Episode 1: Fiserv | Demystifying Fintech, Regulations, and Everything In Between
Our guest for this podcast is Kim Ford. Kim serves as senior vice president of Government Relations at Fiserv. We chat about how regulatory bodies like the CFPB, the FDIC and the OCC are evolving under the current administration, and how that is changing the way they approach fintechs. We also cover the regulatory approach to crypto in all its different forms. And, we talk about how a drive to modernize the Community Reinvestment Act – a decades-old law that still affects banks – is relevant to fintechs, as they help advance financial inclusion in underserved communities.
Read the full transcript below.
Episode 1: Fiserv | Demystifying Fintech, Regulations, and Everything In Between
Deana Rich (00:09):
Well, hello everybody. And welcome to It Pays To Know. This is a podcast brought to you by Infinicept. My name is Deana Rich, and I am co-founder and co-CEO here at Infinicept. My guest today is Kim Ford. Kim serves as senior vice president of Government Relations at Fiserv. I have known her for years and always appreciate her knowledge and insight. Today, we are going to chat about topics like the CFPB, the FDIC, the OCC. More than just regulatory bodies, we are also going to talk about fintech and we are going to talk about crypto – not just cryptocurrencies, but also the blockchain itself and what it can do. I think you will particularly enjoy how this relates to fintech and how we will be demystifying fintechs just a bit. And we’re going to talk about the good old-fashioned CRA (Community Reinvestment Act) that is still alive with banks. And I’m looking forward to talking to you about how fintechs can help with that. Without further ado, please enjoy my conversation with Kim Ford.
Kim, thank you so much for joining us today on It Pays To Know. You and I have had a few conversations prior to this. So we’ve been talking a lot and every time we talk things change.
Kim Ford (01:34):
Absolutely. Thanks, Deana so much for being here. It’s a real pleasure to speak with you today. And yes, change seems to be the only constant right now.
Deana Rich (01:44):
Yeah. I used to laugh at my grandmother when I was growing up and she would tell me nothing is as consistent as change. And that made no sense to me. And then I became an adult. So payments, we’re responding to a lot of changes. We have a new administration, not so new, but very different from the last administration. So our oversight is starting to increase. We now have some problems with the economy, so that is creating differences with the merchant activity. So let’s talk a bit about the shift of the focus on the bank regulatory agencies and how the changes there are changing how they look at fintech.
Kim Ford (02:32):
Absolutely. So I think in some cases, there might be a temptation, Deana, for companies who are not banks to maybe dismiss what the bank regulatory agencies are doing. And I would say that they do that at their own peril, right? Because even if you are not technically a bank that is directly obligated by regulations that come out of the bank agencies, certainly, if you are a partner in any way, shape or form, with a financial institution, you really need to be aware of what’s going on because their own obligations are changing. And in some cases, those might roll down to their partners. Whether again, that’s some sort of a processor or fintech or other type of third-party provider. And what we have seen, I think, over the years is when you think of the Fed, OCC, and FDIC together, they generally have pretty good working relationships.
The staff work well together, they talk a lot. So from a harmonization standpoint, we do see that from time to time where the agencies really do try to work together to provide consistent regulations. But what we have seen is that when you have an administration change and the president then appoints different leaders to run these agencies, that can also change the goals and priorities of each agency. And I think where we’ve seen that the most pointedly or the most pronounced is at the FDIC Chair, Jelena McWilliams, who had been in place for several years under the Trump administration and had indicated that she wanted to fill out her term through these early years of the Biden administration ended up leaving last year. And the Acting Chair, Marty Gruenberg, has a very, I would say, different approach and philosophy, especially as it relates to fintech. So one thing that we’ve seen is, I think it’s fair to say that Chair McWilliams wanted to try to help especially community banks figure out how they should navigate this brave new world of fintech.
There are some amazing companies emerging in the fintech space. They’re solving all sorts of interesting issues with technology, but from a bank perspective, it can be hard to figure out who they should partner with. And if they do partner, they want to make sure that it doesn’t violate or raise concerns with their regulators from a safety and soundness perspective. And I think Chair McWilliams was really trying to position the FDIC as a partner in helping financial institutions understand that and work with fintechs better.
