While attending this year’s Emerge Conference in Austin last week, it became apparent to me that the financial services industry and the tens of millions of Americans hoping to successfully manage their financial affairs, are at a critical crossroad.
Emerge is the annual conference run by the Center for Financial Services Innovation. CFSI, through the leadership of Jennifer Tescher, has for over ten years led the charge to bring together the key constituents in banking, payments, government regulators and financial tech start-ups, to focus on and address the challenges of what is today nearly six-in-ten (57%) of Americans who say they are “struggling financially”.
The possibilities and realities of solutions that technology can bring to financial services was on full display in Austin, in the innovative tools, products, and services being developed through a collaborative environment, focused on the real challenges faced by the unbanked, underbanked and underserved.
Among the exciting initiatives in fintech designed to serve unmet needs, besides the better known such as marketplace lender Lending Club, are Earnest, Digit, Payperks and PayNearMe, as well as dozens of other innovators working to serve the money management, lending and payment service needs of emerging Millennials and underserved consumers.
As in many categories such as entertainment, communications, and retailing, the potential is ripe for tech innovation to transform and improve access to products and services, and quality of life, for millions of Americans to aid in maintaining their financial health and financial management. The general notion of innovation via “fintech” to offer alternate online, mobile, and peer-to-peer ideas and solutions would seem just what is needed to help address the financial health/management access that millions of Americans require.
Fears and Regulation
Enter regulators and fears for financial instability that fintech start-ups may bring to the complex financial services industry. The established Big Banks have felt the scrutiny and vise grip that regulators have put on the industry following the Great Recession (and the duplicitous behavior of many in the financial services industry). But now, as fintech starts to gain ground, the Wall Street Journal notes that regulators cite fears of “threats to financial stability (that) may be caused by the migration of activities from banking into innovative new firms”. This fear, and thus potential for scrutiny and imposition of limitations on growth of (and investment in) fintech solutions, poses a real dilemma for a path forward for our financial system.
While we all must come to terms with the need to protect our economy and banking system from the irresponsible and selfish actions on the part of some inherently greedy players, there is clearly a struggle to find the right balance between smothering government regulatory measures such as liquidity rules that start-ups cannot attain while growing, and the truly needed protection of consumers in our financial system. Agencies such as the Consumer Financial Protection Bureau (CFPB) and the SEC are challenged to facilitate a balancing act to allow for innovation to thrive and serve, while weeding out the abusers and protecting the most vulnerable. The future of banking is hanging in the balance.