Zarik Khan, CPA, CFE, MBA, CAMS, CRCM

Every major regulator in the US has opened offices of innovations and others are offering sandboxes and pilots to test new technology, with one strong recent example being the rollout of the FedNow real time payments system in the US. Another tool that is powerful is sharing industry data and reports - the FDIC, for example, because of its role in insuring the fundamentals of the banking system, publishes massive amounts of data monthly, quarterly, annually, and on an ad-hoc basis that pulls from individual banks and provides institutions and consumers an opportunity to compare their performance (on numerous dimensions) against those of peer banks.

It is incumbent on any examiner to take the time to understand the industry, technology, and operations of the institutions examined. Exam findings based on lack of understanding cost organizations time, money, and attention/focus from their customers and ironically end up hurting the very people that they're intending to protect. This can be avoided by a willingness to listen and continuously evolve the examination approach over time, including soliciting comments on future regulations. Many regulatory bodies publish examination manuals, but there is no silver bullet and qualitative interpretation of the law is common. Beyond dialogue, regulators can leverage their own marketing efforts (i.e. bulletins/webinars) to update institutions.

Regulators are often seen as a boogeyman in financial services. However, every major federal regulator in the US has opened up a section/office of innovation (or equivalent) with intention to try and better understand new trends in technology and in the financial services industry. Their goal is to protect consumers and the financial system, and one huge opportunity for financial institutions/banks/fintechs is to have ongoing communication with them to show they share that goal. While regulatory findings do arise, sometimes because of misunderstandings - the odds are that proactive discussion can mitigate concerns and to the extent they remain, dialogue can at best, eliminate potential findings and at worst, mitigate their impact/severity.

All too often, when innovation is prioritized in product and system development, what the customer actually wants tends to get lost in the shuffle. The biggest risk is that the product ends up being something that not only doesn't make the customer happy, but in fact disrupts their lives (and not in a good way). Picture a digital wallet where the user's information can be hacked/stolen - or perhaps a credit card that incorrectly charges late fees and excessive interest - or a deposit product where money can't be transferred out to other accounts. It's not just customers who are at risk - the whole financial system can be threatened by products that become tools of bad actors.

In the context of financial services, any benefits of innovation have to be seen first and foremost through the eyes of the consumer, and second through the eyes of the company deploying it. Financial services is not going to result in a customer going to a keynote event where a new product is launching and won't have "fans" - to many, it's a necessary evil. To that extent, the primary benefit of financial innovation should always be making their lives easier wherever money is involved, namely saving them time and money and allowing them to improve or enhance other aspects of their life and/or relationships.

In the payments space, collaboration to develop shared governing principles is essential. The PCI Security Standards Council is a global collaboration of fintech and payment companies of all types that operates globally to set baselines that will protect customers, institutions and partners from fraud and breaches. More recently, the major credit card networks (Visa, Mastercard, Discover, Amex, JCB and UnionPay) came together to form EMVCo, which maintains the governing standards for the usage/operation of chip cards.