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Open Banking and the Road Ahead: Post-Election Insights · Leaders in Lending

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Speaker 1: You're listening to Leaders in Lending from Upstart, a podcast
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Speaker 1: dedicated to helping consumer lenders grow their programs and improve
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Speaker 1: their product offerings. Each week, here, decision makers in the
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Speaker 1: finance industry offer insights into the future of the lending industry,
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Speaker 1: best practices around digital transformation, and more. Let's get into
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Speaker 1: the show.
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Speaker 2: Hello, welcome to another episode of Leaders in Lending. I'm
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Speaker 2: your hopes this week met Snow Join again by Arman Meyer. Arman,
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Speaker 2: good to see you again, Welcome back.
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Speaker 3: Thanks having back. I'm honored to be back three days
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Speaker 3: after an election that was wide open, so I hope
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Speaker 3: there are many curve balls in this conversation. I'm looking
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Speaker 3: forward to it.
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Speaker 2: I know it's funny it is Friday, so you know,
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Speaker 2: the election just a few days ago. The last time
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Speaker 2: we spoke was around the CFPB and challenge to their
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Speaker 2: existence and funding, and a lot's changed even since then.
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Speaker 2: You know, we've been keeping in touch thinking about open banking,
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Speaker 2: which we'll get into. But you know, with the election,
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Speaker 2: as it tends to do, it changes the perspective on
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Speaker 2: a lot of things. So I think we got a
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Speaker 2: lot of ground to cover. But maybe why don't you
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Speaker 2: start we didn't really do a proper introduction to the
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Speaker 2: audience last time.
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Speaker 4: Why didn't you give a little bit of your background.
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Speaker 2: I think it will help people understand the depth that
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Speaker 2: you bring to a technical and robust conversation like the
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Speaker 2: one we're about to have.
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Speaker 3: Oh that's nice to you. Well, I guess I'm known
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Speaker 3: for my role Lending Club for about six seven years
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Speaker 3: and started the American FINTAD Council to our current audience.
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Speaker 3: But before that, I had a role at PwC where
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Speaker 3: I was kind of guy who was to analyze these
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Speaker 3: election outcomes for our large bank clients and kind of
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Speaker 3: put in perspective like what could happen. In fact, I
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Speaker 3: actually just read the one we did back in twenty
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Speaker 3: sixteen when Trump went the first time. Good news. Not
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Speaker 3: much relevant today except for a couple of points, So
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Speaker 3: not much revegetation. But I think some of that might
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Speaker 3: be helpless conversations, some of the views of what we
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Speaker 3: saw regulators and new advisors do back then. Before that,
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Speaker 3: I was chief of staff a New York's bank regulator,
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Speaker 3: helped his transition to become the Department of Fancial Services.
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Speaker 3: Left soon thereafter and got a front seat to the
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Speaker 3: financial crisis. During that period, I was kind of doing
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Speaker 3: work for the Governor of New York when the crisis hit,
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Speaker 3: and started doing a lot more work in fancial services
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Speaker 3: to see what we could do as a state to
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Speaker 3: make regulation work right in the future. And before that
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Speaker 3: did have several roles advising congressmen and governors and candidates
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Speaker 3: for office on broader political strategy and policy for a
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Speaker 3: few years. After law school, I was a lawyer for
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Speaker 3: one year in my life and clear that was not
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Speaker 3: my calling. But every now and then it's fun to
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Speaker 3: grab that and use it in conversations like this one year.
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Speaker 2: Okay, I've got an eighteen year old looking at colleges
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Speaker 2: now with an eye towards law school. We'll see, you know,
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Speaker 2: he's in an internship right now, and we'll see if
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Speaker 2: he makes it longer than a year where he ends
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Speaker 2: up filming.
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Speaker 3: Happy to talk to him, warn him or depending on
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Speaker 3: everyone has a wrong motivation. I think in the beginning,
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Speaker 3: you don't really know what you're getting into it until
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Speaker 3: they get into it. I should mention that lately, for
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Speaker 3: a year now, I've been I left lending call about
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Speaker 3: a year ago, and I've just been advising a lot
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Speaker 3: of companies in gen AI in fintech, and I meet
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Speaker 3: some folks a couple of enture capitalists started to find
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Speaker 3: a few months ago investing in AI foundation models and
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Speaker 3: impact in financial services and fintech space. It's been pretty
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Speaker 3: fun year. And have my own consulting for now focusing
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Speaker 3: on financial health outcomes. Have a few clients who are
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Speaker 3: really interested in kind of bulletproofing products and that's been
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Speaker 3: a reallyjoying thing to be able to do as well,
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Speaker 3: and very relevant to changing regulations. I think height you
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Speaker 3: approach those clients and conversations.
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Speaker 2: Yeah, absolutely, and AI certainly, you know in the news
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Speaker 2: a lot lately and a fun topic to dig into.
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Speaker 2: But I've been surprised, you know, open banking maybe not
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Speaker 2: quite as much, but it seems to be trending and
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Speaker 2: getting a lot more airtime lately as much as AI,
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Speaker 2: especially in financial services, which made me go back and
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Speaker 2: do a little bit of like history researching and reminiscing
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Speaker 2: because I was also actually at a bank during the
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Speaker 2: Great Financial Crisis, and a little bit of like PTSD
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Speaker 2: going back through and reliving some of those as I
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Speaker 2: was thinking about open banking, and you know, the dot
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Speaker 2: Frank acted really the genesis of a lot of these
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Speaker 2: you know, ten fifteen years ago and thinking about that,
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Speaker 2: you know, hundreds of pages of regulation, Like why do
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Speaker 2: you think it took so long to even today, you know,
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Speaker 2: November of twenty twenty four, fifteen years later, to get
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Speaker 2: to any kind of a conclusion or i hate to
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Speaker 2: say resolution now that we've had an election and things
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Speaker 2: are likely to change again, but you know what took
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Speaker 2: so long for that piece of the bill to actually
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Speaker 2: come to some kind of anion.
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Speaker 3: And if you believe it, there were a couple others
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Speaker 3: this year that got finalized. So this this this past
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Speaker 3: couple of years that also took a long time. Well,
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Speaker 3: first of all, DoD Frank was huge or bazillion regulations,
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Speaker 3: and from my time at PwC to my time at
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Speaker 3: Lending Club, we were wondering why is it taking so long?
