WASHINGTON — Since its creation a little over a year ago, Financial Innovation Now, a lobbying group that brings together five of the largest technology companies, has been slowly weighing in on issues that affect the banking industry.
But the group remains something of a mystery to many traditional financial institution players, who view the tech behemoths with a skeptical eye. Following is a Q&A with Brian Peters, FIN's executive director, who spells out the group's views on the screen-scraping debate, the Office of the Comptroller of the Currency’s fintech charter and the rivalry between banks and technology firms.
Why did your members — Google, Apple, Amazon, PayPal and Intuit — get together to weigh in on financial regulation? What are your top priorities?
BRIAN PETERS: They got together because it’s clear that there is a technological transformation happening in the marketplace. And technology moves fast and change can be difficult. So the primary reason they got together was to be a source of education and to help drive some consensus among technology leaders that would be helpful to policymakers. It is not out of fear or because we’re trying to remake the policy landscape from whole cloth. But we know that there is going to be a deep discussion about this and we want to be involved and helpful.
Your question leads to what our priorities are, and as we’ve seen more recently with our communications to the incoming president Donald Trump, the main focus for us right now is more institutional leadership. We want technology evangelists in power at each of the federal financial regulators. In particular, we'd like to see a lead undersecretary or financial technology primary point of contact and leader within the whole administration to bring some consistency to all various fintech efforts at each of the agencies.
Why is that multiagency approach important?
We obviously have numerous financial regulators in the United States, and they each touch different parts of regulation. But they all do so in slightly different ways. And I think we’re encouraged that they’re all engaged in the fintech discussion. We would like for a central person to bring some consistency to that conversation.
First and foremost, we want somebody to be a leader, to be the source of energy to place emphasis on the benefits and the potential of what technology can do in financial services. And help corral the herd a little bit to a safe, consistent outcome.
You know, this is a competitive issue for the United States. Other countries like the United Kingdom are quite a bit ahead of us. They have, overall, a simpler financial services marketplace and regulatory structure. So they have some built-in advantages that we don't. So it's all the more important to have someone in the Trump administration who's thinking about this every day and is dealing with that. You know, the U.K. effort was a wake-up call, and, thankfully, our own regulators are stepping up and we'd just like to take that a step further.
We're also very interested in any conversation around federal streamlining. To treat these new technology-enabled services at the federal level. They are largely delivered via the internet — and geography is much less relevant. We can ensure adequate consumer protection and safety and soundness more effectively at the federal level, and most importantly we can ensure broader access or equal access to these services if you approach it from the federal level.
And I think, given today's political conversation, that is especially important, because in Washington everyone's working under a new political dynamic, which is, How do we make sure that no one is left behind? And, financial technology can really solve some of the age-old challenges in financial services. And that's, I think, the real opportunity here.
What is your position on the OCC’s decision to grant special-purpose federal bank charters to fintech companies?
We are very encouraged by the OCC’s leadership and their work to essentially recognize that their approach to financial regulation needs to evolve and their recognition that financial technology can empower consumers and promote financial inclusion. So we’re supportive of all that. We’re also very happy that they’re driving a conversation around how to appropriately promote financial technology.
We have a longstanding principle that lending and payment regulation needs more streamlining across the patchwork of state regulations. And so the conversation that the OCC is driving is very helpful to that.
That being said, any one FIN company may not apply for a charter. That is still unknown. But we nonetheless are encouraged by the conversation the OCC is driving.
Is there a fear that federal rules could create a tougher regulatory landscape for fintechs?
There are significant regulatory obligations already. And so given that, we’d like to figure out how to modernize the overall system so that we're working at it from one federal approach. That will help promote access; it will help promote the goals of policymakers, which is essentially consumer protections and safety and soundness. So essentially we're meeting their goals as well as those of consumers in overall simplifying it.
Could streamlining at the federal level weaken state consumer protection laws?
I don't see that. I think we have very strong consumer protection regulators at the federal level. The age-old debate in consumer protection is whether you're racing to the top or racing to the bottom. And I would rephrase that as a race to the modern and a race to the 21st century.
That’s what we’d rather debate, and I think we are comfortable with the level of oversight and protection at the federal level. And frankly I think that there are many consumers in parts of the country who could use that higher level of protection that already exists.
How would you respond to concerns that allowing fintech companies to obtain a federal charter could erode the separation of banking and commerce?
We agree that there should be separation between banking and commerce. We also believe that the modern reality means that there will be a lot of partnerships between banking and commerce. And consumers have to be empowered to use technology to increase their choices and their options. And so this is a good discussion to have to make sure that we do focus on the rights and appropriate risks by enabling as much access as we possibly can.
What are some of the other regulatory obstacles you’re looking at?
We are very much interested in promoting the efforts of the Fed to realize faster payments. That is something that they are shepherding well. In our view faster payments is really all about financial inclusion: helping people to better have access to their money to be able to move it when they know and to be able to count on it. So, for us faster payments is really important to also making our services, our digital wallets function more smoothly and integrate more effectively with traditional deposit accounts.
Also, we are very interested in ensuring consumer access to their financial information. These are some of our priorities.
We talked about the state-by-state patchwork and the inconsistencies of overlapping federal bodies. To add on to that, then, the whole question is how you modernize the approaches to federal financial regulation. The duplication and inconsistency is a time barrier. Time is a technology killer. Product cycles and startups move very fast, and investors need to see results early. It can be hard to keep up with what consumers want, what they’re doing in other countries. You're going to have to have a lot of stomach as a venture capitalist to fund a startup that says they have a great idea but it's going to be two years before they get 50 licenses, before they can even go to market. Whereas in contrast they can go to the European Union, get one license and have access to 650 million consumers.
