Former OCC Director Michael Hsu Takes a Seat at the Venture Table

Watch more: Monday Conversation With Michael J. Hsu

Moving between the public and private sectors in banking and financial services is rarely straightforward. The objectives may overlap, but the perspectives can often shift, especially for those who have spent decades focused on protecting the financial system and are now stepping closer to the early-stage companies looking to innovate banking and payments.

Michael J. Hsu has straddled both sides of that street. After more than two decades in government, including his tenure as Acting Comptroller of the Currency from May 2021 to February 2025 Hsu has taken a new role as a venture partner at Core Innovation Capital. That puts him on the other side of a pretty important table at a moment when payments, artificial intelligence (AI) and financial infrastructure are evolving rapidly.

Working With Builders, Not Watching Them

Hsu said his decision to move from regulator to investor and adviser is driven by a desire to engage directly with the people building financial technology, rather than observing innovation from a distance. “I don’t want to be in an ivory tower writing papers about it,” he told PYMNTS CEO Karen Webster in the latest Monday Conversation.

Hsu said his thinking is deeply informed by his time at the Federal Reserve as a lawyer during the period leading up to the Great Financial Crisis. He saw both the promise and the peril of financial innovation firsthand.

“There was a lot of focus on growth and a lot of innovation, both good innovation and horrible innovation,” he stated. Those lessons, he added, remain relevant as new technologies reshape financial services.

The new level of engagement via the private sector, he said, comes with discernment. Drawing on his regulatory experience, Hsu emphasized that not all partnerships between banks and FinTechs are as constructive as they could be. “There are healthy partnerships and there are unhealthy partnerships,” he said, adding that understanding where that line sits is critical for long-term success.

Regulation and Innovation: Brakes and Gas

Hsu returned repeatedly to a framework he has used for years when discussing regulation and innovation. “The better a car’s brakes, the faster you can drive it safely,” he said to Webster.

Innovation without guardrails, he said, can lead to instability and loss of trust. But regulation that focuses only on restraint can slow progress unnecessarily. In Hsu’s view, the goal is balance, allowing firms to innovate aggressively while ensuring systems remain safe and resilient.

Avoiding the Search for Easy Answers

Hsu said many firms and policymakers are looking for a single right answer when it comes to innovation and compliance. In reality, those answers evolve and require judgment.

He warned that competitive pressure can push firms toward shortcuts. “There’s sometimes competition that’s just a pure race to the bottom,” he said, adding that such races rarely end well for consumers or the system. His advice to builders is to avoid those paths altogether.

Regulators, Hsu said, are trained to think in ratios, balancing risk against buffers like capital, liquidity and controls. That mindset, he believes, still applies as financial systems become faster and more complex.

The challenge, he said, is that the denominator is growing. The system is larger, more digital and more interconnected, while regulatory capacity has not expanded at the same pace. Guardrails, in that environment, are not obstacles but enablers of sustainable growth.

Why Core Innovation Capital

Hsu said joining Core Innovation Capital was a natural next step because of the firm’s focus on operationally complex and heavily regulated markets. While the announcement highlighted Core’s portfolio and mission, Hsu emphasized that his motivation was about proximity to builders.

At Core, Hsu’s responsibilities include advising founders on regulatory strategy, governance and risk management, and helping them anticipate how policy frameworks may evolve as their businesses scale.

Looking ahead, Hsu said the future of the financial system is clear. “It’s going to be digital, it’s going to be AI powered, it’s going to be tokenized,” he said.

Using Wayne Gretzky’s famous analogy, Hsu said his goal is to skate to where the puck is going, not where it has been, which explains his decision to work more closely with FinTechs shaping that future.

Staying Away From the Wacky Stuff

Hsu drew a clear distinction between innovation that builds trust and projects that operate outside accepted norms. “There are builders who are building wacky stuff,” he said, adding that he has no interest in engaging there.

Instead, he said his focus is on working with firms that operate above board and contribute to a healthier financial ecosystem.

Hsu contended that many FinTechs are using technology to strengthen compliance, improve risk management and deliver better outcomes for consumers. These firms, he argued, show that regulation and innovation do not have to be at odds.

AI, in particular, excites him when it is used to make systems safer, faster and more transparent rather than simply more complex.

Beyond venture investing, Hsu continues to advise companies and central banks on AI, bank-FinTech partnerships and regulatory adaptation. He said many agencies are beginning to see how new tools can improve supervision itself.  That shift, he added, is essential as innovation cycles compress and financial systems evolve faster than traditional policy processes.

Hsu returned to a theme that has defined his career no matter the setting. “All money, all banking, all payments, everything runs on trust,” he told Webster.