Ask the Experts: What Does the Future of Digital Finance Look Like 5 Years Out?

As innovation accelerates, economic uncertainty grows and the regulatory environment seems fluid, this super-panel discussion with high-profile executives from across the digital finance landscape, including banks and financial institutions, fintechs, venture capitalists, and management consultants, takes the audience through five or so critical themes that will drive the future of digital finance over the next five years and the implications for players industry-wide. Themes to be explored include the dramatic rise of account-to-account (A2A) payments, social commerce and payments, the institutionalization of generative and agentic artificial intelligence, the mainstreaming of stablecoin payments and on-chain finance, the emergence of new models for Banking-as-a-Service and Payments-as-Service, and the impact of cyber risks on identity verification, privacy and compliance are among the top-of-mind trends.


Transcription:


Holly Sraeel (00:11):

One of the favorite things that I get to do as a journalist, and I often feel privileged, is to bring a bunch of really smart people in the industry who are active in various parts of the industry together and get them to talk about what they see, what they hear, and what they predict for the future. So in this session with these fabulous people, let me introduce them: on the far end, Anthony Sharett, President of Pathward; to his right, Karan Jain, CEO of NayaOne; to his right, Paul Neuner, Founder and CEO of Telcoin; to my immediate left, Stephanie Cherrin, Partner, JP Morgan Technology Ventures. So we're going to have some fun, and we hope that you guys will engage with us at the end. Let me set the tone a bit. The pace of innovation is accelerating at an unprecedented rate. Economic uncertainty lingers.

(01:07):

The regulatory environment is fluid. Open banking remains just that, regardless of what the CFPB does or doesn't do. Artificial intelligence will increase operational efficiency and reprioritize roles for workers. It could also eliminate entry-level white-collar jobs and drive unemployment to 20% in the next five years, if you believe the philanthropic CEOs' predictions. Stablecoins are about to be mainstreamed, or so everyone expects. Cyber risks and fraud are increasing in threat level and sophistication. And banks and fintechs will need each other more than ever, as customers dictate what they want from those relationships. So let's get started. Anthony, why don't we kick off with you, because you play in a lot of spaces in this industry. Let's talk a little bit about the regulatory environment. Tell me what you see, what you hear, what you think.

Anthony Sharett (02:01):

Well, certainly it's been fluid and a little bit uncertain. When you're a sponsor bank like Pathward that powers fintechs and uses co-creation to help them grow and scale, we want to make sure that there's a level playing field. And so for us, there's been sort of this patchwork regulatory scheme. In some cases, there's been regulation through enforcement. We'd love to see some streamlining of the regulatory guidance that's out there so that there's a level playing field for the innovation that's happening right now. So we've got a team in Washington right now that's spending a lot of time on Capitol Hill to make sure that our voice is heard.

Holly Sraeel (02:42):

And how do you see it, Stephanie, from where you sit?

Stephanie Cherrin (02:44):

So because I sit on the investment side, we look at regulation as it would pertain to the next generation of startups. And what does that mean? We had a whole crypto wave in 2021. We're now in the AI wave. So I look more at the regulation around AI and what that looks like. I think it's really difficult for us to invest in companies in Europe given the AI regulation. I think it's probably a little misguided or a little preemptively scared in Europe, which makes it really difficult for the startup ecosystem to really flourish. In the US, thankfully, right now I think that we have a pretty friendly environment for that. And so we look at the early-stage ecosystem and what kinds of companies are going to have the best shot at being the next-gen Chime or whoever else Pathward. So that's kind of the angle that we look at.

Holly Sraeel (03:38):

Let's stay with you for a minute. When we had our call last week, you talked about the paradigm shift that you see: more fintechs will be partnering with banks, and banks have an unfair distribution channel advantage. You want to go into that a little bit?

Stephanie Cherrin (03:52):

So I think that we've kind of hit this place where we, as a large institution, have gone from FinTech to Tech Fin, if that makes sense. I mean, as JP Morgan, we have one of the largest software spending budgets in the world. It's upwards of $16$ to $17$ billion a year. So for all the startups, if there are any startups in the room, that should be really good news for you. But I mean, we spend a lot of time, at least where I spend my time, is kind of reflective of I think where banks are spending their money, which would be cybersecurity—a huge area. If we don't have cybersecurity, we don't have a business. If your data and your money is not secure, what are we doing? So I spend an inordinate amount of time on this. The threat vectors that have emerged because of AI are really scary slash fascinating, and they're iterating.