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Speaker 3: And like one reason, of course is the obvious. You
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Speaker 3: change administrations, things change, things get dropped. That really did
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Speaker 3: delay a lot of dot rank implementation. You also had
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Speaker 3: quite a anti regulatory bend. In fact, you had under
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Speaker 3: for example, the CFPB, which we'll probably get into as
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Speaker 3: we talked about ten thirty three and open banking take
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Speaker 3: backs and regulations as opposed to promulgating regulations. So you
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Speaker 3: definitely had not just changing, you had an anti regulatory environment.
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Speaker 3: But first and foremost is open banking was not the
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Speaker 3: issue of the day coming out of the crisis. Commut
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Speaker 3: of crisis something we talked about last time the mortgage
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Speaker 3: market had blown up. How do we fix that? What's
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Speaker 3: the new way to create an infrastructure so we don't
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Speaker 3: have that again? Other types of regulation. What's a way
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Speaker 3: of creating less asymmetry information between bank and customer said,
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Speaker 3: the customer knows they're doing. And then other tide of regulation,
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Speaker 3: how do we as simply ban conduct? We don't like
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Speaker 3: those regulations got a front seat open banking. I would
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Speaker 3: put in the infrastructure, but it wasn't about the mortgage, right,
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Speaker 3: this is like the latest infrastructure regulation. Great to have,
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Speaker 3: was not a priority. But glad we finally got there.
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Speaker 2: Yeah, I'm glad you said that because I again, like
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Speaker 2: I was doing a lot of research and I was
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Speaker 2: having a hard time finding like how that even made
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Speaker 2: it into a part of Dodd Frank or you think
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Speaker 2: about in the transparency or separation of banking activities, Capital requirements,
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Speaker 2: all those things that were tied much more to the
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Speaker 2: issue at the day credit quality, and you know, being
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Speaker 2: much more focused on those disciplines. What do you think
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Speaker 2: led it to being a part of that? Like what
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Speaker 2: were they trying to solve? It doesn't seem like there
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Speaker 2: was a lack of competition that led to these issues
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Speaker 2: in the banking industry or like consumers didn't have that
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Speaker 2: much of a lack of choice. Is that is that
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Speaker 2: something that's become more of an issue today, that is
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Speaker 2: finally becoming a priority or was that an issue then and.
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Speaker 4: Just maybe wasn't as high of a need to think about.
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Speaker 3: You're straining my memory, but I do think a lot
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Speaker 3: of actually directing Troper's reddick is reminding me that I
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Speaker 3: think some of the initial ideas in ten thirty three,
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Speaker 3: and I believe it's ten thirty four. I know it's
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Speaker 3: ten thirty four. Section B perhaps is really about the consumer.
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Speaker 3: So it's a consumer protection regulation in my three buckets,
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Speaker 3: as well as an infrastructure regulation. But the consumer aspect
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Speaker 3: probably drove it in that the consumer shouldn't have to
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Speaker 3: pay to know about him or herself. And ten thirty
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Speaker 3: four B has been implanted by a CFPB, not as
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Speaker 3: a formal rule, and ten thirty three kind of follows that.
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Speaker 3: But I think in time, as tech emerged, ten thirty
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Speaker 3: three became a more important thing as we saw fintech
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Speaker 3: evolving and used the APIs. So it did, and I'm
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Speaker 3: almost feeding into the lawsuit against it, which we get too, Laida.
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Speaker 3: I think the priority did change a little bit over time,
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Speaker 3: but I do think both are in scope and both
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Speaker 3: are very important.
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Speaker 2: Yeah, have you seen any companies like try to fill
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Speaker 2: this space ahead of the regulation, Like aren't some of
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Speaker 2: the bigger banks doing this already? Or you talk about
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Speaker 2: API enablement, like aren't companies coming in to fill this
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Speaker 2: gap and give the consumer some of that transparency? Like
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Speaker 2: do we need this kind of a regulation?
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Speaker 3: I love the do we need a question? Because it
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Speaker 3: is really interesting because other markets did have the privacy
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Speaker 3: had to lead away, but we found in the US
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Speaker 3: is first you had. Of course the screen scraping made
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Speaker 3: is that the safest way or smartest way of doing this,
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Speaker 3: And of course screen scraping does have not just data issues,
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Speaker 3: which is for this comedy is probably most important thing
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Speaker 3: where it's not always accurate. You can't always get it right.
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Speaker 3: But two, you have, of course the idea of now
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Speaker 3: given your crunch to the third party, it's going to
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Speaker 3: sit there, and more issues of fraud and an intrusion
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Speaker 3: in some data. But second, even on the API front,
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Speaker 3: even when you're not doing screen scraping, APIs are not
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Speaker 3: always reliable. You have to invest in an API. And
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Speaker 3: part of the reason we're here today is this API
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Speaker 3: technology and the ability to protect your API is way
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Speaker 3: better than I probably was way back then. And then two,
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Speaker 3: even with APIs that are robust, and a lot of
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Speaker 3: times APIs are weird rules like is the data conversation
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Speaker 3: the same on both sides? Is the API always available?
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Speaker 3: Is it always functioning because it's well run? These are
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Speaker 3: all the techniclogies that have gotten a way of even
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Speaker 3: a non screen scraping world where Plaid and others went
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Speaker 3: from screen scraping to actually going API based, and it
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Speaker 3: still wasn't solving the problem if we actually want real
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Speaker 3: good data on demand with the accuracy, so we The
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Speaker 3: final one is everyone in the pool. Like you have
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Speaker 3: the APIs, you have the screen scraping, but then who's playing?
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Speaker 3: And then a lot of banks are now being encouraged
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Speaker 3: to jump into this pool of sharing data, not as
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Speaker 3: many as originally intended. Some have been carved out the
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Speaker 3: smaller ones. But I think those are some of the
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Speaker 3: three issues that this rule trying to address.
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Speaker 2: Gotcha, you said a word that's jumped out to me
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Speaker 2: and maybe to some of our other listeners who are
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Speaker 2: on the industry side, you know, working at banks and
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Speaker 2: credit unions invest like do you think this wouldn't they
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Speaker 2: have already done this today, like if it was cheap
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Speaker 2: or easy or accessible, Like is this going to require
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Speaker 2: a lot of smaller mid sized banks to spend money
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Speaker 2: that you know, maybe they don't have prioritized or how
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Speaker 2: do they even think about like an investment in this
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Speaker 2: space to be able to accommodate this.
