A Financial Health Moon Shot: PayPal’s Dan Schulman

What stands in the way of full financial inclusion and financial health? That’s a complex, multi-dimensional question, but one whole dimension is the design of the financial system, which has obstacles woven into every inch of its fabric. Financial products, industry cost structures, delivery channels, traditional pricing and profit models, traditional risk tools, disclosures and information content, the system’s infrastructure, such as the process for clearing payments -- all of these evolved together over centuries into a system that is expensive and rigid. In many respects, the system works very well. For optimizing financial opportunities for people with limited income, wealth, mobility and credentials, however, it doesn’t. It may have been the best we could do with 20th century technology, but it’s not the best we can do today.

No CEO of a major financial company has thought as deeply about this challenge as today’s guest, PayPal’s Dan Schulman. More than anyone I can think of, Dan has been speaking on these themes for years and calling on us all to find innovations that can help.

Today, he seems optimistic -- or at least determined. As nearly all our guests are doing, he points to the year of COVID as a turning point, both in breaking through to rapid new technology adoption and in galvanizing a real will to do better following the killing of George Floyd. Dan sees progress ahead.

We need it. In our talk, he lays out the status quo and the reality that today, it’s expensive to be poor. He talks about the stubbornness of the racial wealth gap -- THE same today as it was in the 1960s. He describes the economic fragility of the new middle class. He talks about how our slow ways of moving money harm the poor. And he ties these struggles to today’s civic upheaval -- he says democracy relies on people believing in the system, and that it’s hard to believe, when people struggle every day just to do the basic things of life.

What can be done? Part of it is investment. PayPal made a $535 million commitment last year across multiple areas to address the racial wealth gap, and Dan gives an update on those efforts. He also talks about how to bolster America’s small businesses, which are a key driver of economic well being. PayPal is one of the top five providers of small business working capital, and they do it without relying on credit scores. Dan shares eye-opening numbers about how the financial inclusion impact of this work, with 70% of the working capital going to the 10% of US counties where ten or more banks have closed branches. These are disproportionately low income neighborhoods and businesses that are minority- and women-owned. The impact is that average sales rise by 21%, compared to a control group with 1%. In other words, these are businesses that can grow, if only they can get the capital they need. In the pre-digital financial system, they get starved for credit. New technology can fix that.

Dan also talks about modernizing the payment infrastructure to eliminate the unnecessary costs it imposes and to help assure that no one is left behind. I of course ask him about PayPal’s big step this year in introducing a cryptocurrency wallet (which is part of the huge story that 2021 is the year of crypto going mainstream). Dan talks about how crypto will reshape the financial system - he says the form factors will change -- and that these new rails will make the system more efficient, less costly, and more inclusive, and will increase utility at the same time.

We also talk about the challenges ahead, which are huge -- security, privacy, bias, and the need for the financial system always to be worthy of trust. He has thoughts for policymakers as they grapple with getting all this right as things move so fast, and as COVID “catapults” us forward in using new technology.

Finally, Dan believes that building a new, better economy will require what he calls responsible leadership. He’s a fan of capitalism, but thinks it needs a serious upgrade - too many people are disenfranchised. He tells about doing a study inside PayPal -- which pays well in every market they operate in -- and discovering that a large share of their entry level workforce were struggling just to make ends meet. It was an epiphany for Dan, in realizing that the market isn’t working for a lot of people. He talks about the steps that PayPal has taken in response, and more broadly about how he thinks market capitalism must evolve into new models -- to be accountable to more stakeholders, and to incorporate focus on medium and long term impact, not just quarterly performance. Profit and purpose, he says, are not at odds with each other. They are, increasingly, aligned.

Dan thinks the financial sector today has a moon shot opportunity. If the industry and government seize this moment, we can create a new marketplace of full financial inclusion and financial health. He says the solutions are within our grasp, and that it would be a shame if we don’t -- grasp THEM.

Enjoy...

Links

• Transcript

• Financial Health Network

• Wall Street Journal: Pandemic Payment Habits Are Looking Sticky 

• MarketWatch: PayPal sees record earnings, volume amid sustained e-commerce surge

• TIME: PayPal CEO Dan Schulman: Cryptocurrency Is The Real Deal. And the Superapps Are Coming

• Barron’s: Why Financially Healthy Workers are Key to a ‘Strong Democracy’

• PYMNTS.com: PayPal’s Dan Schulman Settles Into His Role As Catalyst

More on Dan

Dan Schulman is CEO of Paypal. With extensive corporate experience and a lifelong commitment to social justice, Dan Schulman believes the private sector has a responsibility to serve multiple stakeholders and to improve the state of the world. Dan has frequently been recognized by Fortune as one of the top 20 Businesspersons of the Year and has received “Visionary Awards” from the Council for Economic Education and the Financial Health Network in 2018 for his promotion of economic and financial literacy to create a better informed society. In 2020, Robert F. Kennedy Human Rights honored him with the Ripple of Hope Award, which recognizes those who have demonstrated a commitment to social change and a passion for equality, justice and basic human rights. Dan is committed to building a world where everyone has access to economic opportunity, which he advances through his work as a life member of the Council on Foreign Relations and co-chair of the World Economic Forum’s Steering Committee to promote global financial inclusion. 

More for our Listeners

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

On June 14, we are partnering with Google to host a webinar called AI and Financial Regulation: Exploring Benefits and Managing Risks. Artificial intelligence and machine learning are transforming how financial companies operate, including how they manage regulatory compliance. I’ll have a keynote fireside chat there with Congressman Bill Foster and Congressman Anthony Gonzalez, who are the Democrat and Republican leaders of the newly reappointed House Financial Services Committee Task Force on Artificial Intelligence. We’ll also hear from AI experts at Google and other organizations. We will especially look at the AI-related innovations that are developing as a result of the new Anti-Money Laundering Act, which is the biggest BSA/AML overhaul in the US since the Patriot Act. I also know many of you are hard at work writing comment letters for the joint RFI on AI that was issued by the US banking agencies (which, take note, has extended the deadline for comments to July 1). Our webinar will offer ideas on these cutting-edge issues. Register here. 

If you’re in the crypto world in any way, take a look at our Crypto Climate Accord. 

Next up on Barefoot Innovation we have Sultan Meghji, the new Chief Innovation Officer of the FDIC who, as you will see, has a technology background and a bold vision for the future of financial regulation. We will also have former OCC Chief Counsel Amy Friend, who has authored AIR’s most recent paper, The Financial Conduct Authority’s Innovation Journey: Moving Forward in the Face of Uncertainty. Other shows will include conversations with the Deputy Governor of Central Bank of Kenya, Sheila M’Mbijjewe, who I had the pleasure of speaking with during our Women’s Economic Empowerment Conference.

June is another busy conference month! I will be speaking at the Singapore RegPac RegTech Summit, Fintech South, FinCrime World Forum, and the India Economic Times BFSI Tech Leaders’ Summit. I’ll also give a keynote talk on regtech for the ABA’s Regulatory Compliance Conference — the one and only RCC. My colleague David Ehrich and I, meanwhile, are also speaking at numerous events hosted by and for regulators, and hope to see many of you in those fascinating conversations.

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Networked Supervision: CSBS CEO John Ryan

My guest today, John Ryan, is the man of the hour. He is CEO of the Conference of State Bank Supervisors, and CSBS is at the vortex of most of the currents of change swirling around the US financial system. What’s the future of banking charters? What’s the future for fintechs that want to operate nationwide? What’s the future for community banks? How will regulators keep up with the technology that’s transforming the markets they oversee? What’s the future of bank regulation itself? CSBS plays a key role in all of it. 

This is John’s second appearance on the show, and a lot has changed since we last sat down together. I asked him to join me again when I saw the new CSBS initiative on “networked supervision.” In our conversation, John explains this new vision, and the work underway, to offer a decentralized but efficient alternative to national regulation. We all know there is pressure today on the US regulatory structure from fintechs that want to serve nationwide markets. Today, there is no such thing as a federal charter or license for a nonbank fintech -- that is, for a financial company that needs government licensing, like a lender or money transmitter, but is not a depository institution. At the state level, the financial regulators oversee both banks and nonbanks. Our federal financial regulators, in contrast, only oversee banks. (Yes, yes I know this is over-simplified, but we have a great conversation ahead and I don’t want to spend half the show explaining the endless complexity of the US financial regulatory system!)

This structural and legal framework has generated growing fintech energy in search of ways to become banks, and/or to partner with banks, and thereby gain the power to operate nationwide without needing to get fifty separate state charters and deal with fifty different state supervisory agencies.

CSBS, though, has another idea. What if the states coordinate with each other to streamline state-level regulation? And what if that same efficiency could be applied to supervising state-chartered banks, too? And what if state regulators could solve stubborn problems like whack-a-mole scenarios where bad actors are shut down in one state and then pop up in another under a different name? What if there was a platform with unique identifiers to catch that? What if there was a decentralized approach that used common standards and could seamlessly interpret? 

Enter networked supervision.

John shares the journey of moving to this new approach. It started with the common platforms built to address the 2008 mortgage crisis, and now is expanding. It’s adding money transmitters, and it’s moving into more and more states -- using common information formats, common techniques, and willingness to rely on each other’s work to make supervision both more streamlined and more effective. He shares the statistics, for example, on how they are dramatically reducing license processing time.

In today’s conversation, John talks about how regulators can deal with the velocity of innovation in the financial system, and how COVID massively accelerated it. He talks about how regulators are appointing chief information officers. He talks about using agile techniques to build these new models. He talks about using these new methods to coordinate with the federal government, too. He talks about the need to use technology to address the proliferation of financial entities, which today can be started up anywhere, and can reach anywhere, through software and the internet. He says the more regulators use technology, the more they’ll be able to regulate it wisely.

One thing I love about talking with John is that he’s better than anyone else at reminding us that the dual banking system is rooted in America’s core history and philosophy -- in our original resistance to monarchy -- and cautioning us to think hard before discarding or undermining it in the name of efficiency. 

And another thing I love is that in this show, he surprises me by wanting to talk about AIR’s Regtech Manifesto, the whitepaper we wrote last year arguing that we have to convert the financial regulatory system to digital design, and how to do that. I hope you’ll enjoy hearing my delight as he explains how CSBS has put the Manifesto to use -- and I hope other regulators feel inspired to do the same!

I know you will also be moved, as I was, to hear him talk about how CSBS responded to the murder of George Floyd last year -- how John himself felt affected by it, and what he learned, and how they have changed in the past year, and of course, how much more work lies ahead.

Links

• Transcript

• Link to our prior podcast interview with John

• Networked Supervision

• John Ryan on how to Achieve Networked Supervision 

• Benefits of Networked Supervision 

• CSBS 2021 Priorities 

• Modernized NMLS 

More on John

John Ryan is the 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.  Since becoming president and CEO in 2011, He has provided strategic leadership in advancing the system of state financial supervision.  

John previously served as CSBS’s Executive Vice President, and also as Assistant Vice President of Legislative Affairs. Before that he 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 for our Listeners

I HOPE YOU ENJOYED TODAY’S SHOW!

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

Some updates on AIR’s activities:

On June 14, we are partnering with Google to host a webinar called AI and Financial Regulation: Exploring Benefits and Managing Risks. Artificial intelligence and machine learning (AI/ML) are transforming how financial companies monitor and mitigate risk and assure regulatory compliance. Join us for a discussion about AI/ML advances and how to maximize benefits -- and mitigate the risks -- of these new technologies. I’ll have a keynote fireside chat there with both Representatives Bill Foster and Anthony Gonzalez, who are the Democrat and Republican leaders of the newly reappointed House Financial Services Committee Task Force on Artificial Intelligence. We’ll also hear from AI experts at Google and other organizations. The event will especially look at how AI can help meet the new requirements in the Anti-Money Laundering Act passed last December, which is the biggest BSA/AML overhaul since the Patriot Act. I know many of you are hard at work writing comment letters for the joint RFI on AI that was issued by the US banking agencies (which, take note, has extended the deadline for comments to July 1). This event will be full of insights on these cutting-edge issues. Learn more and register here. 

Next up on Barefoot Innovation: we’re excited to have Paypal CEO Dan Schulman for a really searching conversation about financial inclusion. Then we’ll have Sultan Meghji, the new Chief Innovation Officer of the FDIC who, as you will see, is going to change the regulatory world as we know it. We will also have former OCC Chief Counsel Amy Friend, who has authored AIR’s most recent paper, The Financial Conduct Authority’s Innovation Journey: Moving Forward in the Face of Uncertainty. Other shows will include conversations with the Deputy Governor of Central Bank of Kenya, Sheila M’Mbijjewe, who I had the pleasure of speaking with during our Women’s Economic Empowerment Conference.

June is another busy conference month! I will be speaking at Fintech South and FinCrime World Forum, and I’ll give a keynote regtech talk at the ABA’s Regulatory Compliance Conference — the one and only RCC. My colleague David Ehrichand I are also speaking at numerous events hosted by and for regulators, and hope to see many of you in those fascinating conversations. 

In case you missed it, my good friend Brett King and our friends over at Breaking Banks celebrated their eighth year on the radio. I joined in for the special anniversary episode.

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

Around the World: Hong Kong University’s Douglas Arner

Every now and then I do a podcast where I feel like I hit a vein of gold. This is one of them. It’s one of our shows where I think you’ll want to listen several times and take notes, or print out the transcript and mark it up.

My guest is Douglas Arner, who is the Kerry Holdings Professor in Law at Hong Kong University, and the Director and Cofounder of the Asian Institute of International Financial Law.

