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.

Support our Podcast - Send "a buck a show"

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.

Support the Podcast - Send a "Buck a show"

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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A Millennial Building for Millennials - Ollie Perdue of Loot

Today’s show features one of the most  interesting startups in London.

I was there in in late 2015 and looked up someone I’d been wanting to meet -- Jean-
Stephane Gourevitch, (see more on Jean-Stephane below -- he is behind many of the most interesting fintech developments in Europe and will be on the show one day soon).  We met for coffee on the south bank of the Thames, near the Shard hotel, and he brought along a young entrepreneur, Ollie Perdue of Loot. Ollie showed me a quick Loot demo on his phone, and ever since, I’ve been avidly watching their progress.

A year later, I had a chance to do a podcast with Ollie. Sitting amidst their whiteboards marked up with problem-solving sketches and waiting list queues, he filled me in on their progress.

Loot is an app paired with a prepaid debit card, offering tremendously useful tools for easy budgeting, payments, and simple ways to set financial goals and get coached about how best to meet them. They also analyze the customer’s spending patterns and benchmark against peers -- helping the huge numbers of people who simply have no idea where they stand compared to where they should be, in financial health.

In our conversation Ollie describes how it all works, including how he got going and how he’s managed to launch something so impressive while still in his early twenties.The company has gotten a lot of attention, including raising an additional $3.13 in venture funds late last year. It’s aimed at young people and is one of the best offerings I’ve seen in hitting that sweet spot. That includes having an in-app ability to do customer service by text with (what else?) GIF’s.

Skeptics often argue that fintech is too narrow because so much of it aims for millennials. To that, I’d say two things. First, startups, out of sheer financial necessity, have to target early adopters -- markets that are likely to pick up a new product quickly and share it virally. That means a high percentage are starting with millennials. However, I don’t know any that plan to stop with them.

Secondly, millennials are the largest generation in the history of the world, both in the U.S. and globally. They surpassed the baby boomers a couple of  years ago. By sheer numbers alone, they’re going to dominate commerce and culture, just as baby boomers did as they came of age.

I made a speech last month to AFSA, who asked me to talk specifically about millennials as customers. Working on it made me think more deeply, myself, about how important it is that new financial technology is emerging concurrently with the rise of this huge generation -- whom we know, as both consumers and employees, want everything to be optimized by technology -- to be well-designed, fast, easy, friendly, engaging, and all the rest. If technology was changing, but customers weren’t, we can imagine slow adoption of innovation. Instead, today, both halves are transforming together -- the product and the user. That will change the market, not only for young customers, but for everyone, and in some ways, faster than we might think.

Millennials should not be underestimated -- especially thoughtful, energetic entrepreneurs like

Ollie Purdue.

More Links:

• IInterview with Ollie: http://www.businessinsider.com/loot-bank-ceo-ollie-purdue-interview-2015-8
• Jean-Stephane’s 2017 conference FintechConnectLive!

More for our listeners:

I'll hope to see you in March at LendIt in New York and SXSW in Austin. Also come to the FinXTech Summit in April 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.  My new post says 2017 will be the year of RegTech. Go there too to send in your “buck a show” to keep Barefoot Innovation going. Please also join my facebook fan page, and follow me on twitter.

See you next time!

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Fintech for Small Business: Former SBA Administrator & Harvard Business School Senior Fellow Karen Mills

Today we’re expanding beyond our usual Barefoot Innovation focus on consumer financial innovation, to explore the parallel issues arising for small businesses. We’ve touched on this before, but are so fortunate, today, to have a guest who deeply understands the whole range of these issues. She is Karen Mills, former head of the Small Business Administration and now senior fellow at the Harvard Business School, where she has just released a comprehensive paper on fintech and small business.

We recorded today’s show in her office on the business school campus, which is just across the Charles River from my fellowship’s home base in the Harvard Kennedy School. She and I first met in Washington a few years back, when she issued a research paper on the state of small business lending. That was in conjunction with the group that issued the Small Business Borrowers’ Bill of Rights (which we covered in our episode with Brian Graham of BancAlliance. In 2016, much to my delight, Karen and her co-author Brayden McCarthy put out an update on her paper, and this time it’s mostly about fintech.

Technology is changing small business lending in the same ways it’s transforming consumer finance, but with different twists. On the positive side, innovators are using technology to do better for SME’s -- small and medium-sized enterprises -- by adopting low-cost online platforms, becoming much smarter about getting and using data, speeding up service, and creating a vastly better user experience than was possible in the past. The data issue is crucial. Thanks to new technology (including Square), small businesses increasingly can give lenders solid, up to date information on their financial positions and cash flows. Innovative lenders can analyze this, determine with precision what the borrower can afford, and often can create a flexible repayment schedule that works with the rhythm of the business, including seasonal ones.