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Speaker 3: Well, we started off talking about generally I for one
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Speaker 3: second and we talked about the last time, the data
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Speaker 3: is more important than you got to have data before
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Speaker 3: we can analyze something. See every foundational model. And I
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Speaker 3: don't want to dismiss concerns on getting your API at
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Speaker 3: the snuff or making its work or liability if things
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Speaker 3: don't work. But the future is data and the data
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Speaker 3: can't just sit in six big banks, because if it
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Speaker 3: does we're all kind of screwed and that's the end
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Speaker 3: of innovation. So there is a price to pay for
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Speaker 3: innovation and a competitive marketplace. This is the price. But
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Speaker 3: I will say give a CFPE credit. The implementation timeline
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Speaker 3: is long. It goes all the way at twenty thirty.
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Speaker 3: The smallest banks eight fifty million in assets in under
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Speaker 3: are not included. I don't think a bank below ten
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Speaker 3: billion has to do anything for at least a couple
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Speaker 3: of years. And to our where we started, the tech
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Speaker 3: is better and it's not like there's a random API provider.
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Speaker 3: It's like this, this is a core provided thing. Now
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Speaker 3: I'm not saying is the easier perfect I'm just saying that,
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Speaker 3: like tech has moved us forward in a way and
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Speaker 3: the need and we've seen the benefit sharing data on
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Speaker 3: full display, and to squelch that is the wrong move,
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Speaker 3: and to empower it is the right move. And there
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Speaker 3: is a cost. But I'm glad to see that some
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Speaker 3: banks have the options to day out of it. I
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Speaker 3: think some people would be returnalists and say, oh, everyone
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Speaker 3: should be in it because it's good for the consumer. Well,
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Speaker 3: the consumers can move that, and that consumer moving is
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Speaker 3: not easy, but we don't have to treat all banks
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Speaker 3: the same.
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Speaker 4: Yeah, that's a good point.
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Speaker 2: And I've been trying to think of other like similar
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Speaker 2: instances of this in the past, like maybe seacoil requirements.
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Speaker 2: Can you think about other things where like there have
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Speaker 2: been time to move through and kind of catch up
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Speaker 2: or I.
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Speaker 3: Think a lot of the implantation regimes have been focused
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Speaker 3: on bank size, or I mean even the other regulation
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Speaker 3: that I mentioned, there's other regulations that just came out
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Speaker 3: see section ten seventy one. What's ten seventy one. It's
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Speaker 3: small business lending transparency rulemaking. That also took a long, long,
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Speaker 3: long long time, probably because small business lending is really
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Speaker 3: not a core CFPD competency and it also was not
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Speaker 3: irrelevant to the crisis, but a few were saying it
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Speaker 3: was foundational or highly exacerbating of the crisis, so that
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Speaker 3: also got de prioritized. And you do see major timelages
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Speaker 3: and implementation there. And I think that's the right approach.
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Speaker 3: All banks are not created equal, and if the goal
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Speaker 3: the irony is the goal of open banking, and ten
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Speaker 3: seventy one is to share data so that people get
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Speaker 3: a better sense of who was provided the best product
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Speaker 3: or can easily go to the best product. It would
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Speaker 3: be funny, indeed, to have those same rules impost enormous
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Speaker 3: costs and smaller players and wipe them out when we're
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Speaker 3: trying to promote competition here. So we should have implementation
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Speaker 3: timelines to help them out a little bit.
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Speaker 2: Yeah, well, I was thinking about that too, Like what
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Speaker 2: what do you think do you have any predictions on
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Speaker 2: what may happen as a result of this, Like do
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Speaker 2: you think there will be more M and A activity,
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Speaker 2: Like will there'll be some that just can't or don't
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Speaker 2: want to compete in the space and you know, the
14:13
Speaker 2: bigger players will will gobble them up, or you know,
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Speaker 2: in the middle of the market, more consolidation, you know,
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Speaker 2: other tech companies fill this need, or like what do
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Speaker 2: you see as a maybe a reactive I.
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Speaker 3: Think the open banking driver on M and A is
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Speaker 3: not significant in your term compared to other factors. And
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Speaker 3: the number one factor, which I'm sure we'll get to,
14:39
Speaker 3: is the change that's going to occur the fd I
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Speaker 3: C and E OCCU and then more broadly at the
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Speaker 3: FTC for M and A activity and others are declining
14:50
Speaker 3: interest rates and more of a sense of the recession
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Speaker 3: is not coming. If that's true, that's the way it looks.
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Speaker 3: So I think these factors will be much more drive.
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Speaker 3: The other thing on open banking to have it that's
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Speaker 3: come up is we'll open banking drive a M and
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Speaker 3: A or will in fact make the financial system less
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Speaker 3: stable because open banking course does two things. One is, hey,
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Speaker 3: I'm a customer. I'm at pick your biggest bank, my
15:22
Speaker 3: old employer, lending Club or your employer upstart wants to
15:26
Speaker 3: make a loan to the customer, but needs that data
15:29
Speaker 3: at JPM or whatever to help make that loan because
15:33
Speaker 3: of the help reduce the cost of credit. That's like
15:35
Speaker 3: the class example, and the customer should be allowed to
15:38
Speaker 3: give that data to do that. But the other one
15:40
Speaker 3: that has come up in terms of could it create
15:43
Speaker 3: bank runs is lending Club bank I think has a
15:48
Speaker 3: great apy compared to a JPM, And so why don't
15:53
Speaker 3: people now take their data which we don't want to
15:55
Speaker 3: trap at JPM and bring it to another bank to
15:59
Speaker 3: get a better ape, maybe a better experience overall. Is
16:02
Speaker 3: it a positor or maybe better products? Something have said
16:06
Speaker 3: similarly like will that really changed the world? And I'm
16:09
Speaker 3: kind of like not really, not really. There's so many
16:13
Speaker 3: ways in which there are tendrils in bank deposits that's
16:16
Speaker 3: too hard to move. You got to reset up your
16:19
Speaker 3: VENMO payments. Open banking solves some of those, but not enough,
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Speaker 3: and we're not going to see massive runs because of
16:25
Speaker 3: your ability to move data. I think apys drive it
16:28
Speaker 3: more and marketing than does your ability to move data.