I’ve gotten to know Doug over the past year or so, and have been amazed by his kaleidoscopic grasp of the entire global landscape in fintech and regtech. So few people do work that is wide and deep at the same time -- especially in a field where things change at light speed. Douglas does this better than perhaps anyone I know. He’s authored 19 books, and at the same time has kept his finger on the pulse of change throughout the system. When you look at his biography -- and you really should, because it's extraordinary -- you’ll see he is a master integrator, connecting sectors, countries, technologies, professions -- everything. That silo-breaking, I have learned, is the secret to keeping up with how financial services are changing in today’s high-tech world.

So, I asked Doug to tell us what is happening in the world. 

Not surprisingly, we started with COVID. 

For financial systems, the COVID story is all about accelerating technology. Doug says the year’s frantic race to get money to locked down populations forced entirely new thinking about electronic payments. He says cryptocurrency has moved to “full-on normalization” (with the US starting to catch up with the world). He talks about the rising interest in CBDC’s -- central bank digital currencies. Doug describes regulatory bodies everywhere turning to regtech and suptech to replace face-to-face supervision models, and thinking deeply about better infrastructure, and massively accelerating technology enhancements for AML.

More fundamentally, he says regulators have realized that finance is about data, and that this calls for rethinking a wide spectrum of regulatory norms. He describes how these differ around the world, including on whether countries create new agencies dedicated to data regulation. He says data rights laws are rooted in deep cultural differences among countries, which cannot be, as he puts it, negotiated away. And he urges proactive thinking, focused sharply on desired outcomes.

Naturally, the data discussion took us to cloud computing -- how, pre-pandemic, most financial institutions were moving to the cloud slowly, and that they now are going fast. Doug says the cloud has hosted virtually all the big innovations in the past 5 years, and he has advice on how to transition to the cloud with smart security.

Maybe best of all, Doug shares his insights on China. He describes the Chinese government’s formula for launching experimentation, in which they watch digitized activities evolve in an unregulated environment, and then step in to regulate based on what emerges. He shares insights on when this experimentation has worked, and when it has failed, citing both P2P lending and the growth of the enormous Chinese payments platforms as examples. On the payment platforms, he cites particular success in lending to small enterprises, which as he says, is a grand challenge for every country. At the same time, he talks about the platforms raising huge risks of market concentration. He talks about emerging thinking that perhaps data should be treated as a public good.

Doug also incisively compares and contrasts the three distinctly different data regulation models in the world today -- the one in Europe, the one in the US, and the one in China. And he notes that, so far, they all raise problems.

Links

• Regulation of Digital Financial Services in China: Last Mover Advantage by Weihuan Zhou, Douglas W. Arner, Ross P. Buckley :: SSRN

• From FinTech to TechFin: The Regulatory Challenges of Data-Driven Finance by Dirk A. Zetzsche, Ross P. Buckley, Douglas W. Arner, Janos Nathan Barberis :: SSRN

• Digital Finance, COVID-19 and Existential Sustainability Crises: Setting the Agenda for the 2020s by Douglas W. Arner, Ross P. Buckley, Andrew M. Dahdal, Dirk A. Zetzsche :: SSRN

• The Dark Side of Digital Financial Transformation: The New Risks of FinTech and the Rise of TechRisk by Ross P. Buckley, Douglas W. Arner, Dirk A. Zetzsche, Eriks Selga :: SSRN 

• Digital Finance Platforms: Toward a New Regulatory Paradigm by Dirk A. Zetzsche, William A. Birdthistle, Douglas W. Arner, Ross P. Buckley :: SSRN

• Central Bank of the Future panel with Jo Ann and Douglas Arner

More on Douglas

Douglas W. Arner is the Kerry Holdings Professor in Law and Director and co-founder of the Asian Institute of International Financial Law at the University of Hong Kong. He is also Associate Dean (Taught Postgraduate & Development) and Faculty Director and co-founder of the LLM in Compliance and Regulation, LLM in Corporate and Financial Law, and Law, Innovation, Technology and Entrepreneurship (LITE) Programmes. In 2020 he was awarded an inaugural Hong Kong Research Grants Council Senior Fellowship to study the role of digital finance in financial inclusion and the UN Sustainable Development Goals. 

Douglas has published eighteen books and more than 200 articles, chapters and reports on international financial law and regulation, including most recently Reconceptualising Global Finance and its Regulation (Cambridge 2016) (with Ross Buckley and Emilios Avgouleas) and The RegTech Book (Wiley 2019 (Janos Barberis and Ross Buckley). His recent papers are available on SSRN at https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=524849 , where he is among the top 60 authors in the world by total downloads. Douglas led the development of Introduction to FinTech – launched with edX in May 2018 and now with over 90,000 learners spanning almost every country in the world – and the foundation of the edx-HKU Online Professional Certificate in FinTech. 

In addition, he is Associate Director of the Standard Chartered Foundation-HKU FinTech Academy, a Senior Visiting Fellow of Melbourne Law School of the University of Melbourne, a non-executive director of NASDAQ and Euronext listed Aptorum Group, an Advisory Board Member of the Centre for Finance, Technology and Entrepreneurship (CFTE), and co-founder and an executive board member of the Asia Pacific Structured Finance Association. Douglas was an inaugural member of the Hong Kong Financial Services Development Council (2013-2019) and Director of the Duke-HKU Asia America Institute in Transnational Law (2005-2016) and has served as a consultant with, among others, the World Bank, Asian Development Bank, UN, APEC, Alliance for Financial Inclusion (AFI), and European Bank for Reconstruction and Development. He has lectured, co-organized conferences and seminars and been involved with financial sector reform projects around the world. Douglas has been a visiting professor or fellow at Duke, Harvard, the Hong Kong Institute for Monetary Research, IDC Herzliya, McGill, Melbourne, National University of Singapore, University of New South Wales, Shanghai University of Finance and Economics, and Zurich, among others.

More for our Listeners

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

There is still a little time to sign up for our next webinar! On May 3, AIR is partnering with Consumer Reports and the Consumer Federation of America to host a webinar called ‘Consumer Protection: Hot Topics in Digital Finance.’ This a virtual convening that will dive into three hot issues -- data rights, new lending models, and cryptocurrency. Is innovation bad for consumers? Or good? Or both?  You can learn here.

In case you missed it, my last podcast guest was Rob Nichols, CEO of the ABA, talking about community banks in the digital age. Coming up we’re really excited to have Paypal CEO Dan Schulman, as well as CSBS CEO John Ryan and Sultan Meghji, the new Chief Innovation Officer of the FDIC who, as you will see, is going to be changing the regulatory world as we know it in the US. You should also be sure to listen to the FDIC’s own podcast in which Sultan talks with the agency’s Chairman, Jelena McWilliams. 

This month, I will be speaking at Compliance.ai’s Expert-in-the-Loop forum. David will speak at FinovateSpring -- make sure to check out his session on ‘Financial Wellness: Providing Your Customers With Holistic Long Term Financial Planning.’ 

June will also be here before we know it, so make sure to register for Fintech South! And be sure to catch my keynote on financial regulation at the ABA’s Regulatory Compliance Conference -- the one and only RCC.

Let’s all keep innovating!

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

Community Banks in the Digital Age: ABA CEO Rob Nichols

America has about 5,000 banks -- more than any other country. My guest today leads their national trade group. He is Rob Nichols, CEO of the American Bankers Association. He joined me for a conversation about how technology is changing banking, and especially community banks. While total banking volume is disproportionately done by large institutions, small community banks play a critical role in both our financial system, and in the life of the nation.

I, for one, worry for their future. Major forces are arrayed against them, driven by megatrends in competition, demographics and technology. The core problem is that the main competitive realm where these banks excel, the factor on which very few large banks can beat them, is in face to face personal service -- and the demand for face-to-face service is declining. People love it, of course. At many small banks, you can still walk into a branch and chat with a teller you may have known for years, or get advice from your loan officer who has worked for years with your small business and really understands it. But today, that whole model is receding as customers increasingly find their financial services online.

Of course, community banks are rapidly adopting new technology. They need it to meet the demands of today’s customers, who expect a wonderful online UX. They need it to build increasingly sophisticated risk models. And they need it to wring costs out of back office functions, including in regulatory compliance, where they carry a disproportionate burden. But they are competing with both large banks and fintechs that have world-class technology for all these functions, and also have world-class technologists under their own roofs, to build and run it. Small banks don’t, and they won’t. They can’t afford to hire Silicon Valley engineers.

This means they must rely instead on vendors and, increasingly, on partnering with fintechs. And both of those challenges are loaded with complexity. Most small banks have long term contracts with core IT providers and can’t easily plug in a new tech solution. In addition, regulatory rules on third-party risk require extensive vetting of new vendors and partners. There are good reasons for this, of course, but it is still a cumbersome process. (Note, by the way, that the FDIC is working on some really interesting ways to address this issue.)

Rob Nichols is working on all these challenges and tells us about them in our wide-ranging conversation. We talk about how COVID has accelerated technology adoption across the board. We talk about what stands in the way of community bank modernization, and the ABA’s two-pronged strategy to remove the obstacles. We talk about how to equip community banks to vet the suitability of young companies that may have superior technology but short track records. We talk about how AI will change banking; and whether high-tech underwriting can help small banks be more competitive; and how regtech could help reduce compliance costs without reducing compliance.

We recorded this episode during the trial of Derek Chauvin for killing George Floyd. Rob talks about the initiatives the ABA has taken, dating back before the murder and redoubling since it, to build diversity in the banking system.

He also shares the key principle that regulators should embrace as they steer their way through the changing competitive terrain in financial services.

Last but not least, Rob talks about why community banks are so important. I’ll share a story of my own that illustrates it. When I left my role as Deputy Comptroller of the Currency years ago, I moved from Washington to midwest and started a consulting firm that did a great deal of strategic planning work with banks. I remember, one year, having a meeting just before Christmas in a small Ohio town. I arrived to find the bank leaders distracted by the fact that three local nonprofit organizations suddenly had year-end budget crises. Two of them were the library and the health clinic, and I can’t recall the third -- I think it was something related to the high school. The bank had already made all its planned charitable contributions for the year, but it couldn’t let these vital institutions fail. That’s because they cared about the community -- their own town. And it’s also because the self-interest of a bank like this is fully bound together with the wellbeing of its community. A bank like this needs to have a thriving small business sector. It needs the town to have quality of life amenities. It needs to have local health care services. If these are missing, over time, incomes will decline, job opportunities will dry up, and the young people will move away and raise their families somewhere else. And the bank will decline if the town does. The bankers and customers are neighbors. Their kids go to school together. The bank has a stake in taking care of the whole.

Many of America’s small towns and rural areas are struggling with economic and demographic and social threats. They need their local banks.

Links

• Transcript

• Rob Nichols LinkedIn

• Rob Nichols Twitter

• American Bankers Association Website

• American Bankers Association LinkedIn

• American Bankers Association Twitter

• FDIC Special Series Podcast: “Banking on Innovation”

• Agencies seek wide range of views on financial institutions' use of artificial intelligence

• Can Nontraditional Credit Analysis Be Community Banks’ Path to Profit?

• Previous Barefoot Innovation Podcast with Chairman Jelena McWilliams

• Previous Barefoot Innovation Podcast with John Ryan

• Previous Barefoot Innovation Podcast with Rebeca Romero Rainey
  

More on Rob

Rob Nichols is the president and CEO of the American Bankers Association, which represents banks of all sizes and charters and is the voice for the nation’s $21.9 trillion banking industry.

Rob joined ABA in August 2015 following ten years at the helm of the Financial Services Forum, a non-partisan financial and economic policy organization. Before joining the Forum, Rob served in the George W. Bush administration as the assistant secretary for public affairs at the Treasury Department, a position requiring confirmation by the United States Senate. In that role, he acted as chief spokesperson and head of the office of public liaison, serving as Treasury’s lead representative with the media, business, professional trade organizations, consumer groups and the public.

Rob’s earlier career includes working as communications director for the late U.S. Sen. Slade Gorton and as press secretary for the late Rep. Jennifer Dunn, a former member of the House leadership. Rob also worked in the West Wing as an aide in the Office of the Chief of Staff in the George H.W. Bush administration.

Rob is a recipient of the Alexander Hamilton Award, the highest honor of the U.S. Department of the Treasury. He also is consistently ranked as one of Washington’s Top Lobbyists by The Hill and was described as one of the “new generation of trade group CEOs” by The Washington Post.

In 2020, Rob was elected to serve a two-year term as chairman of the International Banking Federation, whose members include the national banking trade associations representing every major financial center. As chairman, Rob works with IBFed members to develop international consensus on critical issues, actively engaging with international standard setters and global supervisory bodies on issues that affect banks across borders and around the world.

Rob serves on the Board of Governors of FARE (Food Allergy Research & Education) and is a Corporate Advisory Council member at the Children’s National Hospital.

Rob is a graduate of the George Washington University.

More for our Listeners

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

On May 3, AIR is partnering with Consumer Reports and the Consumer Federation of America to host a webinar called ‘Consumer Protection: Hot Topics in Digital Finance.’ It’s a virtual convening that will dive into three hot issues, hearing from both consumer advocates and fintechs about data rights, new lending models, and cryptocurrency. Is innovation bad for consumers? Or good? Or both?  You can learn here.

Next up on Barefoot Innovation is an amazing conversation I had with Doug Arner of Hong Kong University, who seems to understand everything that’s going on in the whole world in financial change. I’m excited to say that we will also have Paypal CEO Dan Schulman, as well as CSBS CEO John Ryan and Sultan Meghji, the new Chief Innovation Officer of the FDIC who, as you will see, is doing huge things.

The LendIt Conference is coming up next week! Join me for a panel discussion on ‘Reading The Tea Leaves of President Biden’s Initial Financial Appointees’ and for a main stage fireside chat with Colin Walsh, CEO of Varo. David will also be there, moderating a panel on ’New Ideas for Compliance in the 2020s: An App Store for Regtech.” 

