Big banks, nimble startups both invested in the future of money
How will technology change our financial lives, and how should society react to innovation? These questions were tackled by the representatives of financial, venture capital, startup and regulatory organizations who made up the “Modern Money” panel at the Global Conference.
Mike Cagney, the CEO of Social Finance, a marketplace lender involved in the student loan and mortgage industry, questioned the idea that the millennial generation has unique wants and needs. Rather, he argued that people of all ages are demanding access to higher-quality services, enabled by technology, than are traditionally provided by banks. His view was echoed by Rebecca Lynn, co-founder and general partner at Canvas VC, who said that people are increasingly demanding real-time and instant access and service. Lynn also noted that many legacy systems, like the U.S. payments infrastructure, are too slow and cumbersome to support that and require modernization.
The future of traditional institutions sparked significant debate. Greg Baxter, the global head of digital at Citi, believes that now is a wonderful time for established players to partner with startups. That would allow the Establishment to leverage the innovation and nimbleness of the smaller companies, while enabling the startups to benefit from the banks’ capital and client relationships.
However, there was skepticism from other panelists. Adam Nash, the president and CEO of Wealthfront, argued that, given how damaged the brands of traditional banks are with younger consumers, he was happy to be unencumbered by any affiliation with traditional brands. Lynn was also skeptical that acquisitions by larger players worked well, since the divergence in culture and process tended to chase away people who had started their careers with startups.
The topic of regulation also prompted discussion. Cagney pushed back against the idea that disruptive players in finance are “unregulated,” listing the numerous state and federal rules to which they are subject. This was echoed by Nash, whose business is regulated by the SEC and FINRA. He attributed part of his firm’s success to building with regulation in mind and being upfront and engaged with regulators. Lynn said cryptocurrencies will need to figure out regulatory compliance for issues such as “Know Your Customer” and money laundering prevention before they can go mainstream.
Of course, while companies need to comply with regulations, the regulators need to adapt or risk stifling innovation. Dan Quan, a senior advisor to the director of the Consumer Financial Protection Bureau (CFPB), discussed how the CFPB, the newest U.S. regulator, wants to create a level playing field where companies can experiment without jeopardizing consumer safety. Examples include the bureau’s Project Catalyst, which provides a “regulatory sandbox” where companies can launch pilot programs without being subject to enforcement and the CFPB can collect data and provide feedback. The CFPB has also launched an “office hours” program in which companies can engage staff in off-the-record discussions.
What is the next big thing? The panelists had different ideas, including more intelligent use of data; marketplace lenders taking FDIC insurance and competing with banks directly; solving remittance issues; increasing automation—not only of business processes but consumer behavior—and the U.S. developing real-time payments. While the panel was not unambiguously optimistic about the future (Quan said technology is a double-edged sword, and the other edge keeps him up at night), they agreed that technology is driving profound, and likely positive, changes in how we interact with our money.