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Speaker 2: Yeah, I think that's right, and maybe not to zoom
16:34
Speaker 2: out too far. But then, you know, what do you
16:36
Speaker 2: think consumers are looking for from a bank today? Is
16:38
Speaker 2: it a one stop shop? Is it someone maybe like
16:41
Speaker 2: I can trust with a core relationship, and then open
16:44
Speaker 2: banking allows me to pick and choose more point solutions.
16:47
Speaker 2: Like you said, for lending, I'm going to go to
16:49
Speaker 2: Upstart or Lending Club for uh, you know, an auto loan,
16:53
Speaker 2: or for a brokerage account, I'll go somewhere else. You know, what,
16:57
Speaker 2: what does it mean like in the financial services, who's
16:59
Speaker 2: going to win the space or a consumer?
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Speaker 3: Well, I think you're now getting at my biggest criticism
17:05
Speaker 3: of the rule, because the winner is the one that
17:09
Speaker 3: can actually hold on to the data the longest and
17:12
Speaker 3: provide those services, and the rule in some respects moves
17:17
Speaker 3: us backward. It's in terms of competition, So the rule
17:24
Speaker 3: does the right thing. The rule does is we discussed
17:29
Speaker 3: you can now use the API and you can go
17:31
Speaker 3: to lending Club for your point solution or your Upstart
17:33
Speaker 3: for your point solution if you don't like your bank solution.
17:36
Speaker 3: I think the idea that one bank that integrated everything
17:39
Speaker 3: is as far off. We haven't seen the big banks
17:43
Speaker 3: really innovate enough that that future is near term. What
17:48
Speaker 3: we have seen is Upstart, Lighting Club and others come
17:51
Speaker 3: in lower the cost of credit, and seeing the big
17:55
Speaker 3: banks follow by creating their own personal loans and not
17:59
Speaker 3: even doing as well Seagull and Sacks failing to be
18:02
Speaker 3: a personal loan player. We've also seen APIs go up
18:06
Speaker 3: because of fintech. We've also seen overdraft fees go down
18:10
Speaker 3: because of fintech. So I don't see a world where
18:13
Speaker 3: you can empower just a few banks. What I worry though,
18:17
Speaker 3: is that this rule, although in some ways makes it
18:19
Speaker 3: better to not rely on a few banks, it also
18:23
Speaker 3: makes it worse. How does it make it worse? Two ways. One,
18:27
Speaker 3: when a customer gives their data to an Upstart or
18:30
Speaker 3: a lending club to provide a better loan. Upstart or
18:34
Speaker 3: lending Club want to hold on to that initial data
18:38
Speaker 3: because their model depends on knowing where the customers started
18:41
Speaker 3: and what data had in order to continue to improve
18:44
Speaker 3: that model over time so that that same great product
18:49
Speaker 3: can be offered someone else in the future. Initially, the
18:52
Speaker 3: rule said, sorry, Upstart, Sorry lending Club, you can't. You
18:56
Speaker 3: can't hold on to it. You can use it once,
18:58
Speaker 3: but it's a secondary use that's banned to hold on
19:01
Speaker 3: to it for product improvement. Luckily, the CFP came to
19:04
Speaker 3: its census, so that part was obviated in its final rulemaking.
19:08
Speaker 3: What was not obviated, which I think will be a
19:12
Speaker 3: competitors advantage for the FinTechs that have done so much,
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Speaker 3: is one what about holding that data to create new products?
19:22
Speaker 3: And by the way, clearly as a privacy concern, I
19:25
Speaker 3: get it, you get it. But there is this thing
19:27
Speaker 3: called de identification, which is with the CFPP itself advocated
19:32
Speaker 3: for and it's ten seventy one rule making and said, thanks,
19:34
Speaker 3: don't worry, no one's going to know unless we tell
19:37
Speaker 3: them who it is because it's the identified. But for
19:40
Speaker 3: some unknown reason, in ten thirty three that's not good enough.
19:44
Speaker 3: We're too worried about lending Club or Upstart and having
19:49
Speaker 3: that data, even if it's the identified for the purpose
19:52
Speaker 3: of new products, new research. Now road Chopper did say
19:56
Speaker 3: researchers for nonprofit in the future can do that, but
20:00
Speaker 3: I don't think that's not going nearly far enough, and
20:02
Speaker 3: I worry about a world we're only JPM can use
20:09
Speaker 3: its data for that purpose, so I hope, I hope
20:12
Speaker 3: we can think of some ways of fixing that down
20:13
Speaker 3: the road. The second warkness that's a look concerning is
20:18
Speaker 3: cross sell. I know cross sell is a bad world word,
20:22
Speaker 3: but let's be honest, the fintech environment selling into consumers
20:27
Speaker 3: has made fan your service a lot better. Sure, there's
20:30
Speaker 3: some bad actors. We have a trade associated on AFC
20:32
Speaker 3: we talked about before to help separate good from bad.
20:35
Speaker 3: We'll keep doing that work. But if we're so worried
20:38
Speaker 3: that Upstart lending Club are going to use that data
20:42
Speaker 3: to see, Hey, actually, you JPM customer, you are getting
20:46
Speaker 3: screwed on your annual percent yield or you're getting screwed
20:49
Speaker 3: on your auto loan. I know you came to us
20:51
Speaker 3: for our personal loan, but we can do more for you,
20:53
Speaker 3: and we're so worried about that, then we're just in
20:56
Speaker 3: the world where we're just going to shoot spam inboxes
21:00
Speaker 3: to try to get customers, and the idea of tailoring
21:03
Speaker 3: products to a customer is out, and we're still in
21:06
Speaker 3: the world of tailing a product to what we want
21:08
Speaker 3: to sell, which should be out and unfortunate. I feel
21:10
Speaker 3: like this rule is going to make it harder to
21:13
Speaker 3: do adequate customer analysis to get them the best products
21:18
Speaker 3: that they need.
21:19
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22:12
Speaker 2: There could be a couple of things that help that though,
22:14
Speaker 2: right that we talked about maybe offline, and one of
22:17
Speaker 2: them a little faster than the other, one being like
22:19
Speaker 2: the idea of a standard setter, so Plaid being the
22:21
Speaker 2: first I think in the gate to do that. So
22:24
Speaker 2: we talked about like the American Fintech Council, or the
22:26
Speaker 2: idea of a group or a company coming in to
22:29
Speaker 2: set a standard. Like let's come together as an industry
22:32
Speaker 2: and try to solve this problem versus you know, regulators
22:35
Speaker 2: and policymakers who they're good at getting elected and raising
22:39
Speaker 2: funds and sometimes legislative but not always you know, as
22:42
Speaker 2: in the weeds and the details of our industry as
22:44
Speaker 2: we are. So you know, let's like try to come
22:46
Speaker 2: up with the answers as a team.
