FinovateFall 2024 Day 3 Recap

After a bit of a delay, I’m back with our final wrap-up of our coverage of Finovate. The third day was a bit shorter, but exclusively focused on talks and less so the demos that were the main feature of Day 1 and 2.

Talks

“CFPB’s open banking rule 1033 focuses on safeguards for security, data and the ecosystem. What do financial institutions need to do? How will it impact the banking industry?”

This was yet another talk on opening banking we caught this week (and there was another one on the agenda that I ultimately decided to pass given I was all open-banked out). Highlights of this talk delivered by Tyler Brown of CCG Catalyst Consulting:

• Open Banking as a philosophy was discussed, along with its privacy/technology/policy aspects.
• The principles of the CFPB’s 1033 rule are as follows - 1) Data Access (for Reg E/Z/wallets) 2) Control (for consumers) 3) Security 4) Usability
• We were then treated to a tech based process flow with all the players, showing that the data would flow from the account data provider, infrastructure service provider, the fintech product/service, and finally to the consumer.
• Some background on the rule was provided, with the note that the rule is focused on “Personal Financial Data Rights” as opposed to “Open Banking”
• There was another plug for “consumers own the data” - but as we spoke about in Part 2, this view is challenged especially with the inability for consumers to write to their data.

“Power panel: Buy Now Pay Later: A great product for customers or a debt trap? How is this exploding market going to change the status quo & what does it mean for the future of credit cards? And what are US regulators planning?”

This was a panel including Akita Somani Jason Mikula and David Monteiro , moderated by Dikshah Gera, with some the highlights:

• US Bank talked about a “slick experience” of their offering
• The pricing model for BNPL was discussed
• Cost of funds make it easy from an entry point for big banks vs nonbanks like Affirm
• Difference between Klarna vs Big Bank is the affiliate relationships - a Klarna type of company looks more like Amazon than a bank. They earn commissions for sending customers to merchants (revenue share).
• Distribution and user experience is why BNPL blew up - it helped that we were in our house. Low friction + distribution through popular merchants
• David mentioned his past in looking at nonbank and novel products as a former regulator and highlighted the short compliance date
• The compliance key is whether consumers understand the product, consequences of it
• Regulators cannot require credit reporting. This product can be seen as an opportunity to help folks new to credit by furnishing data but traditional scoring models evaluating these transactions are a concern (i.e. you don’t want score to go down just for using BNPL)
• Apple started reporting, this will likely lead to others following suit but institutions following furnisher requirements is not easy, in terms of disputes/timing/accuracy.
• Is it a debt trap? Shadow banking?- Pros - reporting a lot, Cons - certain actions aren’t reported, plus will other lenders see BNPL and give you less favorable rates.
• Regulators are okay with this industry growing as long as it grows responsibly. Consumers want it - but we need compliance systems in place.
• It’s TBD how this model will hold up in a recession

“Keynote address: Real-time payments – Will they be a game changer? What are the challenges around developing products on top of RTP and FedNow rails? When will they gain momentum in the US?”

The final talk we checked out was another discussion on real-time payments, which complimented the event we attended the previous morning. This was led by Rina Wulfing , Senior Policy Lead at Wise and noted the following:

• When payments are outstanding/not cleared by 1 day or more, customer contact is 7x more likely at this amount of time passing.
• Businesses also prefer real-time payments because their customers are more likely to be retained
• An advantage of real-time payments is it helps to avoid overdraft and check cashing - this is also a financial inclusion angle.
• A challenge is that large businesses aren’t demanding it because ACH is trusted.
• Faster payments are becoming an expectation - consumer demand will rise and institutions that don’t support will get left behind
• Regarding FedNow/RTP - you can do domestic on FedNow and last leg on your own for cross border, but with RTP you can’t. Interlinking of central banks is happening elsewhere. However the Fed is very cautious on international money movement/hyper focused on risks.
• FedNow is 1 year old with 1000 institutions, RTP just hit 1 billion transaction mark. Having different rules makes banks having to create more systems to have to work together. ISO20022 is a recent development where more information is sent with financial transfers.

• US lags behind with a lack of direct access to payment systems. You need to go through banks for FedNow here while other jurisdictions allow payment companies to have direct access to payment rails. Wise helped to cut customer cost by 20% without intermediaries in the UK when they rolled out there.

Wrap-Up

After this given the compliance connections had been made, I decided to end my participation at the event. I did meet and connect with more folks than had been the case at prior conferences I’ve attended in the past, and stay tuned as you may see some of these folks showing up here in some form or another in the weeks and months to come. At the same time, I look forward to the topics being a bit more diverse in the future, as I noticed crypto/blockchain was not mentioned at all in almost any speech but is still a force to be reckoned with.

Thank you to Finovate for approving me to cover this event and looking forward to attending future programs!