In May, I will be at Compliance.ai for a session during their Expert-in-the-Loop forum. 

And June will also be here before we know it, so make sure to register for Fintech South!

Support our Podcast

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

Power of One: Mojaloop Foundation’s Paula Hunter and Lesley-Ann Vaughan on Financial Inclusion

If we want full financial inclusion, we’ll have to create an interoperable financial system. That’s not the only thing we need to do of course, but it’s essential, not optional.

A theme that runs through our Barefoot Innovation conversations is the need to make both the financial system, and the regulatory system around it, interoperable. The information in these systems needs to be converted to digital form that can be digitally linked, so that data can be readily shared -- within appropriate limits, obviously. When that is done, everything will get easier and less expensive for financial customers and providers alike. Payments will move quickly, with little cost and friction. Sound loans will be made to people who are excluded today. Consumers and small businesses will more easily understand and manage their financial lives, by using better information and tools. Risks and compliance errors will be caught right away before they hurt people and grow into liabilities. Everywhere, and especially for emerging markets, the nodes of activities and flows of data need to be connected, so they can operate as one system.

The Swahili word for “one” is mojaloop, and it inspired the name of the organization that is led by today’s guests. They are Paula Hunter and Lesley-Ann Vaughan of the Mojaloop Foundation.

The open-source Mojaloop software was first developed in 2017 to support the financial inclusion work of the Bill & Melinda Gates Foundation, premised on the realization that reaching financially underserved people with digital financial services will require the financial system to use open and interoperable solutions. Just four years later, more than 400 developers are collaborating to create Mojaloop software that is helping service providers open markets and accelerate progress in emerging markets. Mojaloop was designed by a team of leading tech and fintech companies including Ripple, Coil, Crosslake Technologies, Dwolla, ModusBox, and Software Group, and is available to be used under the open-source Apache 2.0 license. The initial sponsors are the Gates Foundation, the Omidyar Network, Google, Rockefeller Foundation, ModusBox, and Coil. It is part of the broader financial inclusion initiative of the LevelOneProject.org. 

In our conversation, Paula and Lesley-Ann tell us about the problem they are solving:  if you live in a developing country and do not have a bank account, how do you go about your daily business? Your life is cash-based. It takes a significant transportation effort to get yourself somewhere to make a payment. That process carries significant costs. Holding cash, and traveling with it, carry risks too. Mojaloop is building a system to help fix all that. 

To do so, you need to build connectivity across a number of different providers -- a clearing system that connects phone providers, financial institutions, fintech firms, merchants, etc., and that automates as much as possible by leveraging non-repudiation mechanisms. To overcome a cash-is-king arrangement, that new system has to be really simple and easy to use.

So Mojaloop went out and found partners that operate at scale in each market, to capture economies of scale drive that drive down the cost of interoperability to end customers. These players all have their own products to deliver, of course, but they don’t differentiate themselves on infrastructure. On infrastructure, they can work as a community.

And Mojaloop creates the tools to do this in open source. That means that, unlike most of the software in financial services, it can be adopted and used by anyone, free of charge. This reduces costs of deployment. It provides perspective from a broad range of participants on how it should evolve. It also helps to prevent vendor lock-in, so that the system is not beholden to one company for the software stack and can be nimble in finding the resources needed to run. Equally important, it releases energy and creativity -- people are eager to help. That, in turn, speeds up R&D. This move to open design is a core tool in building a better financial system and for that matter, better financial regulation too. We at AIR are now hosting an open-source SIG (Special Interest Group) for regulatory code, with FINOS.

In today’s show, Paula and Lesley-Ann explain all this and also share insights on how progress has been impacted by COVID; how interoperable digital payments especially helps women; how that fact in turn links with the global work underway on digital identity; the necessity to build systems that the public trusts; and the respective roles of the private sector and governments, especially central banks.

Speaking of women, I hope many of you were able to join in the global Techsprint on Women’s Empowerment that AIR co-hosted last month with the UK Financial Conduct Authority. It was an incredible experience -- and there is more to come!

Links

• Mojaloop Twitter: https://twitter.com/mojaloop 

• Mojaloop Facebook: https://www.facebook.com/Mojaloop 

• Mojaloop LinkedIn: https://www.linkedin.com/company/mojaloop/ 

• Mojaloop Website: https://mojaloop.io/

• Mojaloop Community: https://mojaloop.io/community/

• Mojaloop Training Program: https://mojaloop.io/mojaloop-training-program/

• Paula’s LinkedIn: https://www.linkedin.com/in/hunterpaula/ 

• Lesley-Ann’s LinkedIn: https://www.linkedin.com/in/lesleyannvaughan/ 

More on Paula

Mojaloop Foundation Executive Director Paula Hunter is responsible for the organization’s strategic planning and direction, membership development, and evangelism. With over two decades of open source and association management expertise, she has the in-depth industry knowledge needed to enable the Foundation to advance its financial inclusion mission.

More on Lesley-Ann

Lesley-Ann Vaughan recently joined Mojaloop Foundation as Director of Product Strategy. She has been working in emerging markets for digital financial service innovation since 2005, including as part of the founding team behind M-PESA. In recent years she has worked for the Bill and Melinda Gates Foundation, CGAP, IFC, Microsoft, Mastercard, Accion Centre for Financial Inclusion, EFInA, FSD Kenya, GSMA, FSD Tanzania, DFiD & UNCDF as a freelance consultant. She is passionate about the potential for APIs to unlock the next generation of partnerships and co-opetition in payments, and what it takes to deliver that well.

More for our Listeners

Today AIR, alongside Energy Web, and the Rocky Mountain Institute (RMI), launched the Crypto Climate Accord—a private sector-led initiative committed to making the cryptocurrency industry 100% renewable. Inspired by the Paris Climate Agreement, the Accord brings together the crypto and broader fintech industry to build a sustainable future for global finance, with support from the United Nations Framework Convention on Climate Change (UNFCCC) and its Climate Champions. You can find more information on the Crypto Climate Accord here.

We have so many great guests coming up on the Barefoot Innovation Podcast. You will hear me talk with Rob Nichols of the American Bankers Association, Douglas Arner of Hong Kong University, John Ryan of the CSBS, and Sultan Meghji of the FDIC to name a few.

There are also great virtual spring conferences coming soon. Join me on Tuesday, April 13th at the ACAMS International Conference on financial crime; at LendIt on April 27th; and at Fintech South in June! You can also still watch the replay of my SXSW panel session with Cleve Mesidor of the National Policy Network of Women of Color in Blockchain.

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

Worldwide Financial Inclusion: Sharmista Appaya and Ivo Jenik

I’ve spent most of my life trying to advance the twin goals of financial inclusion and fairness. Over those decades, we’ve seen some progress, but not breakthrough success. About eight years ago, I realized that today’s new technologies -- the digitization that’s transforming everything in our lives -- have the potential to get us the rest of the way. I not only think it CAN get us there. I think that the new technology, properly regulated, is the only thing that can. I joined in the huge, expanding, complex global effort to foster markets, products, and regulatory frameworks that can include everyone. And I have watched the progress move fastest and farthest in emerging market countries where financial exclusion has historically been more the norm than the exception and contributes enormously to keeping people in poverty. 

My guests today are leaders in the drive to bring the world’s poor into the formal financial system. They are Sharmista Appaya, Financial Sector Specialist at the World Bank Group, and Ivo Jenik, Financial Sector Specialist at CGAP. CGAP stands for the Consultative Group to Assist the Poor and sits within the World Bank as essentially a financial inclusion think tank. I first met Sharmista years ago in London when she headed the Bank of England’s Fintech Accelerator, and I’ve been running into Ivo in interesting places around the world for years, but they are now both based where I am, in Washington DC.

The World Bank has led the way in driving for universal access to the financial system as a core requirement of poverty alleviation. In 2014 it took the catalyzing step of setting a measurable goal: that every adult in the world should have a bank account (or its electronic equivalent) by 2020. Such a plan would of course have been unthinkable a decade or two earlier, but by 2014 it could be envisioned due to one game-changing factor:  the arrival and near-ubiquity of the cell phone. Most parts of the world adopted mobile phones earlier than America did, partly because they had fewer landlines. Nor did most people in most places have a bank. The mobile phone, suddenly, put a bank branch in people’s hands and opened a way to reach them everywhere with a low-cost electronic account that could receive, store and send money. Today’s guests cite a World Bank study finding that digital banks can both acquire customers at a fraction of what it costs a traditional bank, and can then serve them at a tiny fraction of that. 

Realizing this inclusive vision, of course, is loaded with challenges, and Sharmista and Ivo explore them in today’s show. The 2020 goal wasn’t fully reached. They describe the remaining gap, as well as the need to build on top of that basic payment account with other financial services that can meet the full scope of people’s financial needs. They talk about what has worked and what hasn’t. They talk about how to get banks to serve this market and the barriers to entry for fintechs. They talk about whether digital banks, so far, are having an impact. They talk about all the key elements in the drive toward inclusion, such as APIs and open banking, credit scoring, use of alternate data in underwriting, embedded finance, and the need for every country to have home-grown innovators and entrepreneurs.

They talk about the CRITICAL role of interoperability in this system, especially between the new digital entrants and incumbent banks, and who is solving for it -- including Mojaloop, with whom we have a show coming up.

And of course, they talk about identity authentication -- the need for everyone to be easily able to prove who they are, just to get in the door to the financial system. They cover global innovations underway in digital and non-digital identity, the related risks of data breaches, the fraud reduction improvement, and the burgeoning use cases, including for refugees.

They also talk about the massive legal and regulatory challenges, from obsolete structures to consumer protection to fraud (which COVID has made worse) to fighting global financial crime. They explore how regulators are responding, including with innovations like regulatory sandboxes -- about 80 countries now have these, to TechSprints.

And, of course, they talk about what has changed due to COVID -- which is, pretty much, everything. One example:  800 new online lenders started up during the pandemic in India alone.

I’m often struck by the disconnect between people in the US versus emerging markets who care about financial inclusion. In the US, we often see skepticism that fintech innovation can bring more good than harm. In countries that have huge numbers of very poor people who are completely disconnected from the formal financial system, it’s the exact opposite: they see technology not as the problem, but as the solution. Of course, they see the risks too and are working on them, but most of their energies go into leveraging new technology. At AIR we work with countries and with many global organizations tackling the challenge: the World Bank and CGAP, the UN, the UN International Telecommunications Union, the Alliance for Financial Inclusion, or AFI (which consists of the financial regulators of the Global South), and the Gates Foundation, Flourish Ventures and the Omidyar Network, which have funded so many of these efforts.  Their financial inclusion strategies are all tech-first. They’ve done years of work in how to reach people, educate them, widen their choices, and protect them. They have so much to teach us all.

• CGAP - Fintech and the Future of Banking

• @IvoJenik (Twitter)

• @SharmistaAppaya (Twitter)

• How to build a regulatory sandbox

• Interactive map of sandbox firms

• Inclusive Digital Banking: Emerging Markets Case Studies

• Digital Banks and Financial Inclusion

• Evaluating the different approaches to Regulating Fintech: Beyond Sandboxes

• Global Experiences from Sandboxes

• Key Data from Regulatory Sandboxes across the Globe 

• Four years and counting: What we’ve learned from regulatory sandboxes

• Key Data from Regulatory Sandboxes across the Globe

• Fintech can help in the response to COVID-19. But where should policymakers start?

• Barefoot Innovation Podcast with Greta Bull of CGAP

• Barefoot Innovation Podcast with Michael Wiegand of Gates Foundation

More on Sharmista

Sharmista is a Senior Financial Sector specialist in Finance, Competitiveness, and Innovation (FCI) Global Practice at the World Bank Group where she analyzes Fintech and its application to financial inclusion. She works to support governments in emerging economies to identify key regulatory and policy challenges and solutions to enable fintech products, services, and business models.  

Prior to joining the World Bank, Sharmista was the Head of the Fintech Accelerator at the Bank of England in London looking at innovative firms and technologies to understand both the applications of these innovations and their implications for Central Banking practices. She currently chairs the Digital ID working group under the Financial Inclusion Global Initiative (FIGI) - a joint initiative of Gates Foundation, UN’s ITU, and the World Bank Group.

More on Ivo

Ivo is a financial sector specialist at CGAP. He has 10 years of experience in finance, primarily in retail financial services regulation. He has led CGAP’s work on regulatory innovation (crowdfunding, regulatory sandboxes) and capacity building for policymakers (regulation and supervision of digital financial services) across continents.

Before joining CGAP, Ivo worked in the Responsible Financial Access team at the World Bank, where he specialized in financial consumer protection and alternative dispute resolution. His professional experience spans both the private and public sectors, including serving as a compliance officer at an investment company and as head of the Collective Investment Department at the Czech Financial Ombudsman.

Ivo has a Master’s degree in Law from Columbia Law School in New York and a Master’s degree in Law from Charles University in Prague.

More for our Listeners

Last week, AIR joined with the UK Financial Conduct Authority in co-hosting the Women’s Economic Empowerment TechSprint & Conference. The events raised awareness of the critical financial issues facing vulnerable women, especially amidst the COVID pandemic, and generated potential solutions. We also explored the careers of women in regulation and in technology. Speakers included FDIC Chairman Jelena McWilliams, Baroness Hale of Richmond, GCAP CEO Greta Bull, Kenya Central Bank Deputy Governor Sheila M’Mbijjewe, Assistant Sub-governor of Fintech & Innovation at Central Bank of Egypt Dr. Rasha Negm, and Counselor to the Deputy Secretary, U.S. Department of the Treasury Elizabeth Rosenberg. In a spirit of women helping women, most of the sprint teams and speakers and all of the judges were female. You can still watch the replay of all the sessions as well as Demo Day here. We are exploring plans for a follow-up sprint with hubs in emerging markets.