And it’s not to say that Acting Chair Gruenberg is against fintech, but I think that he takes a much more critical eye of the types of products and services that fintechs are coming out with. And it just doesn’t seem to be as much of maybe helping posture as we saw under McWilliams. So I think that’s probably again where we’re seeing the change the most, but it’s pretty early on in Acting Chair Gruenberg’s tenure. He is formerly Chair of FDIC. So we have some historical context, but he’s still relatively new in this current Acting Chair role. And so his views and direction may change as we get later into the year.
Deana Rich (05:53):
Kim, do you think, because he’s relatively new into his role, he’s going to end up being tougher to make his mark and say, “I’m taking care of those fintechs and making sure they don’t hurt our system?”
Kim Ford (06:09):
It’s a great question, Deana. I don’t know if he will be tougher. It’s just that I think you have to question maybe what are the other priorities that are coming up at the FDIC that, again, may just shift the focus of it. I feel like Chair McWilliams had a very significant priority placed on, again, understanding, almost even demystifying, the fintech world and partnerships for banks. And it just feels in these earlier days of Acting Chair Gruenberg’s tenure here, that he just doesn’t seem to maybe place that same priority. Some of the things that we’ve seen the agency put out recently have been around crypto.
There’s been a joint agency effort on cyber notifications. There’s been a joint agency effort on modernizing the Community Reinvestment Act. So those in some ways are positive for banks or at least providing some certainty around big issues, again, like CRA and cyber. But I just feel like we haven’t seen the same kinds of comments around how to help banks figure out this fintech puzzle as we saw before. But does that mean he is going to try to make it harder? I’m not sure I can say that just yet.
Deana Rich (07:30):
Got it. He’s probably trying to figure out what his position is, as you’re saying.
Kim Ford (07:33):
Perhaps.
Deana Rich (07:36):
So modernizing CRA, I actually remember many, many moons ago, how important CRA was when it first came out and I can envision a CRA-fintech alliance, because it’s the fintechs that really go into the communities where the banks have trouble infiltrating or getting into and serving, but where the banks have trouble getting into certain communities, fintechs are the ones that do it. For example, there’s a fintech out there whose name escapes me at the moment, but its sole job is to assist lower income people, improve their credit reports via using Netflix as a reporting to show how they’re paying their bill. And they really do have a good credit rating. Do you see any sort of a mixture or a CRA-meets-fintech world?
Kim Ford (08:28):
So I definitely think that the drive to modernize CRA and I mean, let’s face it, it’s a decades-old law, so it needed to be updated anyway, but I feel like the impetus behind it for 2022 absolutely was to recognize that fintechs are playing a role. But also as you’ve seen a lot of financial institutions choose to close their branches, it has made the regulators say, “Okay, is there now some gap?” And in some cases, right, fintech companies may be moving in to fill that gap. But at the same time, it’s still the financial institutions themselves that are obligated under a law to take the CRA requirements into account and to “do their part” (I’m putting quotes there) to serve low- and moderate-income communities. And yet, how do you do that if your branches in those communities are being closed? And so this effort, this CRA effort, was really, I think, trying to acknowledge that a financial institution could still meet its CRA obligations, even without a physical branch, based on what they’re doing in the digital space.
So digital account opening and how they’re reaching those LMI communities and the individuals in those with technology and online. I think now the regulators are willing to give the banks credit for those efforts. And if a financial institution chooses to partner with a fintech to do that, even better. We just still need to be clear that a non-bank fintech isn’t subject to CRA today. And so if it chooses to help advance financial inclusion in those communities, great, but it’s still the financial institutions themselves that are obligated under the law to meet those CRA obligations. But I think still though, Deana, it’s a good point about the role that fintech can play in being a partner with financial institutions, which I think is a different posture than we saw, what, five, six years ago, where financial institutions, at least with whom I spoke, were nervous about this threat that fintech posed. And now these years later, I think we see just so many more partnerships and the art of the possible, if you will, of how fintechs can really help banks improve their service offerings in ways we just hadn’t contemplated years ago.
Deana Rich (10:51):
I agree with that. And one of the things I often talk about is how banks are really good at compliance, as they should be. That’s their job. And fintechs are really good at innovating, as they should be. That’s their job. And it’s that partnership that moves everybody forward, not just the underbanked or the lower income, certainly them, but everybody. And until we spoke today, I didn’t even think about how they could help with the CRA, but that seems perfect to me.