These innovators are filling an enormous gap -- which Karen clearly demonstrates -- because banks just cannot profitably make the smaller loans that so many businesses need.

There are  downsides, though. One is that whereas local banks interact with their business customers face to face,  these new relationships are online. For lenders, this creates higher risk of fraud. And for borrowers, there is rising danger that these entrepreneurs will be harmed by confusing terms and, sometimes, by downright predatory practices online.

And here’s a little-known fact:  small business borrowers have almost no regulatory protections, at least at the federal level. There is no federal regulator for small business lending, as there is for consumers, and even if there were, there are very few regulations that apply. Generally speaking, there are no requirements for standard disclosures to small business borrowers, and no rules against unfair and deceptive practices, beyond those that cover commerce in general.

This is significant, because today’s small businesses are more similar to consumers than ever before. The “1099” or “gig” economy has led to more and more people starting small businesses as their main work, or to supplement tight household budgets, or to tide them over after losing a job. It’s a mistake to assume that, simply because they’re business people, they are therefore financially sophisticated.

Listeners to Barefoot Innovation have probably figured out by now that I’m not a fan of the current regulatory apparatus for protecting financial consumers (even though I myself have been involved in developing some of it). Broadly speaking, disclosures are failing, and regulations are choking desirable innovation. The last thing I think we should do is to transplant our whole system of consumer protection laws into the fresh, green field of small business lending, and have it put down roots there -- like crabgrass. I think we should be deeply rethinking our consumer laws. In the process, though, we should also be thinking about whether and how to create protections and tools for small businesses to use, too.

Karen does recommend extending some consumer-type protections to these firms, including APR’s (we had a good exchange on the pros and cons of that). She also has tremendous insights into the structure and nature of the market, and on what to do about what she calls the “spaghetti soup” of regulatory agencies and rules, which now make it so hard to move toward a smarter system.

She focuses, too, on the critical need for clearer, updated regulatory guidance for banks that want to work with fintechs on small business lending. A wide spectrum of new models are emerging, partly because these two industries need each other -- they complement each other. Both sides will suffer, and so will business borrowers, if banks can’t navigate the third-party risk rules of their prudential regulators. (As I often say, the regulators have the hardest job in all this.)

More information on Karen:

Karen Gordon Mills served as the Administrator of the U.S. Small Business Administration from 2009 until August 2013.  She is currently a Senior Fellow at the Harvard Business School and at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School focusing on U.S. competitiveness, entrepreneurship and innovation.

As SBA Administrator and a Cabinet member, Mills served on the President’s National Economic Council and was a key member of the White House economic team.  At the SBA, she led a team of more than 3,000 employees and managed a loan guarantee portfolio of over $100 billion.  Mills is credited with turning around the agency during the financial crisis and with streamlining loan programs, shortening turnaround times, and reducing paperwork.  In addition, Mills helped small businesses create regional economic clusters, gain access to early stage capital, hire skilled workers, boost exports, and tap into government and commercial supply chains.  

Prior to the SBA, Mills held leadership positions in the private sector, including as a partner in several private equity firms, and served on the boards of Scotts Miracle-Gro and Arrow Electronics.  Most recently, she was president of MMP Group, which invested in businesses in consumer products, food, textiles, and industrial components.  In 2007, Maine Governor John Baldacci appointed Mills to chair Maine’s Council on Competitiveness and the Economy, where she focused on regional development initiatives, including a regional economic cluster with Maine’s boatbuilding industry.   

Mills earned an AB in economics from Harvard University and an MBA from Harvard Business School, where she was a Baker Scholar. Additionally, she is a past vice chair of the Harvard Overseers, and is currently a member of the Council on Foreign Relations and the Harvard Corporation.

And listen, too, to our episode from last year with Sam Hodges of Funding Circle, a leading example of platform lending to small businesses.

More for our listeners

We have some amazing shows coming up, including one with Chase’s Colleen Briggs, several focused on global trends, at least one with a CEO of a community bank, and one that I will call a barn-burner with the former CEO of PayPal and Inuit, Bill Harris. Don’t miss them!

Remember to write a review of Barefoot Innovation on ITunes, and please sign up at www.,jsbarefoot.com to get email notices when new podcasts come out, as well as my newsletter and blog posts.  Go there too to send in your “buck a show” to keep Barefoot Innovation going. And remember to  join my facebook fan page and follow me on twitter.

Support the Podcast

Thanks so much for listening, and I’ll see you next time!

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Getting People on to the Credit Ladder: LendUp CEO Sasha Orloff

Today’s episode is about new ideas about a very old problem in consumer finance -- high-cost lending to high-risk borrowers. My guest is LendUp CEO Sasha Orloff, who is one of a new generation of fintech founders building alternatives to traditional payday lending.