There are more exciting shows coming up on the Barefoot Innovation Podcast! You will hear me talk with Paula Hunter and Lesly-Ann Vaughan of Mojaloop, Rob Nichols of the American Bankers Association, Douglas Arner of Hong Kong University, John Ryan of the CSBS, and Sultan Meghji of the FDIC.

Join me on Tuesday, April 7th at the ACAMS International Conference on financial crime, LendIt on April 27th, and Fintech South in June! You can also still watch the replay of my SXSW panel session with Cleve Mesidor of the National Policy Network of Women of Color in Blockchain.

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

Embrace the Heretic -- Hong Kong’s Pindar Wong

We are introducing some thematic series into Barefoot Innovation this year. One series will stretch our collective thinking out into the future and try to envision how technology will change financial services, not for the next few years, but over the next decade or two. My working title for this theme is, the Thinkers. And so we’re starting with Pindar Wong.

I met Pindar virtually last spring at the Vaduz roundtable on the future of finance, hosted each year by Prince Michael of Liechtenstein (I’ll link to the show notes of my episode with the Prince from 2019). Pindar has a remarkable background and very impressive reach, but what really stayed with me was his vision about the future of technology and the future of money. I think many of you will react as I did to the ideas he shares in today’s show. We recorded our talk in the morning for me in Washington DC and at nearly midnight for him in Hong Kong (which probably accounts for a few sound glitches you may notice as we talk). He predicts many, many things that I can’t picture - and in some cases, that he can’t yet either -- but he is urging us to stretch to think about them anyway.

Be sure to come to the show notes, or just Google Pindar Wong, to look at his remarkable resume. It includes having dropped out of his PhD program to launch the first ISP in Hong Kong and becoming involved in financial cryptography in the late 90s. He was instrumental in the early internet governance efforts that led to the creation of ICANN (he was its first vice-chairman), and he thinks that same kind of deep disruption is underway now in finance. Comparing it to the internet, he asks us to imagine the thinking mistakes we are likely to make on how to guide all this change.

Pinder thinks that technology advances like cryptocurrency are “unbundling” the functions that money performs, separating money’s role as a store of value from its roles as a medium of exchange and as an account of record. If that shift takes hold, we would see a fundamental change in how money moves and is used and what forms it takes. He suggests that our traditional notion of store of value is based on human time scales, and that machine to machine money, with algorithms exchanging with algorithms, creates completely new challenges involving fundamentally different needs, and with big implications for public policy. It won’t work, he argues, to figure out the policy by reacting as the technology evolves. Instead, he thinks we have to push ourselves to project forward to possible future scenarios.

For example, Pindar predicts that individual AI’s will have to become persons under the law, much as corporations did, and take on the traits of agency and accountability. He reveals which country is working on novel legal concepts like a bill of rights and responsibilities for AI’s. He talks about crypto switching us from legal frameworks to algorithmic self-enforcing mechanisms -- what he describes as a “funny blend of the rule of numbers and the rule of law.” He foresees the need for KYM -- Know Your Machine.

Naturally, I asked Pindar what could go wrong. It’s a lot. He goes through the need to move from an internet of threats to an internet of trust, to use the power of crypto to make hard assessments of threats and losses, and then to get them aligned with incentives for the behaviors we want. Citing the old saying that people rob banks because that’s where the money is, he asks what will happen if most of the money is in decentralized wallets? How will those be guarded?

And in case these ideas aren’t sufficiently thought provoking, he suggests that we explore a new yin and yang concept of money. Traditional yang, or “male,” money is zero sum because its role includes being a store of value. But Pindar argues that up to 30% of economic activity is informal -- that there is “missing” money, which he thinks of as yin, or female. He thinks if we formally used both together, we could enable much more flow of commerce, and more stability and what he calls, digital abundance.

When I asked Pindar for advice on building a better future, he talked about failures of imagination and the need to expose ourselves to much more adversarial thinking. 

He said, “embrace the heretic.”

Links

• Tim Berners Lee in the New York Times, 2021

• Be sure to link to the papers he talks about. Ask him to clarify in need be

• The Think 20 Summit GLOBAL SOLUTIONS

• Machine to Machine Economy

• Pindar Wong on Being Naked on the Internet

• The mystery of money

More on Pindar

1. Bitcoin Enthusiast. Advisory Board (Coindesk)

2. Co-Founded 1st Licence Internet Service Provider in Hong Kong (1993) 

3. First Vice-Chairman of the Board of ICANN 

4. Commissioner - Global Commission on Internet Governance

5. Serves on Hong Kong Innovation and Technology Bureau ​

More for our Listeners

March is Women’s History Month, and we at AIR are marking it with a special project. From March 22-25, AIR is hosting the Women’s Economic Empowerment TechSprint & Conference in collaboration with the UK Financial Conduct Authority. The conference will help raise awareness of the critical financial issues facing vulnerable women, especially amidst the COVID pandemic,  and to generate potential solutions. We’ll also be exploring careers of women in regulation and in technology. Demo Day, on March 25th, will feature a dynamic roster of keynote speakers, innovative solution presentations, and exciting awards. With a spirit of women helping women, most of the sprint teams as well as all of the speakers and all of the judges are female. It will be an amazing event.  You can register for the four-day conference as well as Demo Day here. Make sure to join us!

Next up on the Barefoot Innovation Podcast is Sharmista Appaya and Ivo Jenik of the World Bank and CGAP. I will also talk with Paula Hunter and Lesly-Ann Vaughan of Mojaloop, Rob Nichols of the American Bankers Association, and Douglas Arner of Hong Kong University.

Virtual South by Southwest is coming up this month, including my March 16th session with Cleve Mesidor about diversifying the tech world. For those of you in Asia — or who do well with time zone challenges — I’ll also be speaking at the Australian Regtech Association’s #ACCERATERegTech2021. And I’ll be at the ACAMS International Conference on financial crime, and then back at LendIt in April. Fintech South is another great conference you won’t want to miss in June!

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

Transforming Credit Access with Machine Learning - Mike de Vere and Teddy Flo of Zest Ai

Is credit good or bad?  It depends, doesn't it? Public policy has always been schizophrenic about it. Decades of law and regulation have sought to make mortgage, consumer and small business credit more readily available to more people -- think of the fair lending laws, CRA and the government’s various loan guarantee programs  At the same time, too much credit hurts people, especially when it is priced highly to cover perceived risk, which, for tens of millions of people, it is. Concerns about easy, high-cost credit have brought us usury laws, and rules that limit payday lending and deceptive practices that push high-priced loans. We want the Goldilocks principle -- not too much, and not too little, but just right. Huge swaths of the population cannot get that healthy balance.

Many factors contribute to this problem, but possibly the most important -- and maybe the most fixable -- is that traditional risk scoring methods are not finely-tuned. As we’ve discussed in past shows, they work well for people with good traditional credit histories, but are limited in their ability to score people who don’t. This situation is a relic of the analog age, in which the information readily available to lenders was confined to a very narrow range. It’s a pre-digital problem. It’s about insufficient information.

My guests today have set out to change that. They are Mike de Vere, CEO of Zest AI, and Teddy Flo, the company's general counsel. Zest is seeking to revolutionize credit underwriting by leveraging more information and analyzing it through machine learning. They started out as a lender, but have pivoted to selling tools to banks and other lenders, to equip them to make better lending decisions.

In our conversation, Mike and Teddy lay out their critique of the status quo. They argue that today’s automated underwriting relies on “old math” that results in minority applicants being denied credit at far higher rates than the rest of the population. They describe the dramatic changes that occur when lenders move from analyzing 10 to 15 data points to more than 1,000.

Mike and Teddy also point out that the limitations of the old system hurt not only borrowers, but lenders too. Lenders do better when they can make more loans to people who can pay them back, and when they can price these loans attractively to compete for every creditworthy customer they can reach.

Today’s guests talk about what kinds of data they use. Significantly, they are very opposed to using behavioral and other factors that may correlate with risk but don’t logically cause it, as is advocated by other players in the AI credit space. They explain how machine learning techniques can assess risk factors in the complex interplay of data. They share some pretty eye-popping numbers on just how inaccurate some of the old models actually are, and argue that these should not be locked into use because they have been around forever and are considered “safe.” And they make a mathematical argument that if lenders would take a very small reduction in model predictiveness, they could reap massive gains in inclusion, without loss of credit quality.

They know, of course, that many people doubt their thesis -- are not ready to trust a “black box” algorithm that we humans cannot fully comprehend and evaluate. They talk about how they get past this objection, including how they prove that their model is more inclusive. And of course, they talk about how they address these same concerns held by regulators.They also have suggestions for clarifying regulatory policies where market uncertainty prevents adoption of new methods. They propose altering some rules that tend to lock in old math that is highly inaccurate and is highly exclusionary based on race. They would like to see regulators hold TechSprints that expose the industry to new techniques. And they urge that regulators proactively reward lenders that find less discriminatory models. US regulators have, of course, taken steps in that direction, including through a joint statement encouraging exploration of new models.

Crucially, we also talk about how to prevent the very real risk that AI will worsen, rather than reduce, racial and gender bias, either because it is trained on biased data or it teaches itself in ways that exacerbate these patterns. Zest uses “adversarial” de-biasing and other techniques to manage this danger. Mike and Teddy think that, contrary to popular assumptions, rigorous use of disparate impact fair lending standards will, over time, lead to mass adoption of these new techniques, simply because they reduce discriminatory effects.

To see research on using new kinds of data in underwriting, see the work of FinRegLab, which is looking rigorously at just these issues.

We know that technology is amoral and can do both good and harm. We know new credit underwriting could do a great deal of harm, if it is not designed rigorously and within clear, protective regulatory guidelines. Mike and Teddy are optimistic that this can be done, and that both lenders and borrowers will benefit. 

Links

• Company website: www.zest.ai

• Zest on Twitter

• Zest on LinkedIn

• Harris Poll 2020 Consumer Credit Survey Findings (70% of consumers would switch to a fairer lender)

• How to Make Artificial Intelligence Less Biased (WSJ)

• Zest AI, which uses AI to make lending more inclusive, gets new funding (Fortune)

• Getting Adverse Action Notices Right for Machine Learning Credit Models (Zest blog)

• How Machine Learning Is (And Isn't) Changing Fair Lending (Zest blog)

• First-ever industry benchmarking study on credit modeling from Cornerstone Advisors: Credit Modeling And The Need for Speed 

• Robust Explainability in AI Models 

More on Mike

Mike De Vere has 20 years of experience transforming organizations large and small, public and private, figuring out how to use technology to solve strategic business issues. Prior to Zest, Mike was managing director of Nielsen’s global insights business, converting it to a SaaS-based model. Before that, he was president and CEO of Harris Interactive and spent more than a decade in leadership roles at JD Power. Mike received his MBA from the University of Southern California.

More on Teddy

For more than a decade, Teddy Flo has served as a trusted legal advisor to consumer financial services companies, including international banks, credit card issuers, mortgage lenders, student loan servicers, and small-dollar lenders. Throughout his career, he has focused on providing practical legal advice that helps clients achieve their business objectives. He has litigated scores of cases, helped companies navigate government investigations, and advised his clients on key regulatory issues. As Zest’s General Counsel, he works closely with its legal, executive, engineering, data science, sales, and marketing teams to execute on Zest's strategic decisions and ensure that the legal aspects of the company's operations run smoothly, including compliance, litigation, contracting, and intellectual property. Teddy graduated summa cum laude from the University of Maryland with degrees in Finance and Economics and received his law degree with honors from The George Washington University Law School. 

More for our Listeners

Pindar Wong of VeriFi will be my guest next week, in a show unlike anything we have done before -- don’t miss it. We also have other great episodes in the queue including Rob Nichols of the American Bankers Association, and Sharmista Appaya and Ivo Jenik of the World Bank and CGAP, Paula Hunter and Lesly-Ann Vaughan of Mojaloop, as well as Douglas Arner of Hong Kong University.

2021 speaking events are well underway! I would love for you to join me at virtual South by Southwest with Cleve Mesidor in March — we will be talking about diversifying the tech world. For those of you in Asia — or who do well with time zone challenges — I’ll also be speaking in March at the Australian Regtech Association’s #ACCERATERegTech2021. Next week, I will be speaking at both the Chatham House Illicit Financial Flows conference and an event hosted by the National Policy Network of WOC in Blockchain. I’ll also be at the ACAMS International Conference on financial crime. And of course, I’ll be back this year at LendIt and Fintech South.

Last week, I was a guest on the BAI Podcast. I hope you have a chance to listen, as I discuss three financial regulatory predictions for 2021, and some ideas I have that, I hope, could help the financial realm and the country!

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

How to Partner -- Advice for banks and fintechs from Partnership Fund for New York CEO Maria Gotsch.

Everyone is going to love today’s show, but if you are a fintech or regtech startup trying to sell services to a big bank -- this is absolutely must listening. And the same is true if you’re a bank wanting to work with tech startups.

My guest is Maria Gotsch, CEO of the Partnership Fund for New York City. The fund’s goal is to make New York City a technology innovation hub like Silicon Valley but focused on finance, leveraging New York’s role as global financial capital. Maria assembled a group of ten big banks to work with her on how to tap into the innovation wellsprings of tech startups and make them, in effect, the banks’ R&D arm, in ways that make the relationship worthwhile for both sides.

Our conversation covers a wide range of issues. Maria shares insights about how COVID has impacted the economy, especially for small businesses. She shares the fintech trends she is seeing, from quantum computing to how to serve low-income customers.  She describes big shifts in how tech is evolving to deal with data security and fraud. She talks about how the financial sector has lagged others on adopting predictive analytics, and why it’s harder for financial companies than, say, Netflix, to put these tools to use. She describes the rising asset class focused on environmental sustainability.