(04:46):

The hackers have to be right once; we have to be right every time. And so finding those new vectors, whether it's identity, whether it's model poisoning within LLMs, whether it's safe usage of AI within our own organizations, there's so much more that we need to focus on. So as an investor, that gives a lot more opportunity. But at the same time, the fraud and AML risk, again driven by the fact that anyone can be anyone—DeepFakes, people can be Jamie and make a phone call—and we have to have technology to fight that so that we don't fall for the schemes. And then I think also, as fintechs, it's no secret, FinTech valuations are super depressed, which makes it really difficult in the private markets for FinTech companies to command those mega valuations that they were commanding before. And given that there's so much saturation, there can only be so many Chimes, there can only be so many Claires.

(05:44):

So finding new places for innovation is a little difficult. And I think that there's this new need for partnership with large institutions like us for distribution, for growth, for integration, because at the end of the day, I think Anthony would probably agree, there's a need for the core banking capabilities to still exist. And we've seen through BaaS (Banking as a Service) that was not necessarily the greatest experience. And so there is value in being an older institution that really knows the ins and outs, and I think that that's a big opportunity for startups. We've got a lot of really great examples of what that looks like.

Holly Sraeel (06:25):

Well, let me ask Anthony, do you concur with that assessment?

Anthony Sharett (06:30):

I do. I think we all saw with the demise of Synapse that banks have to own the risk and compliance capability. Pathward never was in the position, nor did we ever take the position, that that was something that we could outsource. In fact, for banks that do this the right way, sponsor banking, promoting innovation and fintechs, it is part of what differentiates sponsor banks that do it well from others. So for us, it's something that we've always owned. So I certainly agree with that. I'm glad that you brought up Claire. They've done a great job of being able to grow and scale. So for the fintechs that understand how to partner with banks, allowing banks to do what we do well so that they can go to market, grow and scale, use technology to their advantage, find a gap in the market, that's really the secret sauce to these partnerships. And they're a great example with Nico and team. We actually power Claire. They've really been able to bring their product to life.

Holly Sraeel (07:32):

So I'm going to hit Karan with this next one. You felt and feel that Tier One banks are positioned to disrupt fintechs, and the mid-tiers and community banks are not in a similar position. You want to talk about why you think the big banks are?

Karan Jain (07:47):

Well, yeah, I don't think it's a secret, right? So Stephanie said they've got one of the biggest budgets, not just for software, but for their overall technology infrastructure services and everything. I don't think everyone's able to have that. But also, I think there's a lot of muscle over the years that has been built on how to execute and use that budget. So it's the talent piece. At NayaOne, we're in a great position where we see all ranges of sizes of banks and what they're working with from a tech side; we sit in the middle as the execution layer. And what we see is there's JP Morgan, there are the Tier One banks, and then there is everyone else at various levels of transformation that's going on. I think the smaller banks do need to think about their strategy, and I would actually start with their customer strategy or their business strategy. Times are very different, especially I think AI has just accelerated that you can't be everything for everyone like we used to. We've gone from being relationship banking to digital banking to being embedded banking.

(09:08):

And I also see relationship banking coming back. I think it's becoming more important with all the financial services being available through your Starbucks app—not all of them, but starting to. So the key point being, aside from their budget and talent, the big thing is what do you need to be good at as part of your business strategy? What's the customer base that you are serving, and actually being really focused and building on that is what I'm seeing some of the successful banks do.

Holly Sraeel (09:44):

You said that banks can't be everything to everybody, but the biggest competitive threat they face is from Big Tech—Apple, Google, Amazon, Meta—who are hellbent on being everything to everybody. They have massive user bases and high levels of consumer trust. Their platforms handle billions of transactions and interactions daily, and it would be easy for them, and they are, layering on financial services. So can we talk a little bit about what you might see coming out of Big Tech in terms of more positioning and presence in financial services?

Karan Jain (10:24):

So that's probably a session on its own. If you look at Big Tech, Big Tech has launched financial services products for the last 10 years in partnership with a range of banks, and I would say 60% to 70% of them have failed and they've stopped serving them. To me, that comes down to two things, and I think I heard this in the last panel: banking is a risk management business; it's a trust business. People trust you with their money and their data. So with Big Tech, I think that risk mindset is probably not there. And I know a lot of financial services people go and work at the Big Tech, but the distribution is good, but I've seen a lot of products fail. However, in the new world, I think I see Big Tech playing the infrastructure layer, meaning being the connector between core banking, so from Anthony's example, to let's say again, we'll use the Starbucks example or any other example. And I see Big Tech actually moving in that space and enabling those rails by how that got distributed, what they're really good at.

