The transformation of the financial sector continues to be accelerated by fintech, bringing the movement front and center at CES. A series of sessions and discussions held last week during the tech trade show hosted by the Consumer Technology Association explored how fintech can drive broader inclusion in access to financial resources, the ways in which banks are changing, and how cryptocurrency adoption could evolve.
In a conversation on “Fintechs and the Promise of Inclusion and Diversity” Jenny Walden, Chief Innovation and Marketing Officer at DailyPay saw; Sushil Prabhu, CEO, Dropp; Craig J. Lewis, CEO and founder of Gig Wage; Raja Chakravorty, Plaid Financial Access, joined coordinator Robin Raskin, founder of The Virtual Events Group.
The narrative surrounding fintech has changed over the years as Raskin points out, from previous assumptions that firms in the field would replace incumbents just like banks. “It turns out the story didn’t work,” she said. “But what they did was supplement them, amplify them, remove friction, and make it really easy for more people to get involved in banking and finance, loads, and trading.”
Chakravorty said Blade, for example, is focused on democratizing financial services through technology. The company has built an infrastructure that connects financial institutions with FinTech applications. He said the mobile-centric nature of fintech makes it a natural fit for consumers who, at the start of the pandemic, were eager to find ways to continue banking remotely.
Chakravorty cited statistics that about 45 million people in the country have invisible credit, which means they have no reported credit history. Minorities, recent immigrants, and others may be at a disadvantage on this front for a variety of reasons he highlighted. “The things that traditional financial institutions use to value and provide financial services are skewed against them,” Chakravorty said. This can include credit scores. “Fintech has been able to design point solutions to be able to use data in a more comprehensive way,” he said.
Walden said the breadth of fintech companies that have sprung up has created an infrastructure that provides financial opportunities to access and move money more freely in the system, but there is a caveat. “Nothing works in fintech if you don’t have the money,” she said. Without people investing money in the system, innovations in financial infrastructure lose their purpose.
Walden said DailyPay aims to eliminate some “invisible rules” around money. This includes scheduled pay days, which are often set at two weeks by most companies. “Why do we have to wait two weeks to get paid?” She asked. DailyPay’s digital wallet solution allows users to access the pay they earned once they start working for participating employers. “As you work in real time, you gain balance,” Walden said. She said this would allow users to pay bills and use their money in other ways sooner rather than waiting over two-week time periods, which could give them more history to create a history for credit purposes.
New forms of competition are reshaping the financial sector with some tech players challenging existing institutions to be the digital solutions where the money is put. This was the gist of the discussion in the ‘Big Tech and Banking’ discussion which included Kombiz Abdul Rahim, Head of Emerging Technology and Innovation at Deloitte; Chakravorty from Plaid; Marianna Danilovich, Managing Director of Infiom; and Will Graylin, CEO, Indigo Technologies.
“What we are talking about is creating more frictionless trading experiences,” Graylin said. “This is not just for consumers but also for brands.”
The incumbents have the resources to provide banking and lending services while complying with regulatory requirements. He said that Fintechs may be able to make such experiments faster on the edge. “Banks still have all overhead and all compliance responsibilities,” Graylin said. Meanwhile, he said, fintech companies could offer credit, lending, banking and deposit services with faster service, which could lure businesses away from core banks.
Fintechs still have some growth today before they can fully match banks. “Some fintechs are not quite as strong when it comes to compliance and when it comes to risk management,” Graylin said.
He said there could be a balance in technology as fintech companies provide more frictionless access to the front layer while also leveraging the core strengths of banks. “We can have a little bit of the best of both worlds and I think that’s the world we’re going towards.”
The proper placement of cryptocurrencies in the future of the financial world remains a challenge to sort out as new entrants enter the field and policy makers attempt to understand these limits. The discussion of “Cryptographic Decoding” included Kristen Smith, Executive Director of the Blockchain Association; Tushar Nadkarni, Chief Growth and Product Officer, Celsius Network; Michael Terpin, CEO, Transform Group; and Clara Cao, founder and director of the Filecoin Foundation.
Growing interest from Congress
Smith said that in previous years, the Blockchain Association had had to scramble to speak with members of Congress about policy ideas for cryptocurrency. This reluctance to contact has since evaporated. “We have a lot of entrants from Capitol Hill who want to learn about different issues, that have very specific questions,” she said.
Smith said that the increased interest Congress has had in cryptocurrency stems from the growing number of components that have won cryptocurrency or are working in crypto companies. She also said this could lead to “good public policy” in place at the federal level. Smith later noted that government regulation of financial services is largely about having a broker that can be regulated.
These basic pillars of regulation may not have a clear application in crypto and decentralized finance (DeFi). “Regulators have a hard time realizing that you might have a group of developers building on something, but do they have customers? Do they have customer information? If you don’t have that kind of relationship, you can’t force two parties to share information from this,” Smith said. kind.”
Regulators may need a little hand-holding to better understand how the crypto world works because it can work well outside the parameters they are accustomed to. For example, Smith said the risks in DeFi differ from traditional financing where securing loans may simply require adequate collateral compared to existing banks that may use a variety of other criteria to evaluate applicants. “It really requires some new thinking,” she said.