Insights from Semafor’s “Banking on the Future: The Next Era of Fintech” Conference. Eric J. Gordon, Creative Investment Research
Insights from Semafor’s “Banking on the Future: The Next Era of Fintech” Conference
Last week, the global news organization Semafor hosted a conference featuring prominent fintech leaders discussing the industry's future amid recent technological, political, and legal developments. Fintech is fundamentally reshaping financial systems, influencing consumers' daily lives worldwide, often without their explicit recognition. At the conference, I was particularly captivated by discussions on the scale of Fintech’s adoption, the impact of Section 1033, and the implications of advancements in artificial intelligence. Witnessing industry leaders discuss their excitement about the future revealed the collaborative efforts driving technological and regulatory innovation in the Fintech sector.
Fintech is here to stay:
Nearly 9 out of 10 people today utilize Fintech applications, and the average person uses 3 to 4 apps for their finances. At the conference, president of data transfer network provider Plaid Jen Taylor added that “8 in 10 Americans engage with and connect to at least one Plaid-powered service in their daily lives.” The adoption of Fintech has become widespread in America, with the industry’s consumer base becoming progressively more representative. Taylor shared that “ different socioeconomic and demographic groups ” compose a larger share of the digital financial services market than ever before. The convenience and accessibility afforded by Fintech has streamlined traditional financial transactions and generally democratized access to financial services. Moreover, the pandemic accelerated the shift towards digital financial solutions, further cementing their place in the mainstream.
The surge in Fintech adoption has inevitably drawn regulatory attention. Rohit Chopra, Director of the Consumer Financial Protection Bureau, was asked how he approaches working with Fintech companies and communicating rules effectively. He emphasized that while CFPB inherits rules from Congress, a significant aspect of his job is not just relaying and enforcing these rules but protecting “Fintech companies, startups, and future firms that don’t exist” from “the shakedown of lawyers that are circling them trying to get money from them by waving this flag of uncertainty.” Chopra's goal is to create a clear regulatory environment that ensures fairness and stability in the Fintech sector, balancing oversight with innovation. Jonathan McKernan, Director of the Federal Deposit Insurance Corporation (FDIC), echoed Chopra’s sentiments, saying the framework has to be efficient and equitable for companies in the sector.
Excitement surrounds Section 1033:
Industry leaders and policymakers emphasized the importance of CFPB’s new Section 1033 rule in advancing innovation and consumer trust in equal parts. Following the Great Recession, Section 1033 was enacted as part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act to grant consumers the right to access their financial data in a usable and transferable format. 1033 promotes third-party access to financial data through interoperability facilitated by application programming interfaces (APIs). In other words, it enables the exchange of financial data and defines protocols for secure and standardized sharing among institutions, consumers, and third-party providers to advance a "fair, open, and inclusive" finance industry.
At the conference, Kenneth Lin, Founder & CEO of Intuit Credit Karma, discussed how the lack of interoperability stifles consumers and innovators alike. He equated banks after the upcoming Section 1033 rule to modern cell phone carriers, saying , “For the first ten years of having [my] phone, I never changed carriers. Why? Because I never wanted to change my phone number. But since data mobility with your phone, portability of your phone number, I’ve probably changed carriers ten times.” Likewise, people today stay at banks due to the immobility of accounts and the friction associated with switching, or the inconvenience it entails. As Lin puts it, "that is really the benefit of having 1033 and really allowing consumers to move their data, move their relationships.”
As a young person beginning their financial journey, I find the timing of Section 1033's implementation particularly advantageous. With increased transparency and simplified access to financial information across institutions and service providers, consumers like me can explore a broader range of financial products and services tailored to their needs. Appropriately implemented, 1033 will enable users to leverage third-party services to manage and execute their finances without worrying about data access, usage transparency, and security risks posed by nontraditional financial services.
Artificial intelligence as the new internet:
Fintech providers have long employed AI, but conversations at the conference focused on its impact on user experiences. Lin, for example, said that generative AI will be “as big as the internet when you think about what it will do for the changing of lives.” However, he notes that AI has created provider-consumer gaps that Fintech companies strive to address, such as lenders using AI to evaluate hundreds, if not thousands, of variables when making loan decisions. Third-party providers can leverage financial data transparency rights to ensure consumers not only access the same data as banks or other institutional lenders but also utilize their services to evaluate their loan eligibility using tools that match the industry’s.
Another example of AI transforming people’s financial lives is the idea of a personalized finance manager. Imagine a digital assistant that learns from your spending habits, investment preferences, and financial goals to provide tailored advice and proactive suggestions. To Lin and many, a notable problem in financial services is the abundance of “generic advice” and the lack of “prescription, [or] a sense of what I, as an individual, do.” This AI-driven manager could analyze vast amounts of data in real time, offering insights into budgeting, saving opportunities, and investment strategies personalized to your unique financial situation. With the implementation of Section 1033, such personalized finance managers could now access comprehensive data from your various financial institutions securely and consistently to deliver you accurate recommendations.
At the conference, BNY’s Carl Slabicki provided insight into how the increased data exchange has been paired with AI tools in the finance industry. One of his examples: in scenarios where scammers target financial institutions, limited data sharing among institutions often facilitates their ability to exploit vulnerabilities . He emphasized the need for "better data information sharing in a secure way that respects data privacy but helps highlight where the scammers are coming into the market.” AI output is only as good as its input, and the more data provided to algorithms to detect scams, the more effective they will be at identifying weak points in security chains and implementing strategic "friction" points to safeguard consumers effectively.
Takeaways:
My experience at the Semafor event was enlightening. As digital services continue to embed deeper into everyday financial practices, it is encouraging to see regulatory frameworks evolving to accommodate this growth while ensuring consumer protection. It is equally heartening to hear industry leaders collaborating closely with regulators to foster consumer trust in Fintech and cultivate a more equitable financial ecosystem. Public-private harmony drives societal development, in this case, paving the way for a future where financial services are not only more accessible and efficient but also more secure and responsive to consumer needs.
References
“Banking on the Future: The Next Era of Fintech”. (2024). Semafor Events.
“Final Rule - Required Rulemaking on Personal Financial Data Rights; Industry Standard-Setting”. (2024). Consumer Financial Protection Bureau.
“FTA Policy Agenda for the Future of Finance”. (2024). Financial Technology Agency.
“Notice of Proposed Rulemaking - Consumer Access to Financial Records”. (2020). Consumer Financial Protection Bureau.
Young, K. (2023). “The Fintech Effect 2023: Consumer insights reveal growth opportunities ahead”. Plaid Blog.
Eric J. Gordon, Creative Investment Research, 2024