Stephanie Cherrin (11:39):

If you think about it, Apple went to Goldman, so they clearly couldn't really be everything for everyone.

Karan Jain (11:47):

Amazon has done SMB launches.

Stephanie Cherrin (11:49):

Amazon uses a lot of third-party fintechs to power their lending, to power for their merchants, also for people.

Holly Sraeel (11:57):

Okay. I knew I wasn't going to get through this panel without trouble. Excuse me, I'm dealing with a cold. So I want to draw Paul in. Did you say this yesterday to me? Did you say, "Military strategy doesn't win wars, logistics?" Did you say that?

Paul Neuner (12:12):

I did happen to say that.

Holly Sraeel (12:14):

Okay. You want to talk a little bit about that as it relates to your world?

Paul Neuner (12:18):

Well, I just think that, well, first of all, I think it's great that we're bashing Big Tech and crypto right now. And being the crypto guy, I suited up, I hope everyone appreciates that. So Telcoin is a digital asset bank recently approved in the state of Nebraska. For us, the stablecoin regulation that's going through Congress right now is critically important to bringing this from crypto and stablecoins into actually the technology of banking and payments and money. And so I think for our goal, where that quote comes from is we're really focused on global stablecoin, so being regulated not just in the United States but in a host of other countries. So we've really figured out that the key is logistics and processes and procedures. Bankers know about this. I don't know if Big Tech's as good as bankers at this, but that's definitely what we've been obsessed with. But in terms of regulation and community bankers, I really think that this is the moment, once we get through this, that people will start recognizing this as digital cash, not crypto or stablecoins, and something that I think is very important for any bank to figure out how to get into and be involved with in the future.

Holly Sraeel (13:37):

Now you also said once there's federal regulation in place, that things in and on-chain finance will take off.

Paul Neuner (13:46):

Well, yeah, I mean, I think there's the certainty that federal regulation brings about. But also, I think the digital dollars can happen one of two ways: either a central bank digital currency (CBDC) where every citizen is a direct customer of the federal government, or maintaining the bank as an intermediary. And I think that that's the Western free world model that will win out. And so I think as soon as banks start to think of it that way, "Hey, is there some new account that we're going to be offering that doesn't flow into our core ledger system but actually is on this open ledger that can be directly transmitted to a merchant?" I think that's coming around, and you should get behind one way or the other. I think in the United States, the vast majority is behind maintaining the bank as an intermediary in that setup. And so that's why I think as long as people start thinking of it that way and not about all of the noise, the fraud that surrounds crypto, I think as soon as you can get past that, you'll be better off.

Holly Sraeel (14:48):

Just one more thing in this vein, the obvious use case for stablecoins is cross-border payments, but in terms of stablecoin emergence overall, how quickly do you think it could happen?

Paul Neuner (15:04):

I mean, I think it'll happen quicker than people realize. Banks for a long time have been trying to figure out how do we cut out all these intermediaries? I mean, Zelle, I think originally, was this going to be able to cut out peer-to-peer payments, cutting out Visa, MasterCard? And nothing against Visa and MasterCard. They've really embraced everything that is going on right now. But I do think that there's a demand for just free flow of digital cash where if your POS system is piped into an accounting system. Where particularly in the United States, I think it's a lot harder for that to happen. Internationally, you see all the QR code, direct payments take off a lot easier. But I do think that the difference here is that once you have banks natively issuing the digital cash, things change. A key component is really a liability terms and conditions issue that people have to be using. When they tap that, if you handed the bartender or if you handed the store shop owner the $200, how hard would it be for you to dispute it and get your $200 back? So I think that's the issue. The only way you cut out the fees is if the consumer realizes that, well, this isn't something I'm going to hold my life savings in, but for casual payments, why is there 2% or 3% spent? But don't use this on something where you might dispute the transaction.

Holly Sraeel (16:26):

Okay. Anthony, I'm going to swing back to you. You said that co-creation will be favorable to fintechs and banks over the next couple of years. You want to get into why you think that?