In public policy, there has been a long-standing assumption, sometimes implicit and sometimes explicit, that widespread access to credit -- especially mortgages -- is a good thing. A host of government regulations, programs, and bank supervisory activities aim to promote more credit, because we’ve assumed that wider credit access is, broadly speaking, good.

Is it, though? Most people would agree that up to a point, it’s good, and beyond some point, it becomes bad. It definitely becomes bad at the point where the borrower can’t realistically repay the loan. It can also become bad if the pricing is so high that the person ends up worse off for borrowing, instead of better, especially if the borrower doesn’t understand the terms

We could do many episodes on the tough issues embedded in this question. One is whether it’s better to have high-cost loan options that are legal and subject to regulation, or to outlaw them, knowing that shutting down legal options will drive some desperate people to use illegal ones, which hurt them even more. Another is the philosophical question of how much the government should protect people from themselves. If the price of a high-cost loan is clear, and borrowers understand it, should the government respect their decision on whether to take it, or substitute its judgment for theirs and remove the option?

Again, public policy has been debating these issues for decades --  maybe centuries -- and still is, including through many of the initiatives taken to date by the CFPB.

In this podcast, we won’t tackle those questions, but will instead ask a very different one: What if we didn’t need to resolve them? What if, thanks to technology, we could solve the problems surrounding high-cost credit -- or a big chunk of them -- not through regulation, but in the marketplace.

LendUp.  Sasha Orloff founded LendUp to provide more affordable credit to the 50% of Americans with credit scores below 680. He had worked at a big bank, and at an NGO in the developing world, and had a brother in the technology world who kept telling him that better software could create better products. He finally founded LendUp, to build them.

LendUp offers credit products online -- which means it has, automatically, a lower cost structure than the traditional bank model of branches. As Sasha explains in our discussion, it has also designed its products to offer borrowers a gateway to better credit scores, credit options, and financial health.

LendUp is backed by major investors including Y-Combinator, Google Ventures, QED Investors, Startfund, Kleiner Perkins, A16Z seed fund, Thomvest Ventures, Kapor Capital, Bronze Investments, Founders Co-Op, Data Collective, Susa Ventures, and Radicle Impact.

Sasha and the firm have been featured in the Wall Street Journal, NYTimes, Financial Times, CNN, NBC, TechCrunch, Venturebeat, Inc, Wired, Bloomberg, Fortune, Dow Jones, American Banker, Marketplace and many others. He has presented at TEDx, and LendUp, and they won Finovate Best In Show. FastCompany named the firm as one of the World’s Top 10 Most Innovative Companies in Personal Finance, and it won runner up in Webbys for best website design. They have presented at LendIt, Emerge, Money20/20, The HubSF, NBC News, and Huffington Post Live, and participate in The Clinton Global Initiative on Financial Inclusion. Sasha also serves on the Consumer Lending Advisory Board for TransUnion (one of the three major credit bureaus)

A regulatory note.  After Sasha and I recorded this episode, the CFPB announced an enforcement action against LendUp. The order is, among other things, a warning flag for startups about the importance, and the great challenges, of maintaining complete regulatory compliance in the midst of rapid growth. The company has responded with a massive expansion of compliance staff. Following the announcement of consent order last fall, it issued this statement:

We started LendUp because the traditional banking system wasn’t working for more than half of Americans. From day one, we’ve committed ourselves to offering better, safer and more transparent credit products and to aligning the success of our business with the success of our customers.

We genuinely believed the product features that were identified by the CFPB and the California DBO– like optional expedited funding and a 30 cent per day discount for early repayment—were in the best interests of our customers. But we fell short in the execution and in meeting the expectations of our regulators.  We have since taken action to resolve every issue they’ve raised, including beginning to refund customers prior to entry of the Consent Order and Settlement Agreement.

We’ve also made significant investments to build out our legal and compliance operations. In this respect, we are a different company today, with a completely new legal and compliance team that is larger now than our entire company when we started these exams. Importantly, those teams are brought in at the beginning of the development lifecycle for every new product and feature.

We are proud of the progress we’ve made to expand access to credit, lower borrowing costs and provide credit-building opportunities to our customers. LendUp has:

• Graduated more than 20,000 borrowers to the highest rungs of the LendUp Ladder in more than 11 states

• Saved Californians alone more than $18M in 2016 (and an estimated $40M to date nationwide)

• Delivered over 800,000 free credit education classes; and

• Helped LendUp customers improve their credit scores: according to TransUnion data, 66% of LendUp customers showed a credit score increase – more than those in the control group using similar types of products from other lenders.

We are eager to keep building on this track record, and look forward to continuing our work to put our customers on paths to better financial health.

