“We’re seeing financial services in places where we’ve not been not used to seeing financial services.”
New York State Department of Financial Services Superintendent Adrienne Harris noted to Karen Webster in a recent interview that along with the great digital shift, the ubiquity of mobile devices and habits, commerce and banking are just about everywhere. The velocity of money is increasing.
Generally speaking, U.S. consumers have the technology in place, and the channels, through which they can access financial services and products. But inequality is stubborn and still needs to be addressed.
The conversation came against the backdrop where New York Gov. Kathy Hochul signed legislation this month that seeks to address inequities in the financial system.
There’s still work to do. Providers, Harris said, must be mindful of the fact that underserved populations — just as is the case with affluent consumers — want to have a choice in how they conduct their financial lives.
“If they want to go to a branch, bank over the phone, on their laptop, on their mobile phone, through an app … those services need to be affordable and transparent,” said Harris.
Embedded Finance Takes Shape
Viewed through the lens of the past several years — and through her own past tenure at tech firms, at the Treasury Department, in the White House, and up till the present day — some common themes emerge.
Embedded finance is changing B2C and B2B. And innovation, she said, is changing everything from payments to lending to savings to investing. And the cost of services becomes more palatable for certain segments of the consumer population.
Read also: How Embedded Finance Can Help Businesses Streamline Their B2B Payment Processes And Stay Competitive
But regulation is necessary, she said, and existing financial services guardrails and oversight need to be updated for modern-day considerations — especially with “analog” financial services.
By way of example, she said, the NYSDFS froze check cashing fees — because traditionally, that fee was tied to the Consumer Price Index. In a hyperinflationary environment, she said, those fees can and have become exorbitant.
When it comes to digital products, like FinTech, she said that regulators are taking the approach of many of these products are meant to serve a real need.
“But again, they have to do so in a way that’s fair and transparent and cost effective for the consumers,” she said. “So let’s think about regulation — not just from how do we prevent bad things from happening — that’s important — but also how do we start to shepherd the space?”
Regulators, in judging the safety and soundness of providers, she said, need to realize that the newer business models may not have fortress-like balance sheets — and a 3-year-old venture-backed firm likely will not be profitable. And, she said, technology needs to be in focus as well.
That includes crypto, too — where New York is one of the only states that regulate bitcoin and its brethren (Wyoming is the other state). The New York state regime, she said, includes AML and KYC requirements and disclosure requirements, along with quite the backlog of bit license applications.
See also: NY Senate Allows Regulator to Charge Crypto Companies a Fee
“We are going to do more work on crypto — including more guidance on blockchain analytics and consumer protection,” she said.
Read also: New York State Department of Financial Services Hires Virtual Currency Chief
Looking ahead, “We’re going to take a hard look at AI, she said — and we’re concerned about bias and discrimination,” she said.
At the same time, she said, artificial intelligence (AI) can help serve up benefits such as individualized decision making, which in turn can help consumers make better financial choices. Earned wage access also deserves increased observation, she said and can be a tool that helps families living paycheck to paycheck manage their expenses more adroitly. If workers get half their paycheck on the first, but all of the rent is due that same day, starting the month off in the red can be an onerous challenge when it comes time to pay the other bills.
“There’s a need for liquidity for underserved communities,” she said. “We want to be careful to use a scalpel and not a hatchet.”
Consumer education is critical, she said, when it comes to bringing new products and services into the field. Harris said that it’s not efficient for consumers to have 200 pages’ worth of disclosures — so streamlined information is necessary.
As Harris told Webster, “We don’t want to front run innovation, but we want to stay close enough so that we can prevent harm — and it’s always a balance we’re trying to strike.”
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