Kim Ford (11:24):
Absolutely.
Deana Rich (11:25):
So I want to shift a little bit from the banks and the regulators that we’ve been speaking of to move over to the CFPB, because that leans over and is paying attention to the fintechs. And again, with things changing with the new administration and the new leader of the CFPB, do you see that they are going to now pay attention to the acquiring side? Or do you think they’re going to stay on the BNPL – the Buy Now Pay Later – side of things?
Kim Ford (11:57):
Deana, I think everything is on the table under this current CFPB regime. I think that Director Chopra, he wants to drive real change across the financial services sector and the CFPB, when it was set up by Congress under the Dodd–Frank Act, was given extraordinary power over the financial services sector to banks and non-banks alike. And I think in fact, the Wall Street Journal, maybe just earlier this month in June, I think they essentially said, Director Chopra was one of the most powerful individuals in D.C. I think the quote was, “He’s building a sphere of influence that reaches nearly every business bank and consumer.” I mean, that’s something. So I think that if you look at the scope of the CFPB, which you can see in the definition of financial products and services that the CFPB has jurisdiction over, I mean, there’s really nothing that’s not on the list. Right?
So I think that where under Richard Cordray, who was the first director when the agency was set up, he would talk in speeches a lot about the four Ds. And it was things like debt traps and debt collection in general, and some other kinds of things that, that really became his focus area over the years that he was in office. And then that shifted to the various agency heads under President Trump, including Kathy Kraninger. And now with Director Chopra, it’s essentially, I would say, almost like a return to what we saw under the Cordray years, but maybe even more aggressive. And if you just look at the press releases and blogs, just since January of this year, so just in a few months, they are looking at everything from the consumer reporting agencies to student lending, to what they call junk fees, overdraft fees.
They just recently put out something asking consumers to weigh in about how they could get better customer service at the big banks. They’ve also set up a new Office of Innovation, but unlike some other Offices of Innovation we’ve seen at the agencies, this one says they’re specifically going to focus on obstacles to open markets and make it easier for people to switch financial providers. They’ve also made it clear that they want states to be a little more aggressive in their enforcement of violations of financial laws. And as you mentioned, they’re going to be examining non-bank companies. So like I said, there seems to be a lot on the table for Director Chopra right now. And I think the biggest challenge, especially those of us who work in policy in D.C. are facing, is really trying to understand again where the priorities are. I mean, at some point, right, there are only so many hours in the day. And so only so many staff that the CFPB has.
So with all of these things going on in these interest areas, it is a little hard to tell what’s actually going to be coming out in the way of new regulations, new guidance, potentially even enforcement actions. So you mentioned the BNPL. I absolutely think that’s a focus. We know that the CFPB is focused on big tech and specifically how these big tech companies are engaging more in payments and how they’re collecting data and what they’re doing with that data. And I think just overarching as well, we know that Director Chopra is a real student, if you will, or very passionate about competition. And even though competition is not the sole focus of the CFPB, and some would argue maybe even outside of its jurisdiction. I think Director Chopra will continue to have an eye on this big player versus small player. And should the CFPB play a role in trying to level the playing field and what are the barriers to entry for smaller players, especially in payments and financial services. And again, how aggressively should the CFPB act to try to knock down some of those barriers.
Deana Rich (16:10):
When the CFPB first was implemented via the Dodd–Frank Act, I thought it was great because FTC had no jurisdiction over banks. And a lot of times it would’ve been helpful from things I saw that they were doing if they had that jurisdiction. So then CFPB had that, got that. And then they also had more, almost overlapping what the FTC does as well. Do you see them acting in concert to really be able to help that small fintech company to be able to move forward? So those big techs aren’t just gobbling them up or clobbering them?
Kim Ford (16:50):
I don’t know that I would characterize it as acting in concert, but I do know that the FTC staff and the CFPB staff are friendly. Again, they talk, they engage a lot, I think, especially because Director Chopra continues to be interested in competition. And the FTC absolutely is looking at the competitive landscape, of course, along with the Department of Justice, which looks at antitrust types of behavior. I think that there is sharing of information. Now, are they actually working on initiatives together? Not so sure. I think it almost feels a bit, Deana, like a divide and conquer, but again, we do know that the FTC Chairwoman Khan is very focused on big tech and obviously Director Chopra is as well. So ultimately if there were going to be some sort of action taken around big tech, could the two agencies collaborate in some way? Perhaps. I would note as well that as you look at the structure of the FDIC board, again, another key banking regulator, Director Chopra has a seat there. And so does the OCC Comptroller.