Anthony Sharett (16:41):

Yeah, I think the sponsor banks that understand how to commercialize their platform. And when I say platform, it's not just technology; that's people, process, technology with the regulatory sort of overlay, with a good risk-adjusted return. For the smart banks that can take that and productize it and take that to FinTech partners to sort of increase the speed to revenue, mitigate risk, but also think about the customer in mind and think about what they need and anticipate those needs. For the banks that can really figure that out, I think the sky is the limit, and that really does enable the co-creation and innovation that we need. I think the title of this is sort of what does the next five years look like? And I think that's it. And that is for the banks that have migrated to be sort of tech-forward, software-based banks, banks that are still banks because they have a charter, but they're really the hub and spoke to money movement and embedded finance. I see that the innovation that can come out of that will be great, whether it's stablecoin, which I do think with a more stable regulatory environment out of Washington because it is fiat backed, because they can reduce the volatility out of that currency, I do see that going to be at the forefront sooner than later. And so I think between stablecoin and sort of this platform commercialization process that I talked about, I think that will lead to a lot of innovation.

Holly Sraeel (18:21):

So Karan, you also told me that you thought embedded finance was going to continue to grow in a huge way. Where do you see this going?

Karan Jain (18:30):

Yeah, and I think I hate agreeing on panels, but I have to agree with Anthony in terms of where the world is heading in terms of financial services and the FinTech, the Tech Fin, and the pure financial services, traditional banking. I think to redefine and reposition yourselves in the future, it's really about who are your core partners and your ability to actually plug and play with partners to test out different opportunities. The reality is partnerships are hard. And when we talk about bank and FinTech or bank-FinTech partnerships, there are actually three different types of partnerships we probably should have started there. Number one is the sponsor bank-FinTech partnership. Number two is, I'm going to take a FinTech product, I'm going to white label, and I'm going to give it to my customers. And number three is the typical bank-vendor partnership: I'm going to use your software as a B2B provider. And I think banks who build out the muscle to actually be able to leverage all three types, or at least two out of three levels of those partnership, have a real chance into the future. I think the way we used to work 20, 30 years ago, "Okay, we'll pick a vendor or we pick a FinTech and we'll do something with it," I think that just does not scale because you've got more tech coming through. And when I say tech, I'm talking about platform shifts like going from internet to Gen AI to quantum, and in the space of 20, 25 years, as compared to most of the cores that are still 20, 25 years inside a bank. That's a stark reality. So how do you move fast? And something Paul was saying around your question about how quickly stablecoin becomes mainstream: I think there's a lot of underswell, right? We see it. You see it. There's both a regulation, banking, and in the ecosystem. But at the same time, it'll just come together. And then everybody who's not looking at it, it will come down to that muscle: how quickly can you partner with the right people to get your product out or serve your existing customers?

Anthony Sharett (20:41):

That's such a great point. When you think about how many banks, particularly banks that are super regional or community banks or even sponsor banks, are thinking about changing out their core or doing a core conversion. A lot of the cores that at least we've taken a look at, I think as soon as we get the core implemented, it would be obsolete. And so making sure that as banks think about five years from now, it's really about these platforms that have the agility to be nimble and configurable so that as we peek around the corner, try to skate with the hockey puck going, we've got a core that allows us to do that. We don't want a core that as soon as we implement it, it could be obsolete because it's sort of "core in a box" as opposed to a third or fourth-gen core that can be nimble and agile.

Stephanie Cherrin (21:33):

I also think when you think about, obviously JP Morgan is an anomaly when you think about the budget and spending power, but I do think about smaller banks and the opportunity—again, it's so cliché, so bear with me—but that AI presents because there is no business today that's not margin constrained. And there are so many incremental gains if you really know what to look for. Customers today, because we're so used to everything being available and actionable like that, customers expect that. It doesn't matter if you're going to a community bank or to your wealth manager or to whoever. Everybody wants that. And so I think if I were a CIO of a smaller regional community bank or credit union, I would be really looking at what are the back office things that we can automate? And I don't really think it's about replacing humans forever. I think that every massive revolution, humans find things to do. So I think that's probably not where I would agree necessarily with that, but I think there's so much efficiency gains. We were talking about this actually last night at dinner, the shocking amount of manual work that still exists even though we have the technology.