And it's also hard on consumers. What good is a digital wallet that works in California or New York but not in Iowa or Michigan or Pennsylvania?
I think this applies to innovators, to new entrants, but it also applies to financial institutions. There are plenty of partnerships and both need a faster on-ramp to the whole market. I think that's why FIN is encouraged by the discussion developing around sandboxes. The [Consumer Financial Protection Bureau] has their no-action letter policy, which we're encouraged by. Others in the financial sector are talking about a greenhouse. You saw the [American Bankers Association] policy priorities.
So I think those are all important. You’ve got a more federalized approach and you’ve got a system that deals with the time constraints that innovators face in the technology realm.
What kind of role do you see banks playing in the future with old functions of banks being taken over by new technology firms?
I think that competitive dynamic is a fear that is overblown. We see this technological transformation going on, and a series of interlocking partnerships. We are not building banks. We build technologies and software that allows consumers to do all kinds of things in life — everything from sharing moments with their family, to staying healthy, and, yes, managing their finances. So, we really are in the technology-tools business. I see a lot more cooperation and opportunities for that partnership. This is the “We all get along" mantra.
But I think within that there will still be some interesting competition. And ultimately the companies I represent are very, very consumer-driven. They work constantly to meet the needs of those consumers, wherever it is they are. Meet them in the channels in which they are communicating and going about their lives. The modern reality is that the consumer side of banking is very technology-infused. And because of that it's opening up and so, financial services are going to become really a question of open finance.
I don't think we want to be customers' checkbook, per se; we want to help balance that checkbook, sell them a better calculator. Or give them an artificial-intelligence financial assistance.
And frankly those are things that banks should see as opportunities as well. They can take advantage of our technology to reach millions, hundreds of millions more customers, than they may otherwise have been able to. So, there's a good synergy there and along the way I'm sure there will be a little bit of competition, but overall we see more interlocking partnerships.
One area of competition is the use of financial data. Banks say they are concerned that technology companies do not face the same data protection and privacy requirements as they do. How do you see that moving forward?
We believe the emphasis should be on consumer access and control. The reality is that we are not that interested in the data itself. Whether you like it or not, financial data is available.
Are you saying Google and other technology companies are not interested in data?
I think that asking a consumer to provide login credentials or to enable access via an API is a pretty cumbersome way to obtain data. I'm not an expert in the data marketplace, but I think our interest is much more in ensuring consumer access and control, because the tools that we are creating just won't work if customers can't use those tools to access their finances.
I don't know really how much this is a question. There may be some companies that I don't represent who would rather hold data than take it from financial institutions. But I don't think this is our interest here. We’re interested more in enabling consumers to use the technological tools that they have. Either those created by us, or — if you think about it from the perspective of the app stores — we want those app marketplaces to be successful. So we want the apps to be viable, ultimately useful to the consumer.
I think the debate that is coming on this issue overemphasizes the data to the detriment of what consumers need to manage their lives. I think we should focus more on access and control.
And we get this question all the time from financial institutions … alluding to your point about their regulatory environment versus ours. I think that that's a red-herring argument based on essentially a fallacy that one regulator is better than another at security. Or that regulators in general are better than companies at security. I think we take the view that data is at risk, regardless of what sector of the economy it is in — whether it's at JPMorgan, Home Depot or Yahoo. Nobody should hide behind their regulatory structure to avoid enabling the kinds of access that consumers need to manage their lives. Instead we should work together to find a scalable technology solution to this rather than bootstrapping unproven regulatory structures that may not actually be working.
Are there other areas in which you differ with the banking industry?
Yes. I think we have some marketplace problems in the area of card payments.
Unfortunately, we often confront a take-it-or-leave-it approach when it comes to payments standards. These are the network rules that we see mandated by the card networks. We don’t think they're truly standards-based. They ought to be. We would like to have more robust rules of development of those standards because currently they straitjacket our ability to innovate for our customers.
This is actually largely a technical issue, but we think that more government oversight of the payments marketplace might be helpful. So, basically I think we should both sides of us be incentivized to offer the most convenient and the most secure — those we believe are mutually inclusive — secure payment technology possible.
We are working towards a world of completely frictionless payments where there is really no checkout. There is no swipe. And in order to do that most of the brick-and-mortar world as well as the online, mobile world, we need to have a lot more flexibility in how card payments can be implemented. This is actually good for banks. They want their consumers to be able to spend money to use those services that they offer. It's good for merchants because it cuts down on lines and it increases purchases. And ultimately it’s also good for consumers because it's fast, convenient and secure. So we're spending a lot of time thinking through how to create more oversight of the card payments system.
I think it would be better if we all worked together to realize the potential of mobile payments — not just devices but payments in whatever channel a consumer might be. So your Instagram, your Snapchat, your Facebook feed … Whatever channel it is, payments should be enabled there, too. And they should have the least amount of friction and the greatest amount of security and again those are mutually inclusive. These are huge opportunities and we all have to work together to realize them, and I think oversight can be helpful to that.
Policymakers should be wary of replicating another static payments system that fails to evolve and fails to protect security. That's what we worry about, and so we want them to be the most dynamic possible.