I have found Sasha to be one of the most thoughtful people in fintech. I think you’ll be fascinated by his overview of the shrinking of the American middle class, the impact of the smartphone revolution; innovation models fort startups versus banks; how making financial education interesting; and how to redesign regulation for the 21st century,

The loans at Lendup cost less than traditional payday options, but more than loans to prime customers, because the borrowers are simply higher risk. If lenders can’t charge enough to cover that risk, they won’t serve these customers. If they can, though, and if they can leverage technology to gain efficiency and underwriting accuracy, and if they can enable high-risk borrowers to build and repair credit records, and if they can educate people about managing their finances, and can also make a great return on capital and then truly scale up…. then seemingly unsolvable problems can, maybe, begin to.get solved.

More links:

• Study on LendUp impact on credit scores.
• LendUp education on credit scores.

More for our listeners:

I'll hope to see you at "LendIt in New York in February, SXSW in March, FinXTech Summit in April 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.  My latest post argues for some healthy regulatory disruption as a new administration takes office. Go there too to send in your “buck a show” to keep Barefoot Innovation going. Please also join my Facebook fan page, and follow me on twitter.

Support the Podcast

And watch for the next podcast, because we’re going to turn to innovation in small business lending. My guest will be Karen Mills, the former Administrator of the SBA and at Harvard Business School, where she has just issued an updated study on small business lending This one is focused mainly on fintech. We had a fascinating conversation. See you then!

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The One Dollar Smart Phone -- Theo Cosmora, CEO of SocialEco

Greetings for the holiday season, and apologies for my recent backlog in posting podcasts. The main reason for the latter is that I have been traveling almost constantly. In November and December I was in Singapore, Geneva, San Francisco, London (twice) and Washington multiple times, and of course, back in Boston in between.

And not long before that, I was in Fiji, where I recorded this podcast, with Theo Cosmora, CEO of Social Eco and the OneDollarSmartPhone.

Developing countries are the world’s learning laboratory on financial inclusion.

What I learned from these recent travels is that the world is alive with new ideas about both financial products and financial regulation. Fintech and regtech, are everywhere. And both are, surprisingly to some, more advanced in other parts of the world than in the U.S. The reason for that is simple:  Other countries, and especially the developing world, have leaped straight to new technologies, and especially mobile financial services, because they never built the complex financial and regulatory infrastructure that predominates in the developed world, such as widespread telephone land lines and personal computers. Those financial systems have flaws, but broadly speaking, they work pretty well for middle and upper income people, getting financial tasks done through banks, bank branches, checks, plastic credit cards, plastic debit cards, cash machines, funds transfers and all the rest.

That means that the impetus to change entrenched infrastructure, not to mention entrenched consumer habits, is weaker in highly developed markets.  It also means that investing in such change takes more time to pay off there, and is extra expensive because providers have to maintain all their traditional systems while simultaneously building new ones.

The developing world lacks that problem. For people who have never had access to financial services, for whom no one ever would have built a branch, there’s nothing to replace except cash and barter. Planting new systems in new ground is, generally, easier than growing things amidst a mature forest.

This fact has made developing countries into the world’s learning laboratory on how to build really an innovative financial system -- especially for low-income people. People throughout the world have mobile phones -- as of 2013, more people had access to cellphones than to toilets. Everyone knows how to use them. Increasingly, these are smartphones that can access wifi, which is spreading fast too. While the United States is still focused on the Community Reinvestment Act obligation of banks to maintain branches in lower-income neighborhoods, other countries are bringing whole new affordable financial services to low income people, by the hundreds of millions, through converging new technologies. That’s not just the cell phone, but all the other changes underway in digital identity, voice technology, block chains, big data, and much more.

And regulators, especially in developing countries, are working hard to harness the same technology trends into new “regtech” strategies, to foster this progress and, simultaneously, to prevent new dangers that will grow along with it.

We’ll talk more about this revolution in other episodes -- I recorded several more in Fiji and my other travels -- but for now, let’s focus on this incredible breakthrough -- the affordable phone.

Theo Cosmora

My guest for this episode is Theo Cosmora, co-founder and CEO of Social Eco and the man behind the OneDollarSmartPhone. Theo notes that four billion people can’t afford smartphones; that this is potentially the world’s most valuable market in the world, worth $5 trillion; and that people spend an average of three hours a day using phones if they have them. That means that connecting everyone to smart phones will connect them, both horizontally and vertically, into every dimension of the larger economy and culture.