I found every word fascinating, but what really struck me in our conversation is Maria’s deep insight about how banks and fintechs should help each other -- how they should evolve toward working together symbiotically. What are the potential models for that? How should we envision the future state? What might we learn from the innovation models in the medical space? Maria describes this in ways I’d never thought about, on how pharmaceutical companies have evolved to work with biotech companies as essentially their labs for R&D, and the possible parallels we might consider for the financial sector.

Maria also has such rich insights about the key challenges in these relationships. She talks about mistakes that lead to startups “banging their heads against the wall” in frustration with regulation. She describes how the regulatory journey transforms as companies scale. She explains how tech people need to grasp the cultures of big banks -- where decisions are a “long game,” where the customer will spend months “poking holes” in a startup to see if working with it would blow the bank up. And she brings color to the reality that we all know, but don’t fully appreciate -- that at these banks, no one is ever going to move fast and break things. Maria has so much concrete, practical advice, learned first hand, ranging from how to find champions at banks, how banks network with each other about fintechs, what critical factors makes them decide to buy or not buy, and even how fintechs should manage their own lawyers.

This episode is nothing less than a look behind the curtain for every fintech and regtech firm that dreams of scaling by working with banks. 

Links

• Partnership Fund for New York City

• Fintech Innovation Lab

More on Maria

Maria G. Gotsch is President and Chief Executive Officer of the Partnership Fund for New York City (www.pfnyc.org), which is the investment arm of the Partnership for New York City. The Fund, which has invested over $150 million, has built a network of top experts from the investment and corporate communities who help identify and support New York City’s most promising entrepreneurs in both the for-profit and not-for-profit sectors. In addition to leading the Fund’s operations, Maria has spearheaded the creation and operation of a number of the Fund’s strategic initiatives, including its FinTech Innovation Lab.

Prior to joining the Fund, Maria was a Managing Director at BT Wolfensohn (now part of Deutsche Bank), providing strategic and financial advice related to mergers, acquisitions, dispositions, joint ventures and the development of business strategies. Before starting with Wolfensohn, Maria worked at LaSalle Partners in the New York area and for Merrill Lynch Capital Markets in New York and London. Maria has an MBA from Harvard Business School and a B.A. from Wellesley College. She was also the recipient of a Fulbright Fellowship to study international relations at the Institut Universitaire de Hautes Etudes Internationales in Geneva, Switzerland.

Maria is a member of the boards of the New York Venture Capital Association and the Lang Fund and serves on the business advisory board of ProPublica (investigative journalism non-profit). 

More for our Listeners

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

Next up on the Barefoot Innovation Podcast will be Mike de Vere and Teddy Flo of Zest, followed by Pindar Wong of VeriFi, Rob Nichols of the American Bankers Association, and Sharmista Appaya and Ivo Jenik of the World Bank and CGAP.

I would love for you to join me at upcoming speaking engagements, including at virtual South by Southwest with Cleve Mesidor in March -- we will be talking about diversifying the tech world. For those of you in Asia -- or who do well with time zone challenges -- I’ll also be speaking in March at the Australian Regtech Association’s #ACCERATERegTech2021. Also coming up is a fintech talk at Harvard University -- exciting for me because I so enjoyed being a Senior Fellow there a few years back. I’m looking forward to speaking at the UK’s Department for International Trade’s Regtech Roadshow conference. I’ll be at an event hosted by Women of Color Blockchain in April. I’ll be at the ACAMS International Conference on financial crime. And of course, I’ll be back at LendIt this year. 

Some of these events are invitation only, but I know many of you are on those invitation lists and will be there. For the open conferences, like LendIt and ACAMS, I hope everyone will register and join!

I was also recently a guest on two podcast shows -- on Breaking Banks talking about likely policy priorities in the new administration and Congress, and on the 11:FS Fintech Insider Podcast. Be sure to check out both.

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

Open Banking: BBVA’s Susan French

Is the future of banking, open? And will open banking reshape the world of finance?

My guest today has the answers. She is Susan French, head of Products at BBVA’s Open Platform. BBVA, the global bank headquartered in Spain, has long been ahead of the curve in technology innovation in general, and in open banking specifically.

“Open banking” is about the movement to make bank accounts easily connectable to other services through API’s. It takes a lot of forms, driven by the wide variety of problems that API connections can solve, for both consumers and providers. 

The phenomenon has evolved differently in Europe vs. the United States. Susan explains how the European version has been driven mainly by the PSD2 regulatory mandates that enable secure flows of data, while BBVA’s U.S. program is mainly a banking as a service (BaaS) platform driven by consumers wanting banking to be easily integrated with whatever they do. She thinks the two models will increasingly converge, with the US market experiencing more regulatory “push,” and Europe feeling rising “pull” from consumers.

In our conversation, she argues that now is the right time for banking as a service to surge, especially since the pandemic has accelerated the pre-existing movement toward customer adoption of digital banking. People increasingly expect seamless interaction between their banking and their lives.

We talked about how the US move toward real-time payments will change the market, and Susan’s view that the winners will be whoever best comes to grips with fraud management, since the faster the money moves, the faster the fraud happens (and the same for AML). We talked about the potential role of cryptocurrency, stable coins and central bank digital currencies in faster payments. We talked about how real-time payments may divide the world into distinct categories in how they interact with money -- and she describes what those are. And of course, we talked about her advice for regulators -- both state and federal -- on challenges they will face, and how to meet them.

Links

• Susan’s LinkedIn

• BBVA Open Platform

More on Susan

Susan leads the design and development of Open Platform’s groundbreaking suite of white-label, banking-as-a-service APIs in the US. She is an expert in payment, digital commerce and financial services, focused on understanding what fintech companies navigating this landscape want from an API platform. Susan has been working in the financial services sector for more than 25 years, most recently leading the team that created and launched Visa’s Developer Program, a suite of APIs that opened up Visa’s network to all developers, from startups to large financial institutions. A former CTO, Head of Enterprise Architecture and Technology Strategist at Visa, Susan also worked as Chief Operating Officer at Euphorion, a website design and development startup in Silicon Valley, in addition to starting her own independent consulting business.

More for our Listeners

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

We have some great shows coming up including Maria Gotsch of Partnership Fund, Mike de Vere and Teddy Flo of Zest, Pindar Wong of VeriFi, Rob Nichols of the American Bankers Association, and Sharmista Appaya and Ivo Jenik of the World Bank and CGAP.

I would love for you to join me at upcoming speaking engagements, including at virtual South by Southwest with Cleve Mesidor and #ACCERATERegTech2021 in March. I’ll also be speaking at both Harvard University and the US Treasury in February, and in April at the ACAMS international conference and LendIt.

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

Bankers’ Core Challenge: Mantl CEO Nathaniel Harley

A lot of people, including me, care about community banks. They are much more than providers of financial services. They are the backbone of their communities. That matters now more than ever, as many of these communities are struggling, especially in the pandemic. These banks know their markets deeply, which both inspires them, and enables them, to serve their consumers and businesses in unique ways.

As a sector, they are also in trouble. Their numbers are dropping every year. Compared with either large banks or with fintechs, they face daunting impediments. It’s a complex challenge, but arguably their biggest obstacle is in modernizing their technology, to meet the demands of today’s customers and to streamline their operations to capture efficiencies, so that they can compete effectively with big firms that have economies of scale and with small startups that were “born digital” and have much more efficient cost structures.

Today’s guest offers one solution for them. He is Nathaniel Harley, the CEO of Mantl.

In our conversation, Nathaniel starts by noting that fintechs have now surpassed bank branches in opening first-time bank accounts. Mantl aims to help reverse that trend by giving banks an easy way to offer a first-class onboarding experience for their customers.

As with so many other things, COVID has sharply accelerated the need for new technology. Nathaniel shares the striking numbers of customers shifting from branches to online channels, and especially to large banks’ online services, since the pandemic began. Many community banks have taken up the challenge, using 2020 to take the leap to high-tech onboarding. Increasingly, they see new tech adoption as an investment rather than an expense. Some also see it as a way to expand beyond their local footprints, which can be invaluable for institutions in slow-growth markets. Nathaniel talks about what prevents banks from making this shift, the characteristics of the banks that do, and the culture battles that can accompany the transition.

When talking about the future of community banks, the elephant in the room is their dependence on legacy core IT providers. Nathaniel has opinions on that technology, the contracts, and its impacts on customers. He shares striking numbers about customer drop off rates in account opening. Consumers today, in their first touch interacting with a new bank (or anything else) instantly size up tech. They know whether it’s good, or whether it ‘s old. If it’s old, and it’s clunky and frustrating, they don’t persist. They walk away immediately to find something better -- since better options are all around. The main solution for this, Nathaniel thinks -- as do I -- will be banks and fintech firms working together.

On that, he has thoughts for regulators as they ponder how to make that happen. This includes insights on the FDIC’s important initiative to explore creating a public/private body to set up standards and a certification system to make it easier for community banks to work with tech companies. 

Links

• Transcript

• MANTL

• Nathaniel's LinkedIn

• MANTL Twitter

• [American Banker]: How Cross River Bank gathered $250 million in deposits in 15 days

• [Tearsheet]: With deposit volume growing 705% in April, MANTL raises $19 million

• [American Banker]: The messaging tool that let Happy State Bank take its lending online

• [Bank Director]: How Innovative Banks Fight COVID-19 Through Giving

• Find more on their news page: https://www.mantl.com/news 

• Barefoot Innovation Podcast with Chairwoman Jelena McWilliams

• Barefoot Innovation Podcast with Chairman Rodney Hood

• Barefoot Innovation Podcast with Rebeca Romero Rainey

• Barefoot Innovation Podcast with Mike Butler

• Barefoot Innovation Podcast with Gilles Gade

• AIR Save Small Business TechSprint

• AIR PPP Loan Forgiveness Solution Sprint

• Wall Street Journal: “The FDIC Considers Scrapping Quarterly Bank Reports"

• FDIC RFI on SSO’s

More on Nathaniel

Nathaniel Harley is the CEO and co-founder of MANTL, a technology company helping banks and credit unions grow. Founded in 2016, MANTL aims to level the digital playing field for smaller financial institutions. The company has helped banks raise billions in core deposits with its high performing account opening solution. In addition to leading the firm, Nathaniel serves as an Angel Investor for Koral Ventures. He earned his bachelor's degree in Mathematical Methods and Social Sciences from Northwestern University (Kellogg).

More for our Listeners

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

Watch for some great upcoming shows. They include Susan French of BBVA, Maria Gotsch of Partnership Fund, Mike de Vere and Teddy Flo of Zest, Pindar Wong of VeriFi, Rob Nichols of the American Bankers Association, and Sharmista Appaya and Ivo Jenik of the World Bank and CGAP, respectively.

The 2021 virtual events and conferences are also coming onstream. I am excited to have been chosen alongside Cleve Mesidor to speak at South by Southwest on “Diversifying Tech.” Make sure to register and join us! I will also be speaking at #ACCERATERegTech2021 in March. I’ll speak at both Harvard University and the US Treasury in February. And I’m looking forward to speaking at LendIt, in April. I’ll hope to see many of you at these great gatherings.

Support our Podcast

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

A New Kind of Money: Digital Dollar Project Cofounders Christopher Giancarlo and Daniel Gorfine

We’ve had a lot of amazing conversations on Barefoot Innovation, but I can’t remember ever having one where, by the end of the show, I was nearly jumping to my feet, ready to go help make things happen.

Until this one.

My guests are Christopher Giancarlo, former Chairman of the Commodity Futures Trading Commission, and Daniel Gorfine, who previously led the CFTC’s innovation program, LabCFTC. When they left the commission, they teamed up to found the Digital Dollar Project, advocating for why and how the United States needs to join the 80-plus other countries that are planning to issue Central Bank Digital Currency, or CBDC.

Chris and Daniel argue that the world of money as we know it is about to change completely -- the whole way we issue money, use money, and design money. They take us back through the past, to the times when the system has transformed before -- thousands of years back to the invention of money, and then up to the medieval breakthroughs of banking that were invented in northern Italy, and then on to how the Internet reinvented payments -- the big leaps that unlocked massive new opportunities. They note that the present day system is still mostly analog -- pre-digital age -- and argue that in the US, the Dodd-Frank Act was the last big effort to keep it patched together. They think that we are poised today to make another profound transformation, to digital money.

In our conversation, they explain what CBDC is -- fiat currency in digital form. They address people’s tendency to confuse it with the electronic payments we already have today, in that CBDC is not just an electronic ledger entry. It’s actual legal tender. It functions exactly like cash. It is always, automatically good. There is no need for a person receiving CBDC to assure that there are sufficient funds in a payer's account, or even a need to know who the payer is. Like cash, if you have it, you can spend it, no strings attached. 

On the other hand, they also explain how, unlike cash, this government-issued electronic money can be programmed and paired with smart contracts on blockchains so that, without needing any middlemen, funds can be transferred easily and instantly across the boundaries of space, and even the boundaries of time. For example, it can be programmed to be spent in the future only if certain terms are met, even if the sender, by then, is long gone. Such programming could be designed to address an endless variety of business, personal or regulatory objectives.Chris and Daniel take us through examples of the many ways this new medium of exchange could be put to use -- a list that will only grow as more and more people bring creative thinking to it.

Daniel and Chris note that 80 countries are developing CDBC and talk about which are in the lead, most notably including China. They talk about what it will mean for the United States, and the world, if other countries move ahead, and it does not. They think the US may not need to be among the first adopters, but that it also can’t lag behind while others shape this brave new world. They think it’s critical that the new global money system be grounded in “American values,” and they describe the “champion model” they are advocating in order to address the many complexities that inevitably lie ahead.

