Monday, October 3, 2022

Q&A: FinCity CEO talks about open banking regulation, the innovative edge of the US, and Web3

UK pioneered Open-banking regulations (and popularized the term), but Finity CEO Steve Smith argues that America has long been an engine of innovation propelling the space.

In an interview with Insider Intelligence, Smith reveals why open banking is a valuable tool for consumers, fintechs and executives – and where it lies next. He breaks down the regulatory landscape and identifies where regulators can take the baton from the industry to keep consumers safe. He also explained why consumers have a tough time trustworthy fintech Along with their financial data and the role that open banking and APIs will typically play in web3.

The following has been edited for clarity and brevity.

Insider Intelligence (II): Can you tell us a little bit about yourself, your professional history, and the founding of Finity?

Steve Smith (SS): It has been really interesting to sit at the table for the 35 years that we now have in our hands, and see the technological transition to being able to unlock data and use it in meaningful ways, with the advent of open banking.

How long have I been in the tech industry here in Utah. I spent the first decade in mobile communications. And after computing moved into the truly mobile world, the next trend and opportunity I saw was the democratization of data – unlocking data and making it very powerful for individuals and companies.

I was already interested in the financial space, and this led me to an early fintech solution. This is what launched Finity. The need to unlock data for consumers and small and medium-sized businesses (SMBs) inspired us to develop an open-banking platform. Then we built that platform, and when fintech took off early on, we recognized that one platform could launch and power all kinds of fintech applications for accessing data from banks and credit card companies.

II: What do you mean when you say we need to unlock data for consumers?

SS: Think about how we used to get all the data: Traditionally, an account statement came in the mail every month. And then in 2001 or early 2002 the trend of online banking started. When we launched our open banking platform in 2002, I think we are associated with about 1,200 banks. At that time, about 17% of adults used online banking.

An account statement is a tailored solution: I get something in the mail. I can read it, but I can’t actually pick up the data from that page and put it into an application. If I want to access the data, I have to put any of the keys in it.

Then, online banking comes to the fore. Now people can view the data online, but how can you make meaningful use of it? And then Open Banking comes along and lets you extract the data that we used to get in printed statements because it’s in digital format now. You can build benchmarks around that data, and then you can use it to start doing analytics and creating meaningful insights and powering all kinds of automated tools, payment and management solutions.

II: Where has open banking really been successful? Where hasn’t it worked well? And where do you think open banking is headed?

SS: The term “open banking” comes from the UK’s regulated approach to open access to bank data. We didn’t call it open banking in the US—we called it data aggregation, and we took a laissez-faire, straightforward-driven approach. This technology really came to life in ’99 and evolved from there. But the assumption is the same: it is a consumer or an SMB that allows a third party to access their data and distribute it to another third party.

This initially inspired all kinds of applications for financial management, such as Mint, and then went into powering alternative credit data, like Experian Boost, and automated tasks that used to be all manual and rote, such as applying for a mortgage—eliminating a large component in the underwriting process. Recent data shows that 70% to 80% of people are linking accounts in some way or the other To facilitate some level of automation in their financial lives.

America has really taken the lead as an innovation engine – but I think we’re lacking some railings that would be helpful.

There is a natural friction between the banks holding the data and the fintechs who want to access the data. And I think the only way for industries trying to innovate is to bring in regulators. They make some railings, some definitions and some requirements. This includes ensuring that the financial system still meets security and soundness standards and that consumers remain safe.

In the UK, regulators came out and said, “It’s a regulated system.” This slowed down adoption. When the pace of regulation is much slower than industry innovation, you run into a situation where people are afraid to innovate. Then comes a new round of regulation, and it either corrects what went wrong in the first place or it addresses new issues.

This is what is happening in Europe. We’re finally starting to see some really cool adoption in the UK—and it’s spreading across Europe—but there’s still work to be done. The question is, is the UK going to overtake the US while waiting for the CFPB? Bending and regulating under Dodd-Frank’s section 1033, or can we get it done on time? I do not know. It’s been interesting to see.

II: Does the US need to copy and paste regulatory regimes from the UK and Europe? Or are there things we should be doing differently in the US to maintain that innovative edge?

SS: One thing we’ve done here is to create financial data exchange (FDX). We brought in banks and fintechs, and we created standards for authentication, allowing data access, and for consumers to control their data. The industry has already solved a lot—it’s honestly better than regulators at solving some problems. The US has an opportunity to do a better job of creating a framework to address what industry alone cannot: ensure open competition and ensure the security and soundness of our financial system.

