OCC misstep, generative AI: Top tech news for November 2023

November 30, 2023 1:57 PM

Among American Banker's top tech stories in November: The Office of the Comptroller of the Currency's appointee to the Office of Financial Technology comes into question, Mint's closure presents opportunities for banks, bank and fintech leaders look toward generative artificial intelligence for innovation and more.

Andrew Harrer/Bloomberg

Did the OCC hire a con artist to oversee fintech?

Article by Penny Crosman

The Office of the Comptroller of the Currency announced in March that it had set up a new division to oversee fintechs and banking as a service, which it called the Office of Financial Technology. To run the unit, it hired Prashant Bhardjwaj, whom the OCC said had "nearly 30 years of experience serving in a variety of roles across the financial sector," to the position of deputy comptroller and chief financial technology officer, effective the following month.

But an investigation conducted by The Information reporter Michael Roddan has found that Bhardwaj's resume contained many easily discoverable lies.

Through a Freedom of Information Act request to the OCC, Roddan found that Bhardwaj had listed C-level technology roles at several large banks on his CV. He also found that Bhardwaj hadn't worked at any of them.

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The 16-year-old site struggled to monetize, but experts said personal financial management products should focus on engagement.

Tada Images/Adobe Stock

Mint's shutdown is an opportunity for banks

Article by Catherine Leffert

Mint, a pioneer in personal financial management technology, will shut down after changing the sector over the last 16 years, leaving an opportunity for banks to capture customers with their own budgeting products.

Intuit announced this month that it would fold the personal financial management, or PFM, platform it bought in 2009, which had struggled to prove a profit, despite reeling in 3 million-plus users. The PFM space has evolved dramatically since Mint launched 16 years ago, as the bar for those products has risen and fintechs filled the market, said Dylan Lerner, a digital banking analyst at Javelin Strategy & Research.

Intuit is encouraging Mint users to migrate to Credit Karma, which the company acquired three years ago, before Mint is no longer available on Jan. 1. Credit Karma offers a suite of products to monitor finances, like credit scores, spending habits and transactions. In September, Intuit also began rolling out a generative AI-based financial assistant called Intuit Assist to help Credit Karma members with financial decisions about credit card optimization and cash flow management.

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At the American Fintech Council's 2024 policy summit, banking as a service was the talk of the town as experts shared how to avoid missteps in the business

Al Drago/Bloomberg

'You're responsible. Period.' Banks take fire for fintech partnerships

Article by Catherine Leffert

Banks should prepare for increasing regulatory scrutiny of fintech relationships by proactively taking responsibility for their partners' practices, said Arlen Gelbard, general counsel at Cross River Bank.

Gelbard should know. Cross River entered a consent order with the Federal Deposit Insurance Corporation this spring over allegations that the Teaneck, New Jersey-based bank engaged in unsafe or unsound banking related to fair lending laws and regulations.

The consent order can be seen as a blueprint of the FDIC's expectations for financial institutions and their fintech partners, Gelbard said on a panel at the American Fintech Council's Policy Summit on Nov. 14. Cross River, which has more than $8 billion in assets, is a powerhouse in the banking-as-a-service (BaaS) sector, offering lending, cards and payments services through partners like Upstart, Affirm and Upgrade.

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Big Tech companies' latest forays into financial services

Cardshow by Miriam Cross

How much should traditional financial institutions fear the creep of Big Tech firms into banking, payments and prospective super apps?

Mega technology companies such as Amazon, Apple, Meta and Alphabet, the parent company of Google, occupy the tricky space of being both a vendor and perceived threat to traditional financial institutions. X, formerly known as Twitter, is making its own noises about entering financial services.

On one hand, these companies' credit cards, buy now/pay later products and deposit accounts depend on traditional financial institutions or fintechs to get off the ground. Banks are also increasingly migrating to cloud services offered by Amazon and Google. On the other hand, they periodically play with the idea of rolling out financial products to their massive customer bases that would compete with bank partners.

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David Girouard, co-founder and chief executive officer of Upstart, said on the company's third-quarter earnings call that there are "plenty of reasons to remain optimistic" about the company, but Wall Street analysts were underwhelmed.

Chris Goodney/Bloomberg

Upstart earnings: 'Everything's going wrong,' analyst says

Article by Catherine Leffert

Upstart is rolling out new products to try and bring in revenue as its core business of consumer loan originations missed expectations in the third quarter. Wall Street isn't showing faith in the company's ability to get back on track in the near future.

The San Mateo, California-based online lender saw limited fee revenue growth in the third quarter, due to high interest rates and consumer risk, leading to lower income than previously expected, said CEO Dave Girouard. The company is attempting to make up for the shortfall by doubling down on credit union partnerships, introducing home equity lines of credit, searching for funding partners and continuing to invest in its artificial intelligence models, but some analysts said Upstart's focus should be on the fundamentals.

"From a financial perspective, we'd of course prefer to be growing quickly, but this is a time when it's wise to be operating in a conservative mode," Girouard said on the Nov.7 earnings call in the evening.