They also argue that the United States needs a moonshot type of project. I’ll share in the show notes the Wall Street Journal article they coauthored over a year ago, entitled, “We Sent a Man to the Moon. We Can Send the Dollar to Cyberspace.” 

Links

• Transcript

• Chris & Daniel’s WSJ Article

• Prior Episode: Agile Regulation, CFTC Chairman Christopher Giancarlo

• Prior Episode: From Analog to Digital Regulation with CFTC Chairman Christopher Giancarlo

• Prior Episode: Regulatory Challenger: LabCFTC and Daniel Gorfine

More on Chris Giancarlo

J. Christopher “Chris” Giancarlo was unanimously confirmed to serve as Chairman of the U.S. Commodity Futures Trading Commission by the U.S. Senate on August 3, 2017. Prior to becoming Chairman, Mr. Giancarlo was designated Acting Chairman on January 20, 2017 and was nominated to serve as the Chairman on March 14, 2017 to a term that expired in April 2019. Mr. Giancarlo had served as a CFTC Commissioner since his swearing in on June 16, 2014, after a unanimous consent by the U.S. Senate on June 3, 2014. 

Before entering public service, Mr. Giancarlo served as the Executive Vice President of GFI Group Inc., a financial services firm. He was previously Executive Vice President and U.S. Legal Counsel of Fenics Software and was a corporate partner in the New York law firm of Brown Raysman Millstein Felder & Steiner. Mr. Giancarlo joined Brown Raysman from Giancarlo & Gleiberman, a law practice founded by Mr. Giancarlo in 1992 following his return from several years in London with the international law firm of Curtis, MalletPrevost, Colt & Mosle. Mr. Giancarlo was also a founding Co-Editor-in-Chief of eSecurities, Trading and Regulation on the Internet (Leader Publications). 

He has testified before Congress regarding the implementation of the Dodd-Frank Act, and writes and speaks extensively on public policy, legal and other matters involving technology and the financial markets.

More on Daniel Gorfine

Daniel Gorfine is the founder of Gattaca Horizons LLC, a boutique fintech advisory firm.  He also currently serves as an Adjunct Professor of Law at the Georgetown University Law Center and is a co-founder of the Digital Dollar Project.  He previously served as the U.S. Commodity Futures Trading Commission’s first Chief Innovation Officer and Director of LabCFTC. 

Prior to the CFTC, Mr. Gorfine was Vice President, External Affairs & Associate General Counsel at OnDeck.  He also previously served as Director of Financial Markets Policy and Legal Counsel at the Milken Institute think tank, and earlier in his career worked at the international law firm Covington & Burling LLP.  Mr. Gorfine also served a clerkship with U.S. District Court Judge Catherine C. Blake in the District of Maryland.

A graduate of Brown University (A.B.), Mr. Gorfine holds a J.D. from George Washington University Law School and an M.A. from the Paul H. Nitze School for Advanced International Studies (SAIS) at Johns Hopkins University.   

More for our Listeners

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

This is our first show of 2021. If you missed the last episode in 2020 over the holidays, be sure to go back and listen. It’s one of my own all-time favorites, with Intuit founder Scott Cook, and it’s been getting a tremendous response.

2021 is off to a difficult start in the United States, with our Capitol Building being stormed last week, and President Trump impeached this week, for the second time, and Washington DC now under tight, armed security and with many roads closed, aimed at enabling a peaceful inauguration, next week, of Joe Biden and Kamala Harris. These crises have flared amidst a worsening pandemic and worsening job losses as well. Despite all this, the arrival of safe and effective vaccines offers rays of hope. We at AIR continue our work safely from home, and we hope that you, our listeners, are all safe and well.

We have some changes planned for Barefoot Innovation this year, delving more deeply into key themes in financial and regulatory innovation. We plan a special series focused on innovation in emerging markets. We also plan a series with guests offering insights on how the plans of the new US Administration and Congress are likely to impact financial and regulatory innovation, for listeners who are either in the US or interested in what is happening here. 

Meanwhile, watch for some great upcoming shows. They will include Nathaniel Harley of Mantl, Susan French of BBVA, Maria Gotsch of Partnership Fund, Mike de Vere and Teddy Flo of Zest, Pindar Wong of VeriFi, Rob Nichols of the American Bankers Association, and Sharmista Appaya andIvo Jenik of the World Bank and CGAP, respectively.

The 2021 virtual events and conferences are also coming onstream. I am excited to have been chosen alongside Cleve Mesidor to speak at South by Southwest on “Diversifying Tech.” Make sure to register and join us! I will also be speaking at #ACCERATERegTech2021 in March. I’ll speak at both Harvard University and the US Treasury in February. And I’m looking forward to speaking at LendIt, in April. I’ll hope to see many of you at these great gatherings.

Let’s work toward better times in the days ahead.

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

How to Innovate: Inuit Founder Scott Cook

This is our final show of 2020 and I predict it will be an all-time favorite. It is already a favorite of mine. That’s because of who my guest is -- Scott Cook, the legendary founder of Intuit -- and also because of what he says. In this conversation, Scott takes us with him in thinking about the roots of innovation, the wellsprings of creativity. Where does innovation come from? How do you turn a good idea into a great company? What values should drive the effort? Scott shares his thinking on all this, he does it mainly by telling us stories drawn from his own experience.

The calamities of 2020 -- in health, the economy, and racial injustice -- will bring new thinking to every realm of financial services and financial regulation. As we emerge from the wreckage of this terrible year and soon look around and take our bearings, we will find that we’re not back where we were; we will be in a new place. Some of that will be bad, but a lot of it will be good. We’ll find that we have condensed a decade of innovation and technology adoption into just a few short months. For most of it, we will never go back. We will go forward. And we won’t go forward at the speed at which things were changing a year ago. We will be moving faster, and farther, than ever before.

I, for one, have no desire to “go back” to normal. I want 2021 to be better than 2019 was, and better than every year that came before.  Precisely because 2020 has broken so much, it has freed us from many old things that needed to change, and it equipped us, rapidly, with both the will and the means to build new solutions.

Intuit was one of the first fintech companies and one of only a handful from that first generation to survive and thrive to this day. It was founded nearly 40 years ago in Palo Alto, California, before we even had the word “fintech.” Scott tells us the story of how he got onto the path of innovation as a young boy (hint -- it has to do with Crest Toothpaste). He tells the story (which I already knew) of how he got the original idea for Intuit’s bill paying tool (before we had the word “app”). He tells the story of market testing his idea by using the simplest, most low-tech process imaginable. He tells the stories of struggling to get their product into stores, and of learning the hard way that they had designed it all wrong, and the harrowing tales of how close them came to failing, and of what it took to succeed anyway. He shares what he learned from it all, in a way that can help the rest of us not repeat his mistakes.

Scott talks about a lifetime of continuous innovation. He shares Intuit’s simple and powerful mission. He talks about the company’s newest business, which has turned out to be its biggest ever and which, maybe counterintuitively, involves adding humans into a tech solution. He shares their experience this year with the pandemic and the SBA’s Paycheck Protection Program, when Intuit dropped everything to get loan guarantees out to the smallest of small businesses. He explains how technology enables the company to serve these tiny enterprises profitably, by having much more information on them than is available to, say, a bank. And, as we enter into a new era of technology change, he shares insights about how technology and humanity will interrelate. 

And of course, he has some thoughtful advice for regulators.

There’s a saying that a picture is worth a thousand words. In that same vein, a story can be worth a thousand pages, if the pages are filled with information. Human brains are wired to listen to stories, to wake up and pay attention to them, and to remember them and put them to use. I know I have been remembering Scott’s stories ever since we talked, and have been using them in how I think about the world of change we’ll enter into in 2021. 

There is every sign that medical technology innovation will soon be beating back the COVID pandemic. When it does, we will find ourselves still facing all our old problems, combined with a whole set of new ones. We will also find that we have, in our hands, a whole new set of technology tools for solving both.

Links

• Transcript

More on Scott

Scott Cook co-founded Intuit Inc. in 1983 and now serves as the chairman of the Executive Committee. Before founding Intuit, Scott managed consulting assignments in banking and technology for Bain & Company, a corporate strategy consulting firm. He previously worked for Procter & Gamble, the household products giant, in various marketing positions, including as a brand manager, for four years.

Scott serves on the boards of directors of Intuit, the Harvard Business School Dean’s Advisory Board, the University of Wisconsin’s Center for Brand and Product Management Advisory Board, the Intuit Scholarship Foundation and the Valhalla Foundation, which accelerates proven interventions in early education and K-12, social development, and medical research.

Scott earned an MBA from Harvard University and received a bachelor's degree in economics and mathematics from the University of Southern California.

More for our Listeners

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

We have great shows lined up for 2021. We’ll have Chris Giancarlo and Daniel Gorfine on the Digital Dollar and Central Bank Digital Currency; Rob Nichols, President and CEO of the American Bankers Association; Nathaniel Harley of MANTL; and Susan French of BBVA Product, among others.

In case you missed it, last week AIR hosted a webinar entitled Community Banks & Innovation -- Helping Small Banks Compete in the Digital Age. You can watch the event here. The conversation included acting Comptroller of the Currency Brian Brooks, FDIC Chief of Staff Brandon Milhorn, ABA CEO Rob Nichols, and ICBA CEO Rebeca Romero Rainey, along with leading community bank CEO’s and the core technology firms serving the banking industry.

I also want to share the videos of some of the many of the sessions at which our AIR team spoke this year, as the conference world went virtual. Please enjoy our talks at Lendit Fintech Digital, Global Fintech Festival, Aite Group’s Financial Crime Forum, DC Fintech Week, Central Bank of the Future Conference, Fintech Abu Dhabi, and many more. 

I’m excited to announce, also, that I’ll be speaking next year at SXSW on diversifying the world of tech and fintech.

If you didn’t get to reading the Regtech Manifesto that AIR issued in July, I hope you will take a look at it over your holiday break and send us your comments. Feedback is coming in from all over the world and is a primary force shaping out plans for 2021.

As we go into 2021, I wish you a safe and joyful holiday and blessings for the new YEAR.

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

Credit Data in the COVID Crisis: Experien’s Alex Lintner

Today’s guest is Alex Lintner, Group President of Experian Consumer Information Services, which provides credit reporting services to lenders throughout the world.

This is Alex’s second time on Barefoot Innovation. The last time, we were talking with LendUp’s Sasha Orloff about credit scoring innovation. In today’s show, we’re talking about credit scoring transformation. 

Why the difference? It’s the same reason so many other things are transforming this year:  the pandemic. When the world changes overnight, you can’t accurately assess risk by using data from the past. You need current data, and you need it often. And in this pandemic, to evaluate credit risk, you also need data and tools that address the widely varying situations that people are facing. Starting in March, therefore, Experian has responded to the crisis by accelerating its release of new tools to deliver data to lenders at speeds that were never possible, until now.

In our conversation, Alex shares insights on how the world plunged this year to digital, real time commerce, for people of all ages and backgrounds. He explains the trends we’re seeing in consumer debt and savings -- some of which are counterintuitive. He talks about the urgent challenges facing borrowers in different circumstances, creating the need for lenders to take a surgical approach to consumer and small business lending amidst the crisis, with accurate data being the key.

No one is in greater need of new tools than consumers who have low credit scores or thin credit files. Alex describes how Experience launched two new products for them this year, including one built on access to applicants’ banking accounts to enable cash-flow underwriting for those who want their scores updated. He describes really impressive impacts in expanding credit access.

These kinds of moves into “alternative data'' offer a key to the future of financial inclusion. They enable accurate risk assessment of millions of creditworthy borrowers who have been screened out by more traditional tools that use less information. I chair the board of FinRegLab, which has done important research finding that using new kinds of data can expand credit access with no loss of accuracy on how the loan will perform, and sometimes even with accuracy improved. Alex paints a picture of how we get to a more inclusive future financial system, based on data. He talks about how to assure that AI tools are explainable and not biased, how to meet the needs of regulators, and how to accelerate cycle times from analytics to production. He also discusses using these same kinds of tools to detect online fraud, and especially synthetic fraud -- as Alex says, “Frankenstein ID’s -- whose rapid growth has unfortunately been another unwelcome effect of the pandemic.

Alex shares his experience of being an immigrant himself to the United States. You’ll enjoy his story of how hard it was to establish credit, and also his observation that what we in the US call “alternative data” is, in other countries, just called….data, because the traditional credit history information was never there. 

You’ll also enjoy his story about the roots of Experian, which began over a hundred years ago with a merchant offering credit to his customers based on what he knew about them. Today, using more and more rich information, and working scrupulously to keep out bias, we’re on the verge of having a financial system that is more accessible and fair than has ever been possible before.

Links

Transcript - waiting on transcription to be sent 

• Previous Podcast with Alex

• Alex’s LinkedIn

• Experian Blog - 2020 State of Alternative Credit Data

• Experian Blog - State of Credit 2020: Consumer Credit During COVID-19

More on Alex

As President of Experian’s Consumer Information Services business, Alex is responsible for overseeing Experian’s US consumer credit bureau, the nation’s largest credit bureau, and the Consumer Information Services business for Experian globally, which includes 23 credit bureaus around the world. Alex is responsible for all aspects of Experian’s consumer credit services business, including the quality of data and the breadth of data assets -- which determines how much of the population can be scored accurately -- as well as delivery and management of credit risk data. His business drives innovation focused on new technologies and productivity enhancements and supports many of Experian’s direct-to-consumer initiatives.

More for our Listeners

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

We have one more show coming up in 2020, and it’s one of our best ever -- my fascinating conversation with Intuit founder Scott Cook. In the new year we will have wonderful guests:   Nathaniel Harley of MANTL, Susan French of BBVA Product, Chris Giancarlo and Daniel Gorfine on the Digital Dollar, and Rob Nichols, President and CEO of the American Bankers Association, among others.