22:49
Speaker 3: And an answer there, Matt, Honestly, I think I think
22:52
Speaker 3: AFC is well positioned and others would be helpful as well,
22:58
Speaker 3: is to ask CFP. There there are goods and bads
23:03
Speaker 3: about change administration and take depending on perspective. A good
23:07
Speaker 3: from my perspective on this rule is this rule may
23:10
Speaker 3: not be a closed deal. We can go in there
23:14
Speaker 3: and say, hey, if we're so worried about secondary use
23:16
Speaker 3: of data, because you're worried about the spamming using that data,
23:21
Speaker 3: you're worrying about learning about by the client, the customer,
23:24
Speaker 3: you can actually raise prices. We have TILA that defines pricing.
23:28
Speaker 3: We have apy defined. Why don't you just say, unless
23:33
Speaker 3: it's a lower price product, you can't offer it. If
23:36
Speaker 3: it is lower price, you can. And there are compromises
23:40
Speaker 3: here to make the secondary use of data so powerful
23:43
Speaker 3: if we need to compromise. So I do hope we'll
23:45
Speaker 3: get a second day in court on that issue, because
23:48
Speaker 3: I just I don't want JPM and Wells and a
23:52
Speaker 3: few banks being the only ones who can do that,
23:55
Speaker 3: because either they won't or if they do do it,
23:58
Speaker 3: they won't do it. As well as having competive market.
24:01
Speaker 3: So to come back to your question, God, I hope
24:02
Speaker 3: we don't end up at one stop shops. And just
24:04
Speaker 3: don't believe. I don't believe in government controlling everything. I
24:06
Speaker 3: don't believe it. Two corporates patrolling everything.
24:09
Speaker 2: Yeah, I agree with you on that, and you hit
24:10
Speaker 2: on the other thing I was going to mention is like,
24:12
Speaker 2: we'll probably see this grind through the court system for
24:15
Speaker 2: some time too, right, because I think there was a
24:18
Speaker 2: note in there, an exception to kind of protect IP
24:21
Speaker 2: or things otherwise protected under law. So, you know, I
24:24
Speaker 2: imagine we'll see some companies trying to protect you know,
24:28
Speaker 2: data that, like you said, they're using for underwriting other
24:30
Speaker 2: products that they feel is pretty proproprietary or critical to
24:35
Speaker 2: their business, that maybe slows down some of the use
24:37
Speaker 2: of this as well.
24:39
Speaker 3: That's right, we've were remiss if we don't mention the
24:41
Speaker 3: case that was filed the day of where net the
24:47
Speaker 3: big banks have decided this is not good for them,
24:49
Speaker 3: even though I've made arguments that entrenched their monopolies. I
24:52
Speaker 3: understand I pitsioned that it's ultimately better for FinTechs. This
24:55
Speaker 3: rule is better for competition, no rule for sure, And
24:58
Speaker 3: they aren't making arguments that we've heard before in other
25:01
Speaker 3: contexts about everything you just said AD fraud, AD, cybersecurity, AD.
25:08
Speaker 3: We don't trust those FinTechs, and so we'll see how
25:12
Speaker 3: it plays out. There's no way to know in my opinion,
25:16
Speaker 3: absent being some great litigation analysts, because we've seen what
25:21
Speaker 3: the courts can do and they know how to pick
25:23
Speaker 3: their forums. They're not dumb. So we'll see what happens.
25:27
Speaker 3: But what I do think, you know Trump is president,
25:31
Speaker 3: will be president. The CFP director will change, maybe not
25:35
Speaker 3: day one, but close to it. The world is different.
25:38
Speaker 3: Why do I say close to day one because there's
25:41
Speaker 3: a Supreme Court case in twenty twenty that ends the
25:44
Speaker 3: idea that the director is a five year term and
25:47
Speaker 3: it's now serves the will and president. As we discussed
25:50
Speaker 3: in the last podcast, that's a bad thing for the world.
25:53
Speaker 3: In my opinion, I do like the idea of agencies
25:57
Speaker 3: having to be a little more measured and keeping old
26:00
Speaker 3: yards in for longer. I think that serves our stability better.
26:04
Speaker 3: But it is what it is, so we'll see a
26:07
Speaker 3: shift there quite quickly, and there will be an opportunity
26:11
Speaker 3: to change the rule as needed. I don't know if
26:13
Speaker 3: we take in if this litigation does not succeed CFP,
26:17
Speaker 3: we make a choice do we defendse litigation or not.
26:20
Speaker 3: That will be a choice. They can choose not to.
26:23
Speaker 3: But I don't think this rule is like one of
26:24
Speaker 3: these rules that when we go through the future CFPV
26:29
Speaker 3: in a few minutes. This is not the rule that
26:32
Speaker 3: a CFPB is like gonna blow up under Trump. This
26:35
Speaker 3: is not probably number one in my opinion.
26:37
Speaker 2: Yeah, yeah, And maybe that's a good segue. Like of
26:40
Speaker 2: the other agencies, where do you want to go next? Now,
26:42
Speaker 2: Like you said, we're starting to get news of Trump
26:45
Speaker 2: and his transition team and cabinet and then see who
26:48
Speaker 2: he's going to start selecting in some of these roles
26:51
Speaker 2: like what what are some of the things you're looking
26:53
Speaker 2: for or you know, thinking about the changes that could come.
26:57
Speaker 3: Yeah, let's do the other broadly, and then it might
27:01
Speaker 3: be to come out to the CFPP on like CFP
27:04
Speaker 3: what they're going to be thinking the next few months
27:06
Speaker 3: and what they reprobably gonna think of then they come in,
27:08
Speaker 3: but more broadly on regulation and impacts all of us.
