Innovation Despite Regulation

There’s a lot of uncertainty, worry, and fear about regulation in the payments business. That was one of my takeaways from the 2-day conference on payments innovation MPD held at Harvard on November 4 and 5.  People had been so focused on the Durbin devastation sweeping through retail banking that they put the new Consumer Financial Protection Bureau out of their minds.  Some folks didn’t know the sweeping powers Congress bestowed on the CFPB. It regulates EVERYTHING that’s a consumer financial services product.  Those of you who are doing alternative payments, entrepreneuring new payments products, and otherwise staying away from traditional bank stuff aren’t exempt.  The CFPB applies just as much to developers in the valley creating new ways to pay as it does to bankers in Manhattan.

Now some people suggested that its going to be the FDA for banking—a place where you have to wait years to get new products approved.  Fortunately, it isn’t nearly that bad.   But still it is something that everyone needs to factor in to innovation in payments.  It is too early to know how intrusive the new bureau will be or how they will balance protecting some consumers while ensuring that people continue to get good access to credit.  Anyone who is thinking about making money by tricking consumers or finding a bunch of consumers who are stupid enough to take a lousy offer should really think again. You will be red meat for the CFPB.  Everyone needs to read up on behavioral economics and understand how this is going to be applied to cards.

It will take a couple of years for the new bureau to really gets its legs. Meanwhile my sense is that lots of folk are just in shock (and perhaps a bit of denial) about Durbin.  People are still tossing around estimates of the “haircut” Durbin will take of debit interchange fees from 20-80%.  Who  can plan when the range goes from a bad tax to almost complete confiscation?  I’m still betting on a pretty dramatic reduction in fees, and possibly a flat rate, but we soon shall see.

The great news from the two days was that regulation schmegulation everyone there was psyched about the great opportunities for innovation and otherwise shaking up the payments business.

David S. Evans is an economist and a business advisor to payment companies around the world. His recent work has focused on helping companies create, ignite and profit from payments innovation. He is the originator of the Innovation Ignition Framework® , a tool provides a systematic way for companies to evaluate and implement innovative ideas and achieve critical mass. David joined fellow Market Platform Dynamics colleagues Karen Webster, Margaret Weichert and Tim Attinger for the [Payments] Innovation Institute where they led participants in a series of facilitated simulations focused on finding and igniting innovation.Click here to contact David Evans.

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