But we don’t want to undermine the innovation that is driving real value and benefiting consumers and SMBs. Industry-led innovation engines have helped America see what’s working and where some of the problems lie. We’re also able to see how Europe and the UK used a bit of a heavy hand and see how we can build a better framework.

II: Some in the industry have cautioned that there are probably processes that should have some friction, such as withdrawing money from a 401K. Are there use cases that you think open banking solutions should be avoided or where perhaps removing friction has gone too far?

SS: The basic definition for open banking is about authenticating a bank, authenticating a customer, and then allowing that customer to share data with a known third party to the bank. I will not change it in any way. The industry is setting the standard to transparently manage that process, such as demonstrating where permissions are granted and then allowing consumers to control it – that’s absolutely right, and it’s where it’s needed .

But I wouldn’t stack auto-allowed- it’s too dangerous. I would always like to say, “I am linking this account to this third party or this payment process for this purpose.” And I want to be able to change it if I need to.

I don’t think we have the right permissions right now. We can make it more user friendly. There’s still a lot of friction in that process. No one wants to spend a lot of time doing this. They just want to be informed, and be able to make changes or cancel something. And they want to know exactly where to do it. I think that’s where we’ll see continued progress.

The second issue is Consumer data protection rules are a state-by-state patchwork, There is an opportunity to come up with national consumer data protection regulations that will be helpful in the financial data market.

II: Shifting gears a bit. Mastercard’s Rise of Open Banking report talks about consumer confidence in fintech. Only 26% of respondents in North America said they trusted fintech a lot—and that fintechs were less trusting than big tech companies with financial data. What were your thoughts on that? And how do fintechs address it?

SS: I am not surprised by the numbers. And I’m not surprised to see social media companies in an overly unreliable light.

There is a big, big difference between fintech and tech companies and banks, payment networks and credit card companies on the one hand that are really built around a brand of trust. When you think of Mastercard, the keys are empowerment and trust. Fintech companies are new. Brand building takes time, and it requires a consistent message: “You can count on me because I do what I say.” Fintech companies haven’t had the opportunity to spend in that and build the same degree of brand awareness.

That’s the major difference there. But if you look at the information security in major fintechs and the mature way they handle financial data and the regulatory framework they meet and compare them to established technology companies, I don’t think you’re going to see a big difference, The exceptions may be very new, very small fintechs.

My view is that fintechs are going to look like banks and banks have to be like fintechs. Over the next decade, both will continue to fade. And so I think fintech has an opportunity to really change that perception of trust — leading anyway.

II: We keep track of non-financial companies like tech and social media firms that are doing fintech things and getting involved with finance, be it payments or something like crypto. Do you think there is concern that too many companies are trying to hand over consumer finances through tools like open banking?

SS: I’m sure there is concern in many different circles, especially with the CFPB looking at what happens when these companies get involved and how do we protect consumers? The notion that we’re going to take data that is typically managed and controlled under Gramm-Leach-Bliley in banks, and that we’re going to put it in the hands of social media companies that haven’t always been the best at protecting consumer data? This certainly raises some concern in some circles.

Every company that interfaces with a consumer and has a financial component – ​​whether it is selling goods and services or becoming more integrated into economic management – ​​will have to become more like a fintech over time. I think those companies will be partners to make this happen. To me, the model social media company would be closely partnering with leading fintechs that have already built and built that trust.

II: Signal’s founder recently wrote a blog post about his take on Web3, and one thing he found was that a lot of these blockchain-based services make it easy for the consumer to actually interact with them. APIs for – this is not happening on the blockchain. Is she on Finity’s radar? Do you have any plans to engage with blockchain technology, be it stablecoins or bitcoin or NFTs?

SS: Light, enterprise microservices using APIs allow us to accelerate and maximize innovation. It’s breathtaking how quickly you can make a solution stand out with an API versus how traditionally we had to build a solution. The amount of code you have to write is largely reduced.

Now, how does open banking interact with blockchain technology? Open banking, again, is about allowing access to data. All these new technologies for commerce and exchange of value will depend on open banking and bringing the old guard along with the new. You cannot assume that the new one is suddenly going to displace the existing variants of Fiat.

An open financial data network will allow the successful implementation and execution of the Web3 digital currency world in which we are leading. And so from a Finity/Mastercard perspective, that’s on our radar, and we’re looking at ways that are coming together. Mastercard has announced several different digital currency initiatives and brought them together with the current payment network and Open Banking and our work. Building an open financial data network would also be very strongly linked to that.

Nation World News Desk
Nation World News Desk
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