27:11
Speaker 3: I think I am we're going to see quick transition
27:15
Speaker 3: out of CFPB an EOCC the OCC again normally a
27:20
Speaker 3: five year term in this case not because controller suit
27:24
Speaker 3: was never confirmed he was an actor. So those are
27:27
Speaker 3: been the two easiest switches for Trump. On the other
27:31
Speaker 3: end is the FED, where nothing's changing for years, a
27:35
Speaker 3: couple of years, because the FED is very structured, board
27:39
Speaker 3: by board member long terms. One nuance that could be
27:43
Speaker 3: interesting there is what happens to Mike bar the Democratic
27:46
Speaker 3: vice share for supervision. Now, Trump had in his vice
27:51
Speaker 3: share of supervision Ranny Corals and he resigned in his
27:55
Speaker 3: due time for policy or with our personal reasons. He
27:58
Speaker 3: was not forced out. He was around for about a year.
28:01
Speaker 3: I'm sure there was some behind the scenes stuff, but
28:03
Speaker 3: there wasn't a big kerfuffle in terms of rules and
28:05
Speaker 3: those other agencies. I think, I think that we'll get
28:09
Speaker 3: back to see if being second, but I think the
28:10
Speaker 3: bank partner model is the one we all care about
28:11
Speaker 3: the most. So obviously, when you change these regimes, you're
28:16
Speaker 3: looking at three things, broadly, rulemaking, enforcement and supervision at
28:22
Speaker 3: the FDIC and the OCC. If you talk to the
28:25
Speaker 3: bank partners you may know this. I'm sure all the
28:29
Speaker 3: vast banks know this. The supervisors have been quite challenging.
28:34
Speaker 3: Some of the rulemakings have that are pending have been
28:36
Speaker 3: quite challenging. So slowly, slowly things will calm down. But
28:41
Speaker 3: it's not an overnight thing. Because we've heard about the supervisors.
28:45
Speaker 3: These don't happen overnight. So I think FDIC occ relief.
28:49
Speaker 3: MARTI go to go. When you get to supervisor level,
28:53
Speaker 3: change is much more slow. When you get to enforcement
28:56
Speaker 3: and rule making, change is much more quick, right because
28:59
Speaker 3: these are things that are or top of the house,
29:01
Speaker 3: less about implementation. So I have the son coming around here,
29:05
Speaker 3: so we're going to see a lot of action and
29:08
Speaker 3: the rule making side. So at the FD I see
29:11
Speaker 3: there's this rulemaking on how we deal with BASS banks
29:14
Speaker 3: and reconciling of data, especially as a BASS. I guess
29:17
Speaker 3: we're calling them API convent rather intermediaries these days. With
29:22
Speaker 3: those that's that's that's an issue that could go away.
29:26
Speaker 3: Broken deposits impacts the bank BASS model. I won't go
29:28
Speaker 3: into details that could go away. Probably will go away,
29:32
Speaker 3: I would bet. But CFPB we had a lot of
29:37
Speaker 3: interesting rules honestly that are in play that I think
29:41
Speaker 3: if you look one by one at the rules a
29:45
Speaker 3: CFP B that are pending, you'll notice, Wow, except for
29:51
Speaker 3: open banking, no major rule that the industry really had
29:55
Speaker 3: a strong opinion on was finalized in the past five
29:58
Speaker 3: to six months. Why is that? Because this is this
30:02
Speaker 3: thing called the Congressional Review Act and Congress now that
30:06
Speaker 3: it's flipped, most likely in the House as well, we
30:08
Speaker 3: don't know for sure, can do what it did in
30:11
Speaker 3: twenty seventeen and before that in twenty twenty really twenty seventeen,
30:16
Speaker 3: twenty twenty one and just strike down these rules at
30:19
Speaker 3: a pretty easy vote no sen in filibuster. And when
30:22
Speaker 3: you strike it down, it's gone forever. You can't under
30:26
Speaker 3: the rules, if it's reasonably related, do another issuance on
30:30
Speaker 3: that topic. So there's a reason why there haven't been
30:34
Speaker 3: a lot of rule finalizations lately. And happy to go
30:38
Speaker 3: on like what the three big ones are, but I've
30:40
Speaker 3: been talking for a long time.
30:41
Speaker 2: It'd be interesting because I would I would like to
30:43
Speaker 2: know where you think those are. I mean, if the
30:46
Speaker 2: you know, the markets are any indication people are expecting
30:48
Speaker 2: that to happen pretty quickly. You know, we saw the
30:51
Speaker 2: morning after the election big banks, technology, fintech companies seem
30:57
Speaker 2: to get a bit of a boost from that per
30:59
Speaker 2: step that a Republican controlled administration from top to bottom
31:03
Speaker 2: is going to lead to a lot of more flexibility
31:06
Speaker 2: or openness for those companies in those sectors to operate.
31:11
Speaker 4: I think a little more freely.
31:13
Speaker 3: Yeah, I mean, I think starting with the rules and
31:16
Speaker 3: the one that most ropes in a market change. We'll
31:19
Speaker 3: get to the penning ones in a second, but a
31:21
Speaker 3: finalized one was the credit card late fuel, basically saying
31:26
Speaker 3: you used to be a charge three to two bus
31:27
Speaker 3: under KILA for a late for lateness on repaying a
31:31
Speaker 3: credit card. Now you can only charge eight. You saw
31:35
Speaker 3: those stocks go up pretty big of those companies because
31:40
Speaker 3: that rule has been mired in the courts, and now
31:43
Speaker 3: the CFPB can choose not to defend it or to
31:48
Speaker 3: later repeal it. Repelling is hard, and that rule was
31:51
Speaker 3: final before the CRA window, so that's not something Congress
31:55
Speaker 3: is going to be able to Congressional Review Act. So
31:58
Speaker 3: my gut is that the way of the courts, the
32:01
Speaker 3: courts strike that down CFP doesn't defend. In the next
32:06
Speaker 3: bucket are the ones where the cfpv had to have
32:10
Speaker 3: had some intentionality of not finalizing. The big three there
32:15
Speaker 3: which have been proposed over the past year is number one.
32:20
Speaker 3: I mean, the CFP has made no bones about it.
32:22
Speaker 3: They're interesting in big tech, so what did they do?
32:25
Speaker 3: They had that rule that allows them to supervise big
32:29
Speaker 3: tech companies in the payment space, they use their payment
32:31
Speaker 3: hook this thing called a large infestment rule, and then
32:34
Speaker 3: they can supervise the big tech companies. And that was
32:37
Speaker 3: not finalized. That's going to be the most intriguing one
32:41
Speaker 3: to see what they choose to do. If they choose
32:43
Speaker 3: to finalize it, then it can get CRA and they
32:46
Speaker 3: lose that. As the statue is written for a long time,
32:50
Speaker 3: not forever, there are ways around it. We don't know.