As we come to the end of 2020, I’m looking back at participating in so many terrific conferences. Many of these sessions are captured on video, including Lendit Fintech Digital, Global Fintech Festival, Aite Group’s Financial Crime Forum, DC Fintech Week, Central Bank of the Future Conference, Fintech Abu Dhabi, and many more. One positive aspect of 2020 is that I have been able to “meet” so many people from all over the world in virtual sessions, and have learned so much from each and every one.

Also, in case you missed it, this week AIR hosted a webinar on Community Banks & Innovation -- Helping Small Banks Compete in the Digital Age. The conversation included acting Comptroller of the Currency Brian Brooks, FDIC Chief of Staff Brandon Milhorn, ABA CEO Rob Nichols, and ICBA CEO Rebeca Romero Rainey, along with leading community bank CEO’s and the core technology firms serving the banking industry.You can watch the webinar here!

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

Saving Small Businesses through Technology with Ross Burhdorf and Lamine Zarrad of Zen Business

As the 2020 pandemic continues to threaten America’s small businesses, it makes sense to talk with people who are saving them, by serving them through technology.

My guests today do just that. They are Ross Burhdorf, CEO & Founder of ZenBusiness, and his colleague Lamine Zarrad. Lamine, who is SVP of Financial Services, was a guest on Barefoot Innovation last year, when he was CEO of Joust. Joust was acquired by ZenBusiness earlier this year. 

(I should note that this is another one of our episodes that we recorded several months ago and had to defer posting due to pandemic-related scheduling.)

ZenBusiness is a public benefits corporation that provides end-to-end digital tools for very small businesses in the service sector, including many “solopreneurs.” This is an enormous market, but it has tended to be underserved by software, by expert services, and by banks, all of which generally are geared to working with larger enterprises. In joining forces with Joust, ZenBusiness has set out to serve customers with ZenBusiness Money.

In our conversation, Ross and Lamine explain that their target market is service businesses with zero to ten employees. They explain that, in order to thrive, these little enterprises need to digitize every aspect of their activity, from marketing to legal to finance. Reflecting a pattern that I’m seeing everywhere, ZenBusiness is seeing the demand for this digitization soaring in the pandemic, which is driving activity of all kinds into digital and online channels. I’ve been saying that, in finance and financial regulation, we’re seeing a decade of technology adoption and innovation squeezed into a few short months.

Ross and Lamine paint a fascinating picture of what is going on with these small businesses, and some of it is counterintuitive. They are seeing extremely rapid growth, widened access to talent as people work from home, and big efficiency leaps arising from the move to operating online. They remind us that some of the most successful brands we know started in recessions. And they have fascinating insights on the future of small business, including on the impacts of Amazon.

They are also thoughtful about the regulatory environment. As they point out, today’s financial market removes risk by charging more for customers who are perceived as high risk, and often by pushing them to inferior products -- which people then get used to over time. With better data, we can all manage risk vastly better, which in turn will open many doors.

I asked Ross and Lamine about what they are doing to promote diversity in the wake of the killing of George Floyd this year and the upheavals that have followed. Ross’s response is incredibly moving -- I have continued to think about it in the weeks since we talked.

Links

• ZenBusiness

More on Ross

Ross runs ZenBusiness. He previously was the founding CTO for HomeAway (NASDAQ:AWAY). His technology built the company from a startup through the IPO and to its recent acquisition by Expedia (NASDAQ: EXPE) for $3.9B. In his more than 30 years as a technology leader, entrepreneur and c-level corporate executive in both public and private companies, Ross helps transform the way consumers interact with technology.

More on Lamine

Lamine Zarrad is the SVP, Financial Services, at ZenBusiness. He began his entrepreneurial journey shortly after immigrating to the United States and then going on to serve in the U.S. Marines. He subsequently built an expertise around banking regulations and financial services through work at Merrill Lynch and the U.S. Treasury's Office of the Comptroller of the Currency. With ZenBusiness, Lamine combines his passion for inclusion with his banking skills to create ZenBusiness Money.

More for our Listeners

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

Coming up next is my conversation with the legendary Scott Cook, Founder of Intuit. We will also welcome back Alex Lintner of Experian; former CFTC Chairman Chris Giancarlo, with Daniel Gorfine, to talk about their Digital Dollar Project; Nathaniel Harley of MATNL; and Susan French of BBVA Open Platform. 

If you weren’t able to join me at Fintech Abu Dhabi, you can watch both of my sessions here. This week I am speaking at the Singapore Fintech Festival, sponsored by the Monetary Authority of Singapore. I’m doing two fireside chats there, one with CFTC Chairman Heath Tarbert, and one with the Governor of the Central Bank of Kenya, Patrick Njoroge. I’m also looking forward to speaking at the LendIt Fintech Webinar: The 2021 Fintech Agenda for a Fairer Economy with, among others, Zest AI CEO Mike de Vere.

As a reminder, if it has not made it onto your reading list already, AIR has published A Regtech Manifesto: Redesigning Financial Regulation for the Digital Age. It’s in the form of a Request for Comment. We have received tremendous, invaluable feedback, and we would love to hear more! I’ll be recording it as a podcast as well.

Keep innovating!

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

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

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

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

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

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

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

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

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

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

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

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

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

Links

Transcript

• Ann’s LinkedIn

• Ann at Mastercard

• CB Insights Hall of Fame

• Podcast with Kathryn Petralia

• Podcast with Brett King

• Bonus Episode with Brett King

• Podcast with Colin Walsh

• Podcast with Anne Boden

More on Ann

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

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

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

More for our Listeners

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

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

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

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Always Innovating: Upgrade CEO Renaud Laplanche

In late January, just a few short weeks before COVID shut down the world, I was in Paris (which now seems like a lifetime ago). As I was helping myself to a coffee in the speaker lounge of the Paris Fintech Forum, I ran into Renaud Laplanche. Renaud was one of our earliest guests on Barefoot Innovation when he was CEO of Lending Club, and I’m so happy to have him back today in his new role as CEO and co-founder of Upgrade. I wanted to talk with him about Upgrade, and also to get his thoughts about how the fintech sector has evolved since those days.

Upgrade is a neobank with a novel strategy that uses the appeal of credit products to attract customers, and then offers more services. It aims to move borrowers off of revolving credit and into loans that people can successfully pay off, incentivizing good consumer financial behavior and discipline. In our conversation, Renaud notes that despite all the innovation in the lending world, consumers still have massive credit balances outstanding in high interest debt products -- a consumer burden that he thinks shouldn’t exist anymore, now that better products are available.

Since Renaud is a fintech pioneer who helped invent a whole new sector, marketplace lending, I asked him how he thinks fintech is doing against its promise for making financial services serve more people, better. In addition to assigning a grade that you’ll find interesting, his answer looks back at lessons learned from the first wave of lending fintechs, at the progress we’ve made since then, and at pathways forward -- as well as the risks ahead.

That pathway forward includes diversifying the fintech sector, and Renaud shares ideas on how to do this, describing the strong gender balance at Upgrade and their efforts to advance social justice, including some concrete, unusual ideas.

We also talked, of course, about regulation. Renaud was animated in talking about the pandemic as a glaring example of the need for regulatory modernization. He says the system should be data centered, can drive down errors and can make regulatory and compliance work more impactful and interesting. To that end, I was especially delighted to hear his praise for AIR’s whitepaper, Regtech Manifesto. He also suggests something that I’ve been recommending too:  America needs an infrastructure bill that not only rebuilds roads and bridges, but also replaces our aging, failing government technology plant.

Finally, you’ll be interested in his answer to my question on how to be a great fintech innovator.

Links

• Previous Podcast with Renaud

• Upgrade Website

• Our prior podcast with Renaud

Please vote for AIR in the SouthBySouthwest Panel Picker!

I have an ask today for all our listeners. AIR has submitted two proposals to SouthBySouthwest and the SX entries are now open for voting -- so we need your votes!

Crypto and Crime:  Child Sexual Abuse Imagery, will tell the story of our pathbreaking October TechSprint on how to curtail use of cryptocurrency for buying online material that depicts child sexual abuse. (We are going to put together a podcast on this as well.)

Diversifying Tech, will be a fireside chat between me and Cleve Messidor, the visionary Founder of Women of Color in Blockchain. 

THE VOTING DEADLINE IS NEXT WEEK -- FRIDAY, NOVEMBER 20, SO DON’T WAIT!

More on Renaud

Renaud is the co-founder and CEO of Upgrade, Inc. a neobank that offers affordable and responsible credit to mainstream consumers. Under his leadership, Upgrade reached $100 million in revenue run rate, profitability and a billion-dollar valuation within 3 years of launch. Upgrade is the only neobank backed by one of the world’s top 10 largest banks. 

Prior to Upgrade, Renaud founded and ran Lending Club for 10 years. He took the company public, reaching a market capitalization of $10 billion in December 2014.  At Lending Club, Renaud pioneered consumer fintech and grew the company to become the largest provider of personal loans in America.  

Renaud was ranked #23 in Bloomberg Markets’ 2015 Most Influential List, an annual ranking of the World’s top 50 most influential leaders across technology, finance, and politics. He was also recognized at the Clinton Global Initiative by President Clinton for expanding access to affordable and responsible credit. In 2014, he won the Economist Innovation Award in the consumer products category and was named the "best start-up CEO to work for" by Business Insider. Renaud was named “Fintech Executive of the Year” by Finovate in 2020. 

He also holds the Newport-Bermuda world speed sailing record.

More for our Listeners

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

We are rounding out 2020 with some great upcoming podcasts! We have Scott Cook, Founder of Intuit; Ann Cairns, Executive Vice Chair of Mastercard; and Ross Burhdorf and Lamine Zarrad of ZenBusiness. We’ll also welcome back former CFTC Chairman Chris Giancarlo, along with Daniel Gorfine, to talk about the Digital Dollar Project.

I am also excited for my remaining speaking engagements of 2020! You can join me at the Open Source Strategy Forum, A-Team Regtech Summit, Central Bank of the Future, Fintech Americas, and ABA Financial Crimes Enforcement Conference, as well as the Singapore Fintech Festival and Fintech Abu Dhabi.

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A Combinatorial Explosion, Circle CEO Jeremy Allaire

Before I introduce today’s show, a quick message for those who are listening on the first day it posts -- October 30. I’m pleased to say that I’ve nominated for the CB Insights Fintech Hall of Fame, along with some very distinguished people who have been our guests on Barefoot Innovation -- Chris Larsen, Brett King, Anne Boden, Kathryn Petralia, Jon Stein, Laura Spiekerman, and Colin Walsh -- and other great innovators. If you get a chance today, please vote! 

When I started my senior fellowship at Harvard in 2015, I moved into the Boston “Innovation District,” an old neighborhood where rough brick streets slope down to Boston Harbor. A few blocks from my apartment was one of Boston’s most exciting young fintechs, Circle. Today’s guest, Circle CEO Jeremy Allaire, was a guest on my podcast show back then. Today, he’s back. And what a world of change has transpired in these five years.

The original idea behind Circle was Jeremy’s interest in using open standards and permissionless protocols, like the internet, to make the world work better. That logic drew him to crypto and to the idea of taking traditional currencies and representing them as digital currencies that would work like the dollar but be imbued with the superpowers of the internet -- with money becoming a native data type on the internet, governed through standard protocols.

The firm initially focused on consumer payments using Bitcoin, but eventually rebuilt their model based on Ethereum and built a new protocol called USD Coin. Today, USDC is the leading and fastest growing regulated stable coin in the world.

In our conversation, Jeremy explains what’s behind the meteoric rise of digital dollar stable coins. He describes their expansion in 2019 as the crypto ecosystem gravitated to quality, compliant and trusted digital dollar stablecoins, and as hundreds of companies began to adopt USDC and add it to their products. And he talks about the dramatic growth surge in 2020, driven in part by the pandemic, as the infrastructure matures, use cases increase, and major institutional investors increasingly treat stable coins as a legitimate asset class.

Our talk covers fascinating terrain:  the opportunities for programmable money; how smart contracts can be used to represent increasingly complex kinds of financial arrangements without intermediaries; how this has created internet-based credit markets that exist entirely in code and are governed by software on the internet that is completely transparent; and how an internet of money differs from the internet of information in requiring more robust governance. Jeremy describes setting up the CENTRE consortium with Coinbase to provide that governance system. 

Jeremy also shares his views on the challenges that all this creates for financial regulators, and what it will take to meet them.

Finally, Jeremy argues that change is exploding due to the open nature of these innovations -- creating, as he puts it, the “combinatorial explosion” that is enabling new, better financial solutions we could not have imagined, even a few short years ago.

For me, this was one of the most thought-provoking discussions I’ve had in a long time. 

Links

• Transcript

• https://www.linkedin.com/in/jeremyallaire/

• https://twitter.com/jerallaire

• https://twitter.com/circlepay

• https://www.circle.com/en/

• Barefoot Innovation Podcast with Jeremy Allaire, 2016

• Barefoot Innovation Podcast with Brian Brooks, 2019

• Singapore Fintech Festival

• Block Stars Podcast

• Barefoot Innovation Podcast with Shamir Karkal & Angela Wilson

More on Jeremy

Jeremy Allaire is Co-Founder, Chairman and CEO of Circle, a global financial technology firm that enables businesses of all sizes to harness the power of stablecoins and public blockchains for payments and commerce worldwide. Founded in 2013, Circle is the pioneer of the fastest growing fiat-currency backed stablecoin, USD Coin. Previously, Mr. Allaire co-founded and led multiple global internet technology companies with thousands of employees, hundreds of millions of consumers served, and multiple successful public offerings on NASDAQ. He has provided expert testimony on digital assets and monetary policy before the US Senate Committee on Homeland Security & Government Affairs and US Senate Banking Committee. A member of the International Monetary Fund (IMF) High-Level Advisory Group on FinTech. Mr. Allaire provides perspective and policy recommendations at the highest levels inside financial bodies across the US, UK, and Europe.