(22:44):

So when you think about customer experience, you think about back office, you think about customer service, there's so much to do today. And these integrations are not—there's a bazillion vendors, so it's hard to pick. But if you know what to look for, there is so much opportunity to make that experience better immediately without this massive technology uplift and real deep AI understanding and engineers and things like that. So there is a real opportunity, I think, for these partnerships, whether it's embedded in someone else's native app or embedding in your own platforms.

Holly Sraeel (23:20):

So since you raised the issue of AI again, let's talk about it. Karan, you said previously to me that AI is going to change the way we work in profound ways. So if you had to speculate over the next one to three years, what do you think we'll see first in terms of how AI affects workers?

Karan Jain (23:46):

I might have to ask my GPT for that answer.

Holly Sraeel (23:50):

Very clever.

Karan Jain (23:51):

I mean, it almost is crystal clear. I think the way I think about the impact of AI, the adoption of AI—and if I've spoken to you during this conference, how passionate I am about the AI adoption—because I think it's the biggest change program that we are going to see in our professional capacity. I think it's bigger than the internet. But it's more about how do you safely introduce AI? And I don't want to say in an incremental way, but in an aggregative way. And I think that's really important. And I think what that does is it gives you an opportunity to pause and reflect on the last change you implemented as a human, as a team, as a business unit, as a whole organization, and as an ecosystem as well, how we interact. I think it's really, and we see it today.

(24:43):

We actually heard JP Morgan getting that award on Monday night for rolling out their internal GPT to 200,000 people. That has a serious impact. That's a $2$ billion impact to the bottom line. But that same impact can be for everybody. And I think it's about learning. But also, just to that point, I've heard so many banks who would go and turn on Copilot and then go a year later and switch it off because it just wasn't the applicability. So I think aggregative change in the, again, define your scope—self, team, business unit, organization—gives you that chance to learn and adapt. And I think that's, so I can't tell you where AI is going to be in one to three years. It's a very long way of answering, "I don't know." But I think it's going to redefine, and I think where I'm seeing successful adoption of AI, it's aggregative: it's implement, learn, adopt next rather than what the two-year plan might look like.

Holly Sraeel (25:50):

One of the ironies with the emergence of AI is the impact it's having in creating more vulnerabilities, more cyber risks, more fraud, and the fact that banks are then using AI to try to prevent that. So on a scale of one to 10, 10 being the greatest positioned, where do we see banks in terms of their readiness for this level of fraud, 10 being well positioned to deal with it, particularly synthetic identity fraud?

Karan Jain (26:19):

10 being what? 10 being awesome or 10 being high risk?

Holly Sraeel (26:22):

No, 10 being well positioned to deal with it.

Karan Jain (26:27):

I'd say, like a conservative guy, I'd say probably a three.

Stephanie Cherrin (26:33):

I don't think anybody's well positioned. I mean, we know all the threats. There are so many. If you're really deep in the cyber world, there are so many maps and webs of all the cyber threats that exist, and they all map back to each other. And all these tech companies are sitting on top of these frameworks that are saying, "We know these vulnerabilities exist in all these places." At the end of the day, tomorrow, another one will exist.

(26:56):

No, I don't think anybody's well positioned. I think what you need is a robust cyber program to say, "Okay, these are the areas that we're not going to expose." For us, for example, we don't work with anybody who takes our data out, ever. We just can't. And that's challenging to work with a lot of software companies because that setup and that infrastructure is not convenient for cloud-native companies, but we just don't do it. There are certain things that you have to think—I think you have a red line of where you're willing to expose and how. I mean, the CrowdStrike bonanza kind of exposed how exposed everybody is. And that wasn't even a cyber attack; that was just a rogue update, bad process management.

Karan Jain (27:42):

The other thing I'll add there, I think this is a shift in the way how we all work, which is like, "Okay, there's a threat. Okay, cool. I'm going to go buy a deep fake fraud prevention product that's going to help me fight that." But actually, to your point, there's going to be one next day. I think what you need is more of a setup where you're continually able to improve the defenses. And the defenses are fraud, KYC, fraud, AML fraud, and also cybersecurity. And I think what we're seeing, and I don't think anywhere near, is almost having a utility or a belt where you're constantly able to keep up and improve those defenses. And I think the traditional way of buying a vendor or a product at a time is going to be hard. And I think the other thing I suspect and I hope we do as an industry is shared utilities. And I think shared utilities are really hard to execute, even between four organizations, let alone at an industry level. But I think the only way this actually is efficient for everybody is if there's a shared utility that helps you. And I don't know, governments in most countries have those things, but a shared utility I think would help—what would help someone where everyone minus JP Morgan to actually be able to keep up with the fraud.