32:53
Speaker 3: That's unchartered territory for the most part. So what are
32:56
Speaker 3: they going to do. They're probably thinking, are there eno
33:00
Speaker 3: frs who won't CRA this is big tech still not
33:04
Speaker 3: popping on both sides that we can get away without
33:08
Speaker 3: and finalize this thing. The other one, I think you're
33:10
Speaker 3: easier calls for the CFPD. The other two are over
33:14
Speaker 3: draft fees proposed this year but never finalized. I don't
33:18
Speaker 3: think they're going to finalize it. I don't see ours
33:22
Speaker 3: defending that in CRA. A rule like that is like
33:25
Speaker 3: the credit card rule and draws the ire of the industry,
33:29
Speaker 3: so that one's going to get I think not finalized
33:32
Speaker 3: about betting. And the other one is the EWA rule,
33:35
Speaker 3: which only came out a couple months ago. That was
33:39
Speaker 3: done as a proposed rule, although they could have done
33:42
Speaker 3: it as a final interpretive rule. I'll get to that
33:44
Speaker 3: in the second. And they chose to do it as
33:46
Speaker 3: a proposed one, probably to not make it cra able
33:50
Speaker 3: because they only got it out in July. I don't
33:52
Speaker 3: know for sure. Maybe we're thinking it, but these are
33:55
Speaker 3: very smart people, so maybe they have a smarter reason
33:57
Speaker 3: why I'm coming up with frankly, but that's my thing.
34:00
Speaker 3: So the e w A one. They got to make
34:02
Speaker 3: a call, are we finalizing it or not? Because in
34:05
Speaker 3: their view, California's rule isn't good enough to write the market.
34:09
Speaker 3: They made that clear in public statements. They even wrote
34:12
Speaker 3: a comment to California Italian them make it stronger, and
34:14
Speaker 3: the California did it. So now they did their own
34:17
Speaker 3: and they got to make a tough call here. So
34:19
Speaker 3: those are three calls. I think there are those. Those
34:22
Speaker 3: are the three main calls. I'm so sorry. Earned wage,
34:25
Speaker 3: access to the course, that industry, and fintech. That's some
34:30
Speaker 3: love and some hate. If you love it, you view
34:32
Speaker 3: it as a way of getting your your wage the
34:35
Speaker 3: second you earned it. And I think there's a lot
34:38
Speaker 3: of compelling reasons of you that way, like why do
34:40
Speaker 3: we have an arbitrary two week, one month cycle before
34:44
Speaker 3: getting paid now? Not ew Not every e w A
34:48
Speaker 3: is alike, just like not every personal lender is alike.
34:51
Speaker 3: So the rules may be needed for some EWA players.
34:54
Speaker 3: So this is the this is the that that it
34:55
Speaker 3: looks more like payday, and that's that's the debate on
34:58
Speaker 3: both sides. But yeah, so that's a big one. Now
35:02
Speaker 3: BNPL buy now, pay later. I'll stop after this fifth one.
35:06
Speaker 3: That one was finalized probably before the CRA window. On
35:10
Speaker 3: CR you can only go back a certain amount in
35:13
Speaker 3: time and grab it. You have sixty days legislative. Takes
35:17
Speaker 3: a long time to calculate that because what's the legislative day.
35:20
Speaker 3: You don't know it until you got it. Ditto going forward,
35:23
Speaker 3: then you have a certain amount of time for Congress
35:26
Speaker 3: to go and repeal the thing. So I think the
35:28
Speaker 3: MPL is out of the window, and frankly we'll be
35:31
Speaker 3: NPL get repealed or destroyed in court maybe, But I
35:35
Speaker 3: don't view as the top priority.
35:37
Speaker 2: Well, I know you mentioned like you know which ones
35:39
Speaker 2: you might bet on. I have to go and check
35:41
Speaker 2: some of these new like betting markets and see if
35:44
Speaker 2: they're out there, what the odds are like. If you
35:45
Speaker 2: agree with the the odds and makers on some of these,
35:48
Speaker 2: if you can actually place.
35:49
Speaker 4: Bets on on that that happening.
35:51
Speaker 3: It'd be fun if there was a rule by a rule.
35:54
Speaker 3: I mean, it's a terrible it's a terrible wing to
35:57
Speaker 3: joke about and to gamble on, because it's really important. Right,
36:01
Speaker 3: going back to our earlier conversation. Last we spoke, I
36:05
Speaker 3: was saying we shouldn't blow up the CFPP and all
36:10
Speaker 3: its rules because serious companies invest in the rules of
36:15
Speaker 3: the road and they want to be around a long time,
36:18
Speaker 3: and they want what's best of our customers. And the
36:21
Speaker 3: major problem in life is for these companies, if rules
36:25
Speaker 3: can just go away, you can't invest and we can't
36:28
Speaker 3: grow our economy the right way. Moreover, fly by nighters
36:32
Speaker 3: come in and there are ways to make profits in
36:35
Speaker 3: a short run taking advantage of these gaps. And what
36:40
Speaker 3: is the incentive of being a good actor. But it
36:43
Speaker 3: good doesn't mean like I'm a great guy. Good means
36:46
Speaker 3: I want to last and be a good business for
36:48
Speaker 3: a long time and really grow this economy and provide
36:50
Speaker 3: a real service. So it's selfish too, but we want
36:53
Speaker 3: to empower that kind of that's the selfishness. Capitalism wants
36:56
Speaker 3: to empower, not the short term, not the taking advance,
37:00
Speaker 3: abdicatory gaps, whether it's a bad protection or an asymmetry
37:04
Speaker 3: of information with the customers and know what's going on.
37:07
Speaker 3: So I don't want a lot of these rules going down.
37:10
Speaker 3: And I do worry that we're going to have a
37:13
Speaker 3: replay a bit of the CFP b blow up conversation
37:17
Speaker 3: we had, where we know the CFP is now constitution
37:19
Speaker 3: on appropriations grounds, but now given all the litigation and
37:23
Speaker 3: all the paths to litigate in the fifth circuit and
37:26
Speaker 3: in other circuits, you can see all these rules getting
37:30
Speaker 3: attacked by the most by the actors have the most
37:33
Speaker 3: to benefit from not having rules. And I don't want
37:36
Speaker 3: to stay at race to the bottom, and I can
37:39
Speaker 3: just hope that the CFPP will defend its own rules
37:42
Speaker 3: because a lot of these rules are good for capitalism,
37:45
Speaker 3: and we don't need the short term sugar high for
37:48
Speaker 3: a few starts ecommonly we need we need like good growth,
37:52
Speaker 3: which we can get without getting rid of these rules.
