Welcome to the newest installment of Fintech News and Notes! A thoughtful summary of the most important trends and updates across fintech, written by our very own Eric Weingarten.
-The House Financial Services Committee (FSC) continues to engage on a number of issues relevant to fintech. There are two upcoming hearings that we will be watching.
-On September 21, FSC’s Task Force on Financial Technology will convene for a hearing entitled, “Preserving the Right of Consumers to Access Personal Financial Data”. We expect this hearing to focus on open finance/banking and the CFPB’s current rulemaking on Section 1033 of the Dodd-Frank-Act. It will be interesting to see if Canada’s recent open finance proposal (which we highlighted in our last blog) will be discussed.
-On September 29, FSC’s Subcommittee on Consumer Protection and Financial Institutions will convene for a hearing entitled, “**The Future of Banking: How Consolidation, Nonbank Competition, and Technology are Reshaping the Banking System.**” We expect this hearing to touch on a number of topics we’ve been tracking, including fintech charters, bank-fintech partnerships, and the Biden administration’s focus on increasing competition in the financial services markets.
-This latter hearing aligns with a specific call out in the administration’s recent executive order addressing competition policy, which asked in part that the US Treasury provide a report “assessing the effects on competition of large technology firms’ and other non‑bank companies’ entry into consumer finance markets.”
-Stay tuned on the highlights of these two hearings.
-A number of high profile tech and banking CEOs met with White House officials last week to discuss recent cyberattacks and other hacking incidents, with the goal of workshoping potential solutions.
-Attendees included Apple CEO Tim Cook, Google CEO Sundar Pichai, Amazon CEO Andy Jassy, Microsoft CEO Satya Nadella, and JPMorgan CEO Jamie Dimon. Senior executives from ADP, Bank of America, TIAA Bank and U.S. Bancorp also attended.
-Discussions focused on how the government and industry can work together and coordinate efforts in order to better protect against such incidents. -At the meeting President Biden noted, “**[m]ost of our critical infrastructure is owned and operated by the private sector**, and the federal government can't meet this challenge alone. I've invited you all here today because you have the power, the capacity and the responsibility, I believe, to raise the bar on cybersecurity.”
-In addressing potential solutions, an administration official stated,”**[w]e need to bake security in by design into tech**, otherwise we're pushing the cost of maintaining security to the users...on small companies [and] older or less educated, less technically comfortable people.”
-Attending companies committed to investing billions of dollars into cybersecurity protections, improving cooperative efforts, and conforming reporting practices, pledging more transparency.
-Yesterday (September 1, 2021) the CFPB issued a long awaited proposed rule implementing Section 1071 of the Dodd-Frank-Act. Section 1071 requires that financial institutions collect and report to the CFPB certain information, the goal of which is to facilitate enforcement of fair lending requirements and close gaps in financial access for women-owned, minority-owned, and small businesses.
-While the White House has no direct control over the CFPB (other than appointing the CFPB’s director with Senate approval), the proposed rule is consistent with the Biden administration’s focus on improving financial access throughout the economy, in particular improving competitive conditions for small businesses. As CFPB Acting Director Dave Uejio stated in issuing the proposed rule:
“Small businesses are the primary job creators and wealth builders in communities across the country. After homeownership, small business ownership is the primary means by which families and communities build wealth. Yet too often, small business development is starved for want of access to responsible, fairly priced credit. Today, we are proposing a rule that would help us all learn how small enterprises fare when trying to access financing, and what barriers are holding them back from further prosperity.”
-The proposed rule appears to have extensive applicability, broadly defining the financial institutions, credit applications, transactions, and types of borrowers to which the rule applies.
-The proposed rule requires very detailed information be provided on covered applications, transactions and borrowers (including demographics), with such information needing to be reported annually. This information would subsequently be available publicly (as required by statute) from the CFPB. -Importantly, the rule requires a firewall prohibiting financial institution employees viewing specific borrower demographic information if those individuals are making a credit determination on that borrower’s application.
-This past week Amazon and Affirm announced a major partnership that will enable Amazon customers to use Affirm’s buy-now-pay-later (BNPL) payment services as a payment option at checkout.
-This massive partnership is another example of a trend we’ve highlighted a number of times. BNPL is rapidly becoming a must have embedded feature for any merchant, continuing evidence that to remain competitive, B2C companies need to directly integrate financial technology into their overall products and service.
-Consistent with this trend, David Sykes, Klarna’s Head of North American Operations, recently asserted that he believes that over the next 12 months every major US retailer will offer BNPL.
-Media attention will no doubt continue to focus on development of these major partnerships. A less visible, but no less important, facet of this trend is something we’ll be tracking: how will BNPL be regulated? As BNPL becomes as commonplace as the use of credit cards, this question will become more acute. The CFPB has provided some initial guidance for consumers, but as defaults inevitably rise with more pervasive use of these products, we expect legislators, regulators, and State AGs - and eventually the media - to increasingly focus on this important question. We will be doing the same.
An editorial from Brookings published in the Financial Times, advocating for a balanced approach to governmental engagement with fintech, promoting innovation while managing risk with thoughtful regulation (including development of regulatory “sandboxes”).
Another fascinating report in a series from the CFPB looking at the impacts of the COVID-19 pandemic on consumers’ financial lives, this time focusing on consumer credit - credit cards, mortgages, and auto loans; the CFPB observes that credit card access constricted but mortgage and auto loan credit was more accessible.
Published by the Federal Reserve Bank of San Francisco, a balanced collection of articles from a variety of authors in the fintech ecosystem examining the tension between the ability of fintech to enable greater access to the financial system and its potential for deepening existing inequities.