Stephanie Cherrin (29:01):

But I also think talking to us: we don't compete with banks on the vendors we work with. It only empowers everybody if the banking system is more secure. So I would encourage everybody to talk to us, to talk to anybody, because we spend so much time in these areas. Our technology teams are set up to really have a complete view of the ecosystem, from the Checkpoints and the Palo Altos all the way down to the stealth companies coming out of 8,200 that nobody's ever heard of. So I mean, personally, I'm so happy to share who we work with, what that does, how that works for us, because that only strengthens what we're doing. I mean, we had this situation where, as a venture team, we were looking at the deep fake stuff and looking at synthetic identities, and then we were like, "Okay, so there's a new wave."

(29:51):

And everyone was identifying what is AI-generated with the idea that that's malicious. But in a world where we kind of came to groups with, "Well, everything's going to be AI-generated, and that's not always going to be malicious." So then you have to go into the intent. So I mean, this happened within the span of six months. Everything's evolving so quickly, and the way that you think about these threats is always going to be different. So I agree with you, three is probably generous to how prepared anyone is to deal with the new threats.

Paul Neuner (30:21):

We're using AI pretty much in every department, including fraud management. I think it's important to remember that AI exposes—it creates a lot more kind of exposure in terms of DeepFakes and whatnot—but also provides tools to actually fight fraud. So I think with AI, with digital assets, really what it's doing is raising the bar in terms of the investment that's needed. So I think for small and medium-sized banks that need to start looking to—and this is part of our strategy to become a sort of correspondent bank for digital assets—I think that only the largest banks will be able to do it, and a lot of these things. So I think small and medium-sized businesses will have to focus on their reputation, or sorry, their relationship value with customers and really looking to the best vendors to help them deliver the products in a safe and sound manner.

Holly Sraeel (31:12):

So if no bank is well positioned per se, and as the sophistication of the fraud becomes increasingly sophisticated, particularly with things like synthetic identity fraud and whatnot, and consumers are fooled by these attacks, what kind of fraud losses are we looking at, at least initially?

Stephanie Cherrin (31:38):

I don't even want to give a number. I think it's catastrophic, but I couldn't give you a number.

Holly Sraeel (31:44):

So it's catastrophic.

Stephanie Cherrin (31:45):

It could be. It depends on the breach and it depends on the sophistication.

Holly Sraeel (31:51):

And so how effective do you think the banks are? Because all the banks now are trying to educate their customers about what to look for, what to be wary of, what not to do. How effective do you think that education is to date?

Stephanie Cherrin (32:04):

I think it's as effective as it could be.

Holly Sraeel (32:07):

That's true. That's true.

Stephanie Cherrin (32:09):

I just don't know. But again, in the same way that we as the institutions are learning what these new threats are, we have to quickly iterate on that. And I think also not exposing customers to things that they don't necessarily need to worry about. I think there's a lot of value in us doing a lot of the integration work in the backend, having software that we integrate with that do that for them. Because there's only so much that if you don't live in this space, A, it's incredibly boring, and B, why? You have so many things to worry about in your life, why? We don't want to bombard them with things. But I think saying "spam likely" is a really nice feature that comes through when people call you. And I think that kind of thing, without making somebody an expert in cyber attacks, I think that will probably be the most effective education, just passively alerting them or giving them the tools to know what might be happening.

Anthony Sharett (33:02):

Yeah, I think I'm just a little more bullish on banks' ability to be able to address this. I mean, every five or six years there's been something that has come along where people thought that banks would not have the backend infrastructure to be able to manage the risk, and lo and behold, they finally find a way to do that. So my view is, I mean, banks are actually using AI to catch the AI fraudsters. So as banks are continuously iterating on their security, AML programs, BSA programs, and looking at the amount of risk that banks want to take as it relates to the return that they desire, I do think we are going to see an environment. While there likely will be a spike as AI is used by the fraudsters, I do think between the combination of banks and FinTech partners that care about curtailing the fraud that could be out there, I see a path to being able to manage this in the right way. Do I think there'll be some spikes initially? Sure, there always is. But again, every five or 10 years, something comes along where people believe that the risk may not be able to be managed, and somehow, some way, ultimately it is.