37:54
Speaker 3: I worry about that, similar with invevement. Enforcement too clear.
37:59
Speaker 3: Rules to be enforced the US are not rules and supervision.
38:03
Speaker 3: You got to supervise these things. Now the enforcement will
38:06
Speaker 3: see a lot less of some of which will be good.
38:09
Speaker 3: Actually is where you just you're surprised, right, you're surprised
38:13
Speaker 3: by the standard business thing called U dad And we
38:17
Speaker 3: don't like surprises. And I know this. See if we
38:20
Speaker 3: try to do a better job using supervisor highlights publishing things
38:25
Speaker 3: to their credit, there were still surprises. And I think
38:29
Speaker 3: it's not will be good for industry. Some of that
38:32
Speaker 3: is good for the world, if some of it is not.
38:34
Speaker 2: Yeah, agree, And I think to your point, like there
38:36
Speaker 2: will always be bad actors, it's good to have that
38:40
Speaker 2: minimum set so that we can all play by the
38:43
Speaker 2: same transparent, open, agreed upon set of rules. There's all
38:48
Speaker 2: these things you know, with or without rules, like it
38:50
Speaker 2: adds costs to the end consumer, right, Like if you
38:52
Speaker 2: let bad actors play, like you said, people will exploit them.
38:56
Speaker 2: They will take advantage, they will get their profits, and
38:58
Speaker 2: they will run away and they'll be on the next
39:00
Speaker 2: thing they can exploit. Regulation. Setting the rules and enforcing
39:04
Speaker 2: the rules is expensive, so we have to choose the
39:07
Speaker 2: least of the evils and try to figure out a
39:09
Speaker 2: way to create a system that allows think you said
39:12
Speaker 2: it well both you know, the short term growth and innovation,
39:15
Speaker 2: but also the sustainable businesses that are going to stick
39:18
Speaker 2: around as well.
39:19
Speaker 4: How do we satisfy all of those It's difficult.
39:22
Speaker 3: And elections are a decision on how you bias that line,
39:26
Speaker 3: because there is no perfect answer, like I'm sitting here
39:28
Speaker 3: to plant open banking, but someone else with an equally
39:32
Speaker 3: valid point of view isn't. And it's going to be
39:35
Speaker 3: decided in a way by the election because obviously we
39:39
Speaker 3: will now have more of a bend on these rules
39:42
Speaker 3: for more consumer take on the burden a front themselves.
39:47
Speaker 3: But also there will be some benefits the industry and
39:50
Speaker 3: growth for sure. But how you calibrate that is what
39:53
Speaker 3: the electoral process resolves, and so we're going to see
39:57
Speaker 3: a shift in that debate for quite a while. I
40:00
Speaker 3: hope and I wish we had more five year structures.
40:03
Speaker 3: Having the FDIC is right. I hope Marty's days, you
40:07
Speaker 3: know what I mean. I hope that. I didn't like
40:10
Speaker 3: when mc williams had to leave. I'm glad the FED
40:13
Speaker 3: is going to be resolute. I hope Mike bar just
40:16
Speaker 3: like I hoped Randy Corals would fill out his term.
40:19
Speaker 3: Those are good things because we need that actual stability
40:22
Speaker 3: in the system to avoid some whiplash. And I hope
40:26
Speaker 3: the CFPB and other agencies defend their long established rules
40:31
Speaker 3: and don't let someone save reactors get their way on
40:35
Speaker 3: some of this stuff.
40:35
Speaker 2: Totally agree well, Arman, I always feel like smarter coming
40:39
Speaker 2: into conversations with you, because I always want to prepare
40:42
Speaker 2: and like think about things a little deeper, and then
40:44
Speaker 2: I'd end them like realizing I've got a lot more
40:47
Speaker 2: to learn. So you always I always enjoy our conversations
40:50
Speaker 2: in a way that you know it gives me even
40:52
Speaker 2: more to go now research and think about and figure
40:55
Speaker 2: out the next thing that we can talk about. But
40:57
Speaker 2: is there anything else that you want to cover as
41:00
Speaker 2: you kind of wrap here and think about, you know,
41:01
Speaker 2: the election and what's what's changing with all the rulemaking
41:04
Speaker 2: going on.
41:06
Speaker 3: I just think next time, because what you said was
41:08
Speaker 3: so nice and way too generous, that I should ask
41:12
Speaker 3: you the questions, because I'm sure the level I'd be
41:15
Speaker 3: humbled would be more than more than you claim to be.
41:17
Speaker 3: So I look forward to.
41:20
Speaker 2: That's the best part about being the host. I get
41:21
Speaker 2: to ask most of the questions, so that's the easier part.
41:25
Speaker 3: I'm glad back. I enjoys conversations and going back to
41:30
Speaker 3: open banking. I do hope there's an opportunity to make
41:32
Speaker 3: the world better. I'm really glad and commend to see it.
41:35
Speaker 3: FPB for getting it done. It was a long time
41:37
Speaker 3: to come in, but I strongly believe it can be
41:40
Speaker 3: better for fintech, better for innovation, and we gotta we
41:43
Speaker 3: have to be anti monopoly and we have to be
41:45
Speaker 3: anti big big government. We have to be moderate on
41:48
Speaker 3: both these things. And I want to see some more moderation.
41:51
Speaker 3: And let's hope this election, and it might be a
41:54
Speaker 3: false hope, is not yet another stone in the extremism
41:58
Speaker 3: that we've seen in our society. Is not good for
42:00
Speaker 3: any of us. And I'm still hoping for a day
42:03
Speaker 3: where the moderates can be cool again, and we can only.
42:08
Speaker 4: Hope absolutely well.
42:10
Speaker 2: I appreciate you being able to join me on short
42:13
Speaker 2: notice and take advantage of all the activity going on
42:16
Speaker 2: and kind of capture this moment in time, and yeah,
42:18
Speaker 2: maybe we can come back and see our progression towards
42:21
Speaker 2: moderation and see if that's cool again sometime and then
42:24
Speaker 2: your future.
42:25
Speaker 3: Great talking Matt, Thanks Armer, take care.
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