So again, just by nature of what the FDIC board does, and those meetings that occur on a regular basis, there’s already some collaboration there, but I think from a big tech standpoint, Deana, just because you mentioned that, I think there are a lot of policymakers in D.C. looking at big tech. You’ve got various pieces of legislation that’s been filed in Congress. You’ve got the FTC, DOJ, CFPB all looking at different pieces. So I think we’re all wondering how that’s ultimately going to play out and what that will mean for big tech’s involvement and payments.
Deana Rich (18:34):
Many, many, many years ago, the phone company was broken up and it certainly wasn’t big tech, but it certainly was big. Ma Bell got broken into many different pieces and I’m not sure in long term it did anything, because I certainly feel beholden to my phone company now just as way back in the day. And I wish I knew the year that happened. And do you see, though, something like that happening now with big tech where these agencies come in more than one and start to tell it has to break apart?
Kim Ford (19:08):
I think that there are certainly some within the FTC, probably CFPB, maybe even within the Department of Justice, who would like that to be the outcome for some of their big tech investigations and lawsuits, but that’s a really tall order. I think the legal exercise that has to be taken around or the findings to be able to accomplish some sort of breakup of a big company, it’s just a very high hurdle. And so I don’t know if that would be the outcome, but it could be something that I think as somewhat remarkable that we’ve seen in the last few months is that there could be some of those companies, Deana, that have the target on their back that decide to divest portions of their business because maybe they think that could be the outcome. And so they’d rather get in front of that voluntarily, instead of being forced to by the government.
And I think an interesting parallel for that is what we’ve seen in the overdraft space with the CFPB, where the CFPB has issued some reports around overdraft that were pretty negative. And you’ve seen, as a result, quite a few financial institutions who have made significant changes to their overdraft programs, including in some cases reducing fees altogether or making the fee zero and that’s been done without any actual regulation or lawsuit. Right? So I think sometimes there’s that, the headline pressure and the court of public opinion, if you will, that can get to some of those same results. And of course, the agencies know that as well.
Deana Rich (20:55):
So thank you, Senator Warren and maybe Congressperson Porter, for some of those public assessors. I don’t want to not talk about crypto. So I’m going to switch a little, you did mention it in earlier on and any discussion of tech would be remiss without discussing about crypto. So focusing on policy where regulation is trying to find its place, what are you seeing there and what do you think the federal framework will end up being?
Kim Ford (21:32):
It is the million-dollar question, maybe billion-dollar question right now, Deana.
Deana Rich (21:37):
Yes.
Kim Ford (21:37):
Yeah. I think something that’s important to keep in mind here in the U.S. when we think about regulation is that in the U.S., our policymakers tend to have regulation that follows the market. And what I mean by that is, if you look at say the European Union, the European Union regulators tend to enact regulation in order to push the market in a certain direction. And think about the PSD2 (Payment Services Directive). That was entirely designed to drive competition. Whereas, in this country, we tend to let the market come out with things and then the government comes along behind and sort of plays clean-up. They try to identify areas where consumer protection, there may be some concerns around that. And so what can they do to clean that up? Crypto is interesting because, again, we know the market is moving on this.
So I think it is clear that the U.S. government is not trying to get in front of the crypto train, but there are a lot of questions about exactly what kind of framework I think would strike that balance of allowing for innovation, but still protecting consumers. And it’s just tricky. And I think that what’s compounded there is that we talk about crypto as this one term, almost like this one thing, but you and I know that when you look at crypto or digital assets, there are all these different forms of that. I mean, you’ve got Bitcoin, which is very different than a stablecoin, which is very different than a central bank digital currency, which is different than DeFi, which is different than the underlying blockchain and distributed ledger technology that underpins this. And I think what the regulators are struggling with is there will not be, I think, a one-size-fits-all solution from a regulatory standpoint for crypto as this umbrella thing.