How to solve the phone affordability gap? Theo has devised a business model in which companies or governments will sponsor pre-set apps on a phone, to subsidize the price enough to reach people who can’t afford the phone, but do have and spend money -- farmers, workers, migrants, others. This is somewhat like the model developed by the internet itself, or by players like Google -- or for that matter, broadcast television -- where a core service is free or nearly free, because it’s creating access to markets for third parties. (As an aside, I’ve been thinking a lot about fintech business models, and the need for transparency and true consumer understanding around them. I’ll be talking more about that in 2017.)  I think you’ll be fascinated by Theo’s insights on this market and how serving it can unlock value throughout the global economy, as well as lifting people out of poverty and isolation. If you’re a business, regulator, or central bank, anywhere, with interest in this market, Theo would like to talk with you about sponsoring phones.

You’ll also enjoy his insights about regulators, who he thinks are suddenly seeing the potential and becoming helpful. We recorded our conversation at the annual global forum of AFI, the Alliance for Financial Inclusion, which consists of the financial regulators and central banks of the developing world. The meeting dramatically bore out Theo’s optimism on regulators embracing fintech and regtech, as we’ll discuss in future episodes.

For listeners in the United States, some of this may not seem directly relevant, but I want to encourage you to think about it. Initiatives like this are pointing the way to affordable, inclusive, profitable financial services -- for everyone. U.S. public policy has been striving toward that goal for decades, with results that are limited at best. Suddenly, technology is opening up a whole new way to go at them.

Some say you can’t make money serving people with no money -- at least not without cheating them. I’d love to know if our audience thinks that was ever true, and even if so, will it still be, as technology makes more markets profitable by making it inexpensive to reach and serve them. If you have thoughts, please share them at www.jsbarefoot.com.

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Remaking the Financial Rails: Ripple CEO Chris Larsen

Welcome to today’s show.

One night last summer I attended a small dinner in New York hosted by the editors of a global financial publication, on financial innovation. We had some of fintech’s brightest stars seated around the table, but I remember offering the view that the person there who was most likely to actually revolutionize the financial system was Chris Larsen, the CEO of Ripple. Most fintech innovators are building new things on the system’s old footings.  Ripple is trying to reshape the foundation itself.

As you’ll hear in our discussion, Chris and I first met about five years ago when the wider world had barely heard of Bitcoin, and blockchains and digital currency were still causing mostly head-scratching (at best). He had an impressive past that included co-founding eLoan and Prosper before Open Coin, which is now Ripple. The company’s mission is to create  interoperable global finance -- easy movement of money, and other forms of value, throughout the world. An analogy (which we also discussed in my earlier podcast with Circle CEO Jeremy Allaire) is to do for money what the internet did for information, enabling it to move instantly, cheaply, and accurately to everyone, everywhere.

I notice that people whose work is hard to explain use lovely, lively language and imagery. It’s certainly true of Chris. He talks about paper mail and rails and siloes and blocked pipes and, my favorite -- shipping containers, which he says boosted global trade by 700%, with the simple step of standardizing containers so they can fit efficiently on any ship, truck or train, anywhere in the world. He discusses a book on how this changed the world -- The Box by Marc Levinson. That inspired me to include the picture below, of a fully-loaded container ship as it passed along beside my apartment, which overlooks Boston Harbor.

In this episode, Chris says interoperability in finance is the last missing link that’s needed for truly efficient global commerce. He discusses the possible “science fiction” of connecting 50 billion devices through the internet of things. He describes how micropayments can transform functions ranging from ocean monitoring to financial access. He talks about people in huge swaths of Africa who have phones and Google but no connected way to pay for things -- and imagines the global growth that would be sparked by adding two billion people into mainstream payments and commerce. He imagines these solutions even helping to solve the problems caused by globalization.

Chris also talks about the crucial roles of banks, which are key partners for Ripple, and of regulators, including the risk that America’s splintered regulatory system could undermine our leading global role in finance which he says will be “up for grabs” as many countries compete.

And he explains, tellingly, how his views on “disruption” have evolved over time.

We recorded this discussion last summer -- before the presidential election, which he mentions -- and also before Chris’ announcement this month that he plans to step down as Ripple CEO at the end of 2016 in order to rebalance his life. He’ll remain active with Ripple and will work closely with its incoming CEO, Brad Garlinghouse.

More links:

• Chris's blog post on stepping down as CEO is HERE
• Ripple video  
• My blog post: The Benefits of Bitcoin

I loved this conversation with Chris Larsen, and I think you will too. Enjoy!

Barefoot Innovation news….

We’re posting this episode during a flurry of activity. Ten days ago I had the fun of doing a fireside chat at Money 2020 with CFPB Director Richard Cordray -- who used the venue to make some big new on big data and data aggregation.  I raced back from that to speak last week at the FTC’s fintech conference, and I’ll be missing the SEC’s first fintech event next week because I’m off to the Singapore fintech/RegTech festival that’s being co-sponsored by the Monetary Authority of Singapore, MAS. Money 2020 drew 11,000 people this year -- the largest financial conference in the world -- and the Singapore conference expects over 10,000, including for the first-ever RegTech conference in Asia.