Karan Jain (34:19):

Just to offer an insight on that. So through our platform, we see what banks are working on, what their interest is, and we've seen a big spike since December: banks looking at IDV solutions and all sorts of different things. So I think the banks are aware. They are actively working on it, actively working on a variety of different use cases that are IDV fraud-related. So I remain hopeful on this one that I think banking is resilient. People who work in banks are very resilient. To your point, they always find a way to get to the goal. And IDV, or fraud, is kind of bread and butter for banking. So while yes, the threats are up, technology's fueling it, I'm also hopeful in the adoption rate of the banks bringing in the stops.

Stephanie Cherrin (35:13):

One last thought, actually, our CISO wrote an open letter to third-party vendors. I think in the same way that globalization and global trade...

Holly Sraeel (35:21):

...Pat Oppe...

Stephanie Cherrin (35:22):

Yeah, Pat, our CISO, Pat Oppe. And it was very well received by the industry. And I think it was when you think about these partnerships and we're so integrated, which leaves so many more vulnerabilities. So third-party risk management is overwhelmingly important because just because you, as the bank, are secure, how do you know that the third parties that you're working with are secure as well? So, one of our portfolio companies, Vanta, is working also on securing companies, but also helping third-party continuous monitoring. Once you have a SOC 2 certificate, that's good. And then tomorrow it could be irrelevant, right? Because it's a one-time thing. So we're working on the continuous monitoring piece for vendors as well as an additional vector. So I think when you think about these partnerships, it's equally important to think about how do you make sure that those are also secure coming into your environment.

Holly Sraeel (36:15):

If you have not read Pat Oppe's open letter, I highly encourage you to do it. I have now referred to that open letter as "the open letter read 'round the world" the morning it dropped. It was all anybody was talking about. And I did invite him to this stage, but he was not available. So we hope to bring Pat Oppe to you from our studio in New York. All right, let's take a swing around. I asked you to tell me what you were obsessing about these days. So I'm going to start with Paul. And when I asked you this, you told me that you were obsessing about the Digital Asset Market Structure Act, also known as the Digital Asset Market Clarity Act, and whether it passes. Why are you obsessing about that?

Paul Neuner (37:02):

Well, no, actually we're obsessed with—we've been obsessed with the stablecoin legislation, but the market structure bill really is interesting in that it is where we start to build on top of that foundational layer. But no, actually I think what we're really obsessed with more than anything is education and teaching what we're doing. And just to give you an example, I really think, just on topic of what we've been talking about, digital assets can help reduce risk in banking for banks. Think about it right now: why not push? How many people have pulled dollars out of your ATM and then come back and said, "Oh, you know what, someone robbed me right after I pulled those hundred-dollar bills out of your ATM, I want my money back." That's probably never happened. So I think if you get into digital cash and stablecoins, what that could mean is that for casual payments, you can really absolve yourself of that risk, push that over. So your frictionless product can be something that you don't have that debit card risk associated with it. And then for the larger payments, you can employ a little bit more friction that increases the security. So I think those sorts of education, when a banker, instead of "Hey, this is crypto, that sounds really scary," but "Wait, this is something that actually can reduce risk for us." I think that's an educational task that we have that we're obsessed with.

Holly Sraeel (38:23):

Okay. All right. Anthony, you said venture funding that you're looking at fintechs that are strategic, mature, and likely AI-involved.

Anthony Sharett (38:32):

Yeah, we have a policy now where most of the fintechs that we work with are a little bit more mature than working with startups. Claire is an exception to that; we worked with them sort of at the early stages, and it's worked out wonderfully. But given the environment that we're in, given the fraud and the risk that we just talked about, for us, we want to be working with companies, while they don't have to be full-fledged companies, Series B and beyond is typically what we're looking at. We want them to not only have a good go-to-market strategy and be finding a gap in the market, but we want to make sure that it's a company that understands the risk and compliance considerations as well and has a culture of compliance. So that when we come in with our product and our product commercialization program and try to bring that to them, they're not hitting us with the Heisman because they don't understand the importance of some of these things. So that just tends to be where our strategy is right now. There are exceptions to every rule, but certainly we want them to have an AI focus as well, just given all the things that we've talked about.

Holly Sraeel (39:48):

Karan, you told me that you were obsessing over AI's impact on business and the next set of talent coming in, that the new generation will make mistakes differently than the prior generations. You want to talk about that?