More for our Listeners

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

AIR’s TechSprint on Cryptocurrency and Protecting Children from online child sexual abuse material (CSAM) culminated on October 23. Crypto is a fast-growing way to purchase this kind of content, and we had three teams work on ways to find these crimes. Our Demo Day speakers included Michael Dondarski from FinCEN, Senator Rob Portman, Congressman Anthony Gonzalez, Ripple Executive Chairman Chris Larsen, Jesse Spiro of Chainalysis, New York DFS Superintendent Linda Lacewell, and Ashton Kutcher and Julie Cordua of Thorn, as well as Sandra Ro of the Global Blockchain Business Council. The sprint teams demonstrated the solutions that they had worked on throughout the week. They have been invited to present their concepts to the senior leadership of FinCEN.

The event unexpectedly found some actual leads meriting further investigation as possible CSAM, which were referred to law enforcement. The whole effort demonstrated the power of reducing information silos and bringing together subject experts and software developers.

Upcoming podcasts are a great lineup. The next show will feature Renaud Laplanche, Co-founder and CEO of Upgrade. We also have Scott Cook, Founder of Intuit; Ann Cairns, Executive Vice Chair of Mastercard; and Ross Burhdorf and Lamine Zarrad of ZenBusiness. We’ll also welcome back former CFTC Chairman Chris Giancarlo, along with Daniel Gorfine, to talk about the Digital Dollar Project.

There are many speaking engagements still ahead to round out 2020! You can join me at A-Team Regtech Summit, Central Bank of the Future, DC Fintech Week, Fintech Americas, and ABA Financial Crimes Enforcement Conference, as well as the Singapore Fintech Festival and Fintech Abu Dhabi.

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Regulating in the Age of COVID: New York DFS Superintendent Linda Lacewell

Today’s show is a special one because it includes breaking news. My guest is Linda Lacewell, the New York State Superintendent of the Department of Financial Services, and she will not only share her program for innovating in the midst of a pandemic, but will also announce an exciting initiative: that DFS is working with us at AIR to host New York’s first-ever regulatory tech sprint, in partnership with the Conference of State Bank Supervisors (CSBS). The sprint will take on one of the most daunting challenges facing regulators today, namely, how to get more information, faster, about the companies they oversee, without escalating the burdens of regulatory reporting on the industry, in the midst of a crisis.

The need for more, better, faster regulatory information has been increasingly clear for years, but this year’s pandemic has made it truly urgent. In an environment where massive shifts can occur in just days -- for companies, consumers and whole sectors -- regulators find themselves unable to count on old, analog, periodic reports to stay on top of their work. This challenge is especially acute for state regulators, since they oversee both banks and nonbanks like mortgage and small business lenders, money transmitters, and cryptocurrency firms, which typically submit reports to their regulators at long intervals, often annually. Even for bank regulation, agencies receive the primary update reports just quarterly. 

At the same time, however, a pandemic and economic contraction is not the time to load new regulatory requirements onto COVID-stressed companies, and especially on small ones.

There is a promising solution to this dilemma. Regulators increasingly are finding ways to gather additional information digitally, in real-time, and through low-cost digital channels. 

How can this best be done? The perfect way to explore that question is to hold a TechSprint -- a regulatory hackathon. And so we at AIR will be working with DFS and CSBS to do so early next year. It will be the first-ever TechSprint for DFS and will focus on a sector that is already equipped with digitally-native technology and information systems -- cryptocurrency companies, of which the DFS is the country’s premier regulator.

Digital Regulatory Reporting, or DRR, was already on an exciting innovation path prior to the pandemic, with at least three other major projects underway globally. The UK Financial Conduct Authority has a major initiative coming to fruition. The G20 ran a tech sprint this year that included a DRR use case (for which I served as a judge). And the FDIC is running a rapid prototyping project focused on modernizing the Call Report. The New York sprint will tackle the reporting issue from a new angle that can be a model of innovation for all. Here is more information on the project’s plans and progress.

My conversation with Commissioner Lacewell covered a wide spectrum of other topics as well. 

Even before the pandemic hit, she had undertaken an ambitious innovation agenda under the leadership of Matt Homer, who had launched a range of initiatives and then ramped them up quickly as the crisis struck last March. The Commissioner tells a gripping story of her role in helping guide New York through the terrible early days in the first wave of Coronavirus in the United States. She talks about government technology struggling to come out of the “dark ages” to keep up with the crisis. She talks about the inequities the pandemic has revealed and exacerbated in US society, as well as the racial reckoning spurred by the killing of George Floyd, and describes what the DFS is doing to help. She talks about DFS’s role in international financial regulation. 

And she asks us to imagine a world in which regulators have a dashboard view of what’s happening in the system, all the time, to enhance their work in normal times and to navigate safely in times of crisis. As she says, “it’s all about the data.”

Links

• Transcript

• Linda Lacewell’s LinkedIn

• NY DFS

• DFS Next

• WSJ Article on FDIC Call Report Project

More on Linda Lacewell

Linda A. Lacewell is the third Superintendent of the New York State Department of Financial Services. DFS supervises the activities of nearly 1,500 banking and other financial institutions with assets of more than $2.6 trillion and more than 1,800 insurance companies with assets of more than $4.7 trillion.

A member of Governor Andrew M. Cuomo’s cabinet, Superintendent Lacewell has dedicated her career to serving the public. Since taking office in 2019, she has supported innovation and strengthened cybersecurity in the financial services industry by creating Research and Innovation and Cybersecurity divisions at the department;

• She has strengthened DFS’s reputation as a national leader in consumer protection, appointing the Department’s first Consumer Advocate and Consumer Protection Task Force;

• Championed financial inclusion and diversity – bringing bank branches into underserved areas across New York State, creating a committee to promote women leadership in financial services; and hiring a diverse and talented leadership team;

• Fostered cooperation and collaboration with the Department’s international counterparts to safeguard the global financial system and committed to fighting climate change.

• Contributed to New York’s progressive achievements by helping codify the Affordable Care Act and Mental Health Parity and Addiction Act into New York State law. 

Previously, Superintendent Lacewell was the architect of OpenNY, a state-of-the-art open data initiative. She also served as special counsel to Attorney General Cuomo, where she oversaw a public pension fund pay-to-play investigation and an out-of-network health insurance investigation, both of which led to nationwide systemic reform. Prior to that she spent nine years as an Assistant U.S. Attorney for the Eastern District of New York, including two years on the Enron Task Force. She received the Henry L. Stimson Medal and the Attorney General's Award for Exceptional Service.

More for our Listeners

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

Future shows:

We have wonderful guests coming up. They include Scott Cook, Founder of Intuit; Renaud Laplanche, Co-founder and CEO of Upgrade; Ann Cairns, Executive Vice Chair of Mastercard; Jeremy Allaire, CEO of Circle; and Ross Burhdorf and Lamine Zarrad of ZenBusiness. We’ll also welcome back former CFTC Chairman Chris Giancarlo, along with former LabCFTC head Daniel Gorfine, to talk about the Digital Dollar Project.

We will also have current CFTC Chairman Heath Tarbert in our Future of Regulation Series, as well as a conversation with former FDIC Chairman William Isaac.

In addition, I am going to be reading AIR’s entire Regtech Manifesto in podcast form, for those who would rather listen than read. Watch for that coming soon!

Be sure to join me virtually at some of my next speaking engagements. These include Summit on Making Finance Work for Women, the A-Team Regtech Summit, Central Bank of the Future conference of the University of Michigan and Gates Foundation, DC Fintech Week, and Fintech Americas, as well as the Singapore Fintech Festival and Fintech Abu Dhabi.

As always, keep innovating!

Support our Poscast

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The views and opinions expressed during the Barefoot Innovation podcast series are solely those of the individuals involved and do not necessarily represent those of Barefoot Innovation Group and its employees. Barefoot Innovation Group does not verify for accuracy the information contained in the podcast series. The primary purpose of this podcast series is to educate and inform.

Small Business Lending in the Age of COVID: Fundation CEO Sam Graziano

We are posting this episode in the midst of great uncertainty about rescue lending to small businesses impacted by the COVID-19 pandemic. Congress and the White House have not yet agreed on a new round of funds for the SBA Paycheck Protection Program, or PPP, despite widespread agreement on the need for it. Meanwhile, the prior two rounds of the PPP are coming under the microscope, with early investigations suggesting both that fraud rates are high, and that fintech lenders accounted for a disproportionate share of the problem. That finding may bode ill for the sector, given that the PPP emergency was the first time that non-depository lenders were allowed into SBA loan guarantee programs, and also that they performed extremely well in reaching very small businesses -- the kinds of ventures that can be a critical pathway into entrepreneurship for women and people of color.

All this makes it an opportune time to be talking with today’s guest:  Sam Graziano, the CEO of Fundation. He and I recorded this conversation several months ago, but his insights seem more timely today than ever.

In this episode, Sam tells us about Fundation’s journey, starting with his own very usual mix of skills and then the company’s launch as a direct line-of-credit lender to small businesses. He describes their epiphany, a few years back, in realizing that the technology platform they built was exactly what banks need in order to automate their own small business lending. Fundation had developed automated risk models that enable banks to say yes to business customers that, under traditional standards, would be rejected. Today, the company has a 50/50 split between direct lending and bank partnerships.

When the pandemic hit, suddenly threatening America’s small businesses with mass extinction, Fundation was positioned for action. Congress passed the emergency PPP to come to the rescue, confronting both the SBA and the banking industry with an unprecedented challenge -- the need, literally overnight, to figure how to convert old, slow 20th century technology to meet this 21st century crisis. This meant quickly shifting processes into online and digital channels that could move fast, while still maintaining risk and quality controls.

In our conversation, Sam tells the PPP story from his vantage point in helping banks achieve this metamorphosis. He describes “the gauntlet” of the PPP rollout; the unavoidable uncertainties everyone faced as guidance unfolded; the widespread use of manual processes at the start; the challenges of KYC and fraud; the pattern of banks serving existing customers first; and, as he says, the “toxic” impacts of the first-come, first served sequencing in the first round. 

We at AIR had the opportunity to work with Fundation on the PPP TechSprints we held last spring, working on these challenges.

Sam talks about lessons learned, and especially whether this crisis is a catalyst -- an accelerant -- for trends that were already underway toward transforming small business lending. He also has a vision for how bank small business services should evolve, leveraging open architecture and tech-driven unbundling of services to create really new possibilities that could change the small business lending landscape.

Sam assesses the risks ahead, including the huge dangers of synthetic identity fraud. Overall, though, you’ll be interested to hear the reasons he is optimistic for the future, and where he sees new seeds of change taking root, in places the pandemic has broken.

Meanwhile, I want to alert you to some very exciting news coming up later this week, which I will break on my upcoming podcast with Linda Lacewell, Superintendent of the New York State Department of Financial Services. Please watch for that!

Links

• Transcript

• Fundation

• Fundation on LinkedIn

• Sam on LinkedIn

• AIR’s Solution Sprint that Fundation participated in

• Sam’s BankThink Article

More on Sam

Sam Graziano cofounded Fundation and has served as its Chief Executive Officer since 2011. He is also an advisory board member for the Coalition for Responsible Business Finance, which provides education and information to government, industry and others on how technology can help broaden access to capital to small businesses.

Prior to founding Fundation, Mr. Graziano spent more than a decade in investment banking and private equity, where he developed an expertise in strategic, financial and operational issues for banks, specialty finance companies, asset managers, broker/dealers and other institutions throughout the financial services sector. Previously, he served as Principal with Centerview Partners, where he provided strategic and financial advisory services to some of the nation’s largest and most recognizable financial services companies. Mr. Graziano’s experience includes serving as a Vice President with Keefe, Bruyette & Woods, the nation’s largest boutique investment bank focused on the financial services sector, where he executed dozens of mergers and corporate finance transactions. He cofounded the firm’s private equity practice.

More for our Listeners

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

Future shows:

We have other wonderful guests coming up as well. They include Scott Cook, Founder of Intuit; Renaud Laplanche, Co-founder and CEO of Upgrade; Ann Cairns, Executive Vice Chair of Mastercard; and Jeremy Allaire, CEO of Circle.

We also have CFTC Chairman Heath Tarbert coming up on our Future of Regulation Series, and also a conversation with former FDIC Chairman William Isaac.

I am also going to be reading the whole Regtech Manifesto in podcast form, for those who would rather listen than read. Watch for that coming soon!

Upcoming AIR Webinar on Fair Finance:

AIR will be hosting a webinar on Tuesday, October 27th; Regulating for Fair Finance: There is a will and there is a way. We will facilitate a lively conversation among globally-leading thinkers from across the financial regulatory ecosystem -- a banker, a tech expert, a regulator, and a leader of the global regulatory innovation community. Each will propose the most practical steps to take, now, to rapidly advance regtech progress. Each will also suggest the game-changing strategies to launch, now, to make the next decade produce an interoperable, data-centered, AI-enabled regulatory system. From digital regulatory reporting to machine-readable regulation, what should we do and where should we start, to realize the goal of genuinely fair finance?

Be sure to join me virtually at some of my next speaking engagements. These include Summit on Making Finance Work for Women, the A-Team Regtech Summit, Central Bank of the Future, DC Fintech Week, and Fintech Americas, as well as the Singapore Fintech Festival and Fintech Abu Dhabi.

As always, keep innovating!

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