So what they’re going to have to do is take each piece and figure out how each item can be regulated. Bitcoin, I think questionable, who do you even go after there? Right? It’s decentralized. Who would pay the fine? So then you shift to something like stablecoin and say, “Okay, well that feels a little bit more like low-hanging fruit of something that could be regulated, but then you have this bit of argument, if you will, in D.C. of, should it be a commodity? Should it be a security? What role should banks play?” You still have the Fed that’s looking at a central bank, digital currency, although they’ve been rather coy about what their plans are in that regard. So I would end with this and I think we will have a regulatory framework in place. There is no doubt in my mind about that. And I think there is absolutely bipartisan support in Congress to get something done.
It’s just, what will that be and how? I do think stablecoin feels like probably the starting place. There have been some really interesting legislative measures introduced in Congress, bipartisan again, that I think have some really strong components. I still think we’re probably a year out before a legislative vehicle starts to move in Congress. And again, the question will be, do the regulatory agencies wait for Congress to give them the authority or do they try to, again, in the CFTC’s or SCC’s case, try to go ahead and decide that crypto is either a commodity or security and therefore subject to those agencies rules before Congress acts? So certainly, there’s a timing question, but I think they’re going to have to take it in almost more bite-size pieces.
Deana Rich (25:21):
That makes sense. And I know we’ll learn more about that. Probably Q4 timeframe as the regulators start paying more attention to it. Hopefully, they’ll have time. So before we end today, what I’d like to do is ask if there are things you are working on as they’re related to regulation and oversight of fintech or what you see others are doing, where that is concern that we should tell our audience about, because we will have a lot of software-as-a-service, SaaS, companies here who play in that fintech space. Are there some great takeaways that they should think about, things that they need to keep on their radar?
Kim Ford (26:01):
I’m so glad you asked the question. I think it can be daunting in the policy space right now. I mean, it feels doom and gloom at times because there are just so many issues that stack up. Again, you think about consumer protection, generally, crypto, cyber, what’s going to happen with cannabis banking. There’s emerging focus from policymakers on artificial intelligence and machine learning. There are still supply chain challenges, there’s financial inclusion, financial literacy, the list goes on and on, and it can feel a bit daunting, but I think something that’s important to keep in mind is, well, two things. There is a fantastic story to tell in fintech, as we started out by talking, there are real challenges being solved by fintech today. And I don’t know that policymakers always hear those stories. You can read the headlines and think everything is just a problem.
And so finding ways to get the story out of what fintech is doing to help people and to solve challenges is just so important. And that can be done in so many ways. It can be done through trade associations, direct contacts with policymakers, hire a lobbying firm, hire a PR firm, lots of ways to do that. But I think as part of that, a lot of our focus tends to get caught up in D.C., because that’s where a lot of the headlines are made. But I would point out that non-banks are subject to state laws as well. We don’t enjoy preemption like financial institutions do, and every few years, thousands of legislators are voted out of office and come into office and they don’t necessarily know payments and fintech and the ins and outs of our industry.
And so I would just say, don’t forget about the states, right? Because that can be an incredible place to also get the story out. A lot of times, state legislators are more accessible than certainly members of Congress or even their staff. And so engaging with those folks telling the story is just so helpful. And remember, again, there’s constant turnover there. And folks like me in the policy space would love to have more fintechs at the table who are helping us to tell this incredible story about payments. So I just think that’s something to remember. We could all use the support here. I think it’s a great unifying opportunity for the industry to come together and escalate some of these stories.
Deana Rich (28:36):
Wow. Thank you, Kim. Today has been fabulous. I know that the listeners are going to have some takeaways and I forget about the states because I get so focused on federal legislation and what’s happening on the Hill. And when in reality, it’s the states that will either help you or hurt you.
Kim Ford (28:56):
Exactly.
Deana Rich (28:57):
Right. And then it’s a blindside from the states because you just weren’t paying attention. So I’m glad you brought that up.
Kim Ford (29:03):
Right. Absolutely.
Deana Rich (29:07):
Thank you so much to Kim Ford from Fiserv for joining us today and thank you to everyone for listening to It Pays To Know. To hear more from us, head on over to infinicept.com, where you’ll also be able to learn more about our PayOps platform and how we get payments going your way. For Infinicept, I’m Deana Rich. Thanks again for tuning in and we’ll pay you another visit soon.