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Speakers on stage during a panel regarding artificial intelligence usage across the financial services industry held on Nov. 16 at The Clearing House's annual conference in New York.

From left: Hari Gopalkrishnan, head of consumer, business and wealth management technology for Bank of America; Jody Bhagat, president of the Americas for Personetics; Neha Narkhede, co-founder and CEO of Oscilar; Rizwan Khalfan, executive vice president and chief digital and payments officer at TD Bank; and Peter Hazou, director of business development for the financial services industry team at Microsoft.

Frank Gargano

Bank, fintech leaders weigh in on the pros and cons of generative AI

Article by Frank Gargano

The introduction of tools powered by generative artificial intelligence has created a bit of fervor in the financial services space, as institutions engaged with more established AI products begin exploring the capabilities and vulnerabilities associated with the new technology.

Banks have deployed individual use cases to help strengthen internal operations across areas such as fraud detection, code development, customer support and many others, but remain hesitant to fully commit to adoption at a larger scale without further guidance from regulators.

On Nov. 16, speakers on a panel discussion at The Clearing House's annual conference in New York offered insights into the roles that both traditional and generative AI play in the evolution of the banking and payments industries while discussing the challenges facing organizations struggling to determine where it can be used best.

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First Fed Bank, based in Port Angeles, Washington, said in a public filing that it had invested "significant resources" to enhance compliance controls related to fintech partnerships.

FDIC order against First Fed Bank latest example of third-party scrutiny

Article by Catherine Leffert

First Fed Bank must implement a sweeping set of actions to enhance its compliance management related to banking as a service practices, following a consent order from the Federal Deposit Insurance Corporation.

The FDIC hit the Port Angeles, Washington-based bank, a subsidiary of First Northwest Bancorp, with the order this month, alleging unsafe or unsound banking practices, primarily regarding a specific fintech relationship, the bank announced on Nov. 24 in a public filing. The action against First Fed marks the latest example of increasing scrutiny from federal regulators of banking as a service [BaaS].

"First Fed's leadership is committed to strengthening compliance controls and has invested significant resources into resolving the matter, including implementing substantial internal control improvements to prevent any similar future occurrences," the bank wrote in a prepared statement. "First Fed remains in full cooperation with the FDIC surrounding this matter. Our team is dedicated to serving the financial needs of our customers with integrity and excellence."

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New York State Department Of Financial Services Superintendent Adrienne Harris Interview

The new rules also expand the use of "proven protections," such as multifactor authentication, according to Adrienne Harris, superintendent of the New York State Department of Financial Services.

Christopher Goodney/Bloomberg

New York now requires banks to report ransom payments

Article by Carter Pape

Banks and other financial companies regulated by New York's top financial regulator have six months to implement new governance, reporting and training requirements designed to improve their cybersecurity postures.

Among the New York State Department of Financial Services' new requirements, regulated entities including banks will soon have 24 hours to report extortion payments made in connection with a ransomware event and 30 days to provide an explanation of why the bank made the payment.

Under the new regulations, banks must also implement multifactor authentication for anyone with access to any of the bank's information systems, with limited exceptions. This means both bank employees and bank customers will need to use multifactor authentication to log in.

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Criminals are using generative AI to speed up and sharpen the tools used for account takeover and other payment card attacks.

Davivd/Adobe Stock

How generative AI is assisting payment scams

Article by Kate Fitzgerald

The rise of generative artificial intelligence is driving a sharp uptick in basic payment-card fraud tactics including bot attacks, card testing, credential stuffing and ordinary account phishing, according to a new Arkose Labs report.

The number of bots attempting to take over consumer financial accounts increased 202% from Jan. 1 to June 30, while bots' attempts to establish fake bank accounts using tools enhanced by AI rose 164% over the same period, said Kevin Gosschalk, founder and CEO of the San Francisco-based online security firm Arkose Labs.

Arkose didn't disclose exact figures for proprietary reasons, but it says it analyzed "tens of billions" of sessions of traffic on its network during the first six months of the year.

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Sam Bankman-Fried's defense depicted him as an innovative, inexperienced executive who made some bad business decisions. But he deserved to be convicted "because he misled a lot of ordinary people into placing some of their life savings into FTX under the false promise that their money would always be available for them to withdraw," a former prosecutor says.

Yuki Iwamura/Bloomberg

Is Sam Bankman-Fried a villain or was he in over his head?

BankThink by Penny Crosman

Sam Bankman-Fried, founder and CEO of the collapsed cryptocurrency exchange FTX, earlier this month was convicted of all seven counts of fraud, money laundering and conspiracy to commit these crimes. Was he a criminal from the start, or did he get in over his head?

The prosecution painted a picture of a criminal who set out to defraud people.

"He told a story, and he lied to you," prosecutor Nicolas Roos told jurors during closing arguments. "To believe the defendant's story you'd have to ignore all the evidence."

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