Karan Jain (40:03):

Yeah, for sure. I mean, I think I've mentioned AI adoption once or twice before. I think part of AI adoption, I think that the human is at the center of that. Yes, it's the tech, it's the organization, it's the process, but the human is at the center of that. Okay, so we're all fine here. We will have our journey. But what I'm noticing and what I think about is the next set of talent that's coming through. And by the way, we're all here because we've made a ton of mistakes, and those mistakes have helped us learn and grow and actually do things differently. So what I think about from an AI adoption point of view at an industry and ecosystem level is, "Okay, the next set of talent that's coming through is actually not going to get that many chances to make that mistake."

(40:50):

Because the mistake they're probably making is how to write a prompt and is it connected into the right data source from a knowledge-base point of view. So how do you create situations? And I understand jobs, jobs will look different, but there's a level of understanding and making mistakes that help an individual grow. And I don't have an answer, because I think that could probably be a whole different company on its own, but I think that's what I'm obsessing about. And I think that the human, and especially the next batch of humans that are entering financial services or the industry, how do they get to make mistakes so they know what to do and not to do.

Holly Sraeel (41:37):

Okay. And Stephanie, you have been obsessing over which AI tool is going to dominate and how?

Stephanie Cherrin (41:46):

Yeah, never-ending pursuit. I think that we're struggling because it's so easy now to build a tool, in the same way it's so easy to hack something or trick someone. It's so easy now to build these AI tools. And so we spend so much time looking at these vast landscapes of companies that have exactly the same revenue, that have come out at exactly the same time. Their product looks pretty much exactly the same. There are feature wars, so one week a feature comes out, the next week everyone else has the same feature. So our struggle is really understanding who wins, why, how. And if you don't bet, you don't participate in any of the upside. And so that's a constant battle to say, which are going to be the AI tools that dominate, in the same way that I think when Neobank came out, when any new wave of anything comes, there's a million different approaches. So we spend probably most of our days talking about why is one getting adopted, which team, which founder market fit has the best chance to succeed? And we just going to make a bet.

Holly Sraeel (42:55):

Okay. All right. We're going to take a few questions from the audience. Do we have a mic runner? I think we have a question down here. No. Yes.

Audience Member 1 (43:11):

The panel was tasked to look at the next five years of digital finance, and one thing that was mentioned but not really dealt much with was this digital money coming and how, if I understood Paul correct, he's basically saying that's coming through the banks, but there is competition to the banks on digital money. So how do you see the clearance of all this digital money in the future? I mean, with competition from banks and non-banks?

Paul Neuner (43:54):

Well, I think that as soon as you have regulation in place that allows—I mean, you saw Moynihan said that the day after there's legislation in place, Bank of America is going to start issuing stablecoins. They're at a distinct advantage just being piped in with the FedLine and whatnot. So the clearance is really very well. It goes from a batch file that is individual identifying each transaction to direct transfer of electronic dollars to the merchant, and it doesn't actually have to identify the consumer at all or involve the consumer's bank. So then clearing it is simply a bulk exchange of electronic dollars for dollars. It's a much more fluid system. I think that banks will be, as long as the legislation's in place, it allows it to happen. Banks are going to be at a distinct advantage over—they'll obviously have a great role to play in it. But yeah, I see that more in a facilitation and communication and application, last-mile role.

Audience Member 1 (45:00):

Follow up, do you see the environment of several stablecoins, bank stablecoins, or just a few coming up? What kind of environment do you see?

Paul Neuner (45:14):

Right, so that's why we're doing E-U-S-D-X, YZ. We're not trying to brand any USDC or USDT or stablecoin in that way. We're saying that, "Hey, this is, any bank can do an electronic USD or MXN or what have you." Because in the deals that we would do as a corresponding bank, we would just share the risk-free rate with you, help a bank offer a digital cash account, and just share the underlying revenue until they are able to issue it and in-house themselves. So that's the vision. We see a very open one as opposed to branded stablecoins. There will be, particularly internationally, I think a role for branded stablecoins in the future. But I think that, I hope this evolves into a much more open environment, particularly in the United States, where, sure, this could technically be issued by one bank or the other, but you don't really know that you're using one bank's stablecoin over the other bank's. It's transparent.

Holly Sraeel (46:18):

Okay guys, unfortunately we're at time, and I'm about out of breath and I'm going to have a coughing attack. But we have Jason Lee joining us. But prior to Jason taking the stage, I'd like you to join me in thanking Paul, Stephanie, Anthony, and Karan for this wonderful session.