Meanwhile, our direct subscribers to Barefoot Innovation more than doubled last month. Every week I’m encountering people who tell me they’re fans of the show. Please do send in your “buck a show” to help us keep it going -- I’m having to bring in more helpers for it. And please remember to review us on Itunes. Also come to the new Facebook fan page. And please come to www.jsbarefoot.com  to get onto our mailing list.

Most of all, come back next time, when my very special guest will be Alfred Hannig, the executive director of AFI -- the Alliance for Financial Inclusion. We recorded this one on an idyllic day in beautiful Fiji!  AFI is driving tremendous change in global financial inclusion and I know you’ll find the episode fascinating.

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Colin Walsh of Varo

I’ve been looking for a chance to do a podcast with today’s guest for months. Colin Walsh is the founder and CEO of Varo, an online tool that aims to make it easy and affordable for consumers to manage their financial lives. Colin and I first met at last year’s fintech conference hosted by the Federal Reserve Bank of San Francisco, and I’ve enjoyed, ever since, watching the rapid growth of his startup.

Varo was still in development when we talked and is now in private beta, with plans to launch next year. I find them especially interesting in many ways, including that they raised $27 million this year; that the founders are very experienced banking executives; and that they are creating an ambitious product to meet multiple consumer needs at once. Maybe my favorite thing is that they are creating the Varo Bot, a chatbot that uses artificial intelligence to actually take the initiative to help customers manage daily money tasks easily and well. The move toward fintech solutions that are proactive instead of reactive is a real breakthrough, because it attacks one of the biggest obstacles to consumer financial health -- people not really understanding how best to manage their money, or just not thinking about that question before, rather than after, they spend or borrow. Varo is solving for that.

Colin has two and a half decades of leadership experience with global brands in Europe and the US, including as an EVP at American Express, Managing Director at Lloyds Banking Group, and an EVP at Wells Fargo.

In this episode Colin explains his motivation in undertaking a fintech startup after years at big companies. He talks about why Varo’s initial focus is simple, transparent mobile tools for millennials. He talks about the power of starting from a clean slate, with no legacy of what he calls “bad revenues,” and no challenges caused by having data “trapped in silos,” which is a major problem for banks. He also has thought-provoking advice for both banks and regulators.

Here are some links:

• Varo is at www.varomoney.com
• He also refers to the book Scarcity: Why Having Too Little Means So Much, by Sendhil Mullainathan and Eldar Shafir on consumer decision-making behavior.

I know you’ll enjoy hearing his insights.

And more for our listeners:

To help you keep up with innovators like Varo, I’ve been launching a series of social media channels that feature all my podcast guests as well as my blog posts and speeches. Sign up for my new monthly newsletter at jsbarefoot.com, head to my new facebook fan page, and please follow me on twitter.  I have some big news coming up – I’m co-founding a RegTech venture, so don’t miss hearing about it!

Also, please send in your “buck a show” to support Barefoot Innovation. We now have thousands of listeners around the world, and we need support to keep the show coming and keep it timely, with my little band of part-time helpers.

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Meanwhile, be sure to come back next time, when my guest will be the CEO of Ripple, Chris Larsen.

Harvard's Brigitte Madrian on Saving for Retirement: "We are Not Making it Easy"

Today’s program is really special, because my guest is Brigitte Madrian. Brigitte is the Aetna Professor of Public Policy and Corporate Management at the Harvard Kennedy School, and also co-director of the Household Finance working group at the National Bureau of Economic Research. She is a leading expert in behavioral economics and consumer decision-making regarding both health and finance, and in finance,especially savings and retirement. Importantly to me, she is also my faculty advisor for the book I’m writing.

Regular listeners know I’m spending two years as a Senior Fellow at the Center for Business and Government in the Kennedy School.  As I started into my fellowship last year, I had the great fortune of linking with Brigitte as my faculty advisor for the book.  She is part of the movement in economics that’s rethinking the classical theory that assumes that everyone behaves rationally. That work goes to the very heart of the condundrum in consumer finance, where both policymakers and industry have to grapple with the fact that consumers don’t always make the choices that are best for them. Understanding the many reasons why that happens, and how to elicit better decisions, is one of the keys to improving consumer financial health.

For this podcast, I met with Brigitte in her office on a lovely summer day. The Kennedy school is a complex of brick buildings clustered on the bank of the Charles River – it’s located about halfway between the Harvard Business School, on the other side of the river, and the old Harvard Yard, which is the traditional heart of the college (Harvard was founded in 1636). The Kennedy School has been undergoing construction ever since I got here – I get a fascinating display of cranes and I-beams and such from my little office space in the Belfer building – but Brigitte and I had a quiet talk during summer semester, with most of the students away.

She came to Harvard about 10 years ago, and in our talk, she quoted someone once saying that professional schools tend to be run very much like the professions they represent. It’s certainly true of the Kennedy School, which is all about gathering together a multiplicity of voices to grapple with public policy challenges. And it’s especially true for my center, which is the Mossavar-Rahmani Center for Business and Government. All of our fellows are working on finding practical solutions at the nexus of public policy and the private sector.

That’s what Brigitte has done in her research. She started out by looking at data on retirement plans (her first paper was about automatic enrollment), and she found the results so compelling that she didn’t even need to do statistical analysis to see that automatic enrollment led to dramatic increase in savings plan participation, especially among the groups least likely to participate -- employees who were younger, lower-paid employees, newly-hired, black and latino. The automatic enrollment caused an amazing 50-60% increase in plan participation.

That paper got a lot of attention and led her to a 20 year research agenda trying to understand financial decisions. I think you’ll be very interested in her views about the track record for policies like financial literacy education and financial incentives to save. She pinpoints complexity as a critical problem, and she’s not a fan of disclosure as the solution.

Our talk was especially timely because we met shortly after release of an important study she helped produce, by the Retirement Security and Personal Savings Commission of the Bipartisan Policy Center in Washington.   The report is titled Securing Our Financial Future, and makes recommendations for policymakers on how to increase income security for older individuals. She’ll describe some of the highlights.

I’m excited about behavioral economics because when these insights are combined with new technology, it becomes possible to create vastly better financial products. You may remember my discussion with Ethan Bloch of Digit, which incorporates these same principles of letting people save automatically instead of through daily effort, and in trying to bring financial decision-making time to zero. Easy and sound financial management is suddenly becoming possible.

Brigitte’s biography:

Brigitte Madrian is the Aetna Professor of Public Policy and Corporate Management at the Harvard Kennedy School.  Before coming to Harvard in 2006, she was on the Faculty at the University of Pennsylvania Wharton School (2003-2006), the University of Chicago Graduate School of Business (1995-2003) and the Harvard University Economics Department (1993-1995).  She is also a research associate and co-director of the Household Finance working group at the National Bureau of Economic Research.

Dr. Madrian’s current research focuses on behavioral economics and household finance, with a particular focus on household saving and investment behavior.  Her work in this area has impacted the design of employer-sponsored savings plans in the U.S. and has influenced pension reform legislation both in the U.S. and abroad. She is also engaged in research on health, using the lens of behavioral economics to understand health behaviors and improve health outcomes; in the past she has also examined the impact of health insurance on the job choice and retirement decisions of employees and the hiring decisions of firms.

Dr. Madrian received her Ph.D. in economics from the Massachusetts Institute of Technology and studied economics as an undergraduate at Brigham Young University.  She is the recipient of the National Academy of Social Insurance Dissertation Prize (first place, 1994) and a two-time recipient of the TIAA-CREF Paul A. Samuelson Award for Scholarly Research on Lifelong Financial Security (2002 and 2011).

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Also….

Please sign up for our mailing list, which includes our newly-launched newsletter highlighting events of the month and my thoughts about them. I have some big news coming up – I’m co-founding a Reg-Tech venture, so don’t miss hearing about it!

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Also, please send in your “buck a show” to support Barefoot Innovation. Have you ever noticed that we often have long lapses of time between when we record a podcast and when we post it? That’s because the show is free, but takes huge amounts of time to produce. And we produce it on a shoestring – I work with my little cadre of young part-timers. If we can develop more revenue, we want to get onto a more frequent and regular schedule. You won’t belive the amazing episodes I have already recorded, but haven’t yet been able to share. So if you love the show – and I hear constantly that people do, and we have thousands of people listening around the world – it would be great for you to send in a little bit of support.

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Last but not least, come back next time for an exciting conversation with Colin Walsh, right around the time he is launching his new fintech venture….Varo.

See you then!

Innovation in Small Business Lending: Sam Hodges of Funding Circle

Welcome to our first conversation with an innovator in small business lending – my guest is Sam Hodges, Co-founder and U.S. Managing Director of Funding Circle.

Funding Circle was founded in 2012 and is the world’s leading marketplace lender that’s exclusively focused on small businesses. It has made more than $2.5 billion in loans to 20,000 businesses in the U.S., Germany, Spain, the Netherlands and the UK (where it is based). It customers borrow directly from a wide range of investors, including more than 50,000 people, the UK Government, and divers entities like local councils, a university and various financial organizations.

Funding Circle was created because the founders were small business owners themselves and learned how hard it is to access finance, even for a successful business. Even when a loan was approved, they found the process difficult, or the terms unattractive. Sometimes they even felt misled. After opening their 96th loan rejection letter, they decided this was a systemic failure – that the traditional bank loan system was broken – and they set out to build a new solution. The financial crisis created fertile ground for them, as so many business suddenly had trouble accessing capital (the number of small businesses has dropped every year for the past 8-10 years). And their timing fit with the emergence of marketplace lending as a new model.

As Funding Circle’s Co–Founder and U.S. Managing Director, Sam oversees the company’s overall strategic direction and its day–to–day operation in the U.S. He was previously Vice President of Business Development at SecondMarket, the leading marketplace for alternative investments, where he was responsible for corporate and business development and the company’s geographic expansion efforts. Sam was also part of the investment team at Pequot Capital, an $8 billion global fund manager, covering investments in financial technology and information services. He started  his career as a strategy consultant at Katzenbach Partners, advising financial services and technology companies. He currently serves on the boards of two private companies. He received his MBA and MS from Stanford University and graduated magna cum laude from Brown University.

Sam points to three key Funding Circle innovations:

• One is delivering a superior borrower experience. They can on-board and evaluate customers sometimes in minutes, or a few days, for situations where a bank might need 30 man-hours to reach a decision.
• Second, they’ve re-architected how they do credit evaluation. Sam says it’s not a silver bullet, but they’ve have created their own rigorous data-driven approach to understanding risk, and they’re using new data, in new ways, to serve more borrowers.
• And third, he argues that the marketplace model can be more scalable and profitable than the traditional bank approach, enabling them to grow a global business.

In our conversation, Sam expresses his continued confidence in the marketplace model. He discusses Funding Circle’s risk analytics (he says they hire world class risk officers from world-class institutions). He explains the role of alternative data in driving more sound and inclusive lending.

I was especially interested in how Sam contrasts the U.S. regulatory model with the U.K.’s efforts, especially on P2P lending. He thinks the fragmented American structure makes innovation here difficult. He also has suggestions for regulatory innovation, including sandboxes and a graduated scale of coverage that would allow small innovators to get up and running more easily.  He emphasizes the need for interagency coordination and consistency. He says transparency needs to undergird the whole industry, and that requires smart, sound regulation that everyone understands. (To listen to our previous episode about the “Regulatory Sandbox” with Nitish Pandey of BMO, click here.)

Sam welcomes smart customer protection regulation – he discusses his involvement in creating the Small Business Borrower’s Bill of Rights we discussed in an earlier episode with Brian Graham of BancAlliance.  See also this Harvard research paper by former Small Business Administration head Karen Mills on small business lending.

I hear increasing discussion about more regulation of small business lending. It’s partly because the online lenders are transforming the market, and partly because the “1099 economy” is producing more little businesses that arguably are functionally-equivalent to consumer borrowers.  The sector is covered by some of the federal laws on consumer protection, but not by most of them.  My own view is that regulation will probably need to come, but that we should NOT transplant the existing consumer protection rules into it without first updating them for the digital age. Speaking as someone who helped develop some of these rules, I will say they have a mixed record, at best, of protecting consumers. And complying with them costs a fortune. If we’re going to bring new regulation into the small business sector, let’s use the chance to take a fresh look, and apply some RegTech thinking.

Other notes:

Newsletter:

I also want to share an announcement -- this month we’re launching a newsletter. It will be pithy and punchy and useful, highlighting the most interesting things that have happened, the most exciting things coming up. It will be a way to share some of the fascinating things I’ve been getting involved with. One example is that, this summer, I joined the Netherlands’ Queen Maxima (who leads the UN’s work on global financial inclusion) on her trip to Silicon Valley. Another is that I just returned from a week in Fiji at the global policy forum of the Alliance for Financial Inclusion, which represents the financial regulators of more than 90 countries in the developing world. I’m also working on ideas for promoting regulatory sandboxes in the United States. And in November, I’ll be speaking in Singapore at Asia’s first RegTech conference. And I’m doing a lot of work on RegTech. In fact, in Fiji I heard a new term – “SuperTech.” It’s a branch of RegTech that means technology-driven solutions for bank supervision.

The newsletter will share some of the intriguing things that are going on, outside our poccasts.

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Don’t forget:

Remember to send in your “buck a show” to keep the podcasts coming

Support the Podcast

Remember to rate us on ITunes. 

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Coming guests:

And look for some amazing guests coming up. We have none other than the leaders of Varo, Ripple, LendUp, and Loot (from London)!

We have two amazing, mold-breaking innovators from the developing world – eCurrency and OneDollarCellPhone, as well as the head of AFI, the Alliance for Financial Inclusion.

And back in the US, we’ll have the community bank perspective on innovation.

But first, next up, we have Harvard professor and behavioral economics expert, Brigitte Madrian.

So, enjoy my conversation with Funding Circle’s Sam Hodges … and come back soon!

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