what is ach payment

Hi all, Julie here. 

At the end of September, we hosted a webinar with Lithic, a card-issuing API for debit, prepaid, and credit card programs. The topic: fintech regulation. I lead content and community, so I know very little about this space. Thankfully, I was joined by Lithic’s product lawyer, Reggie Young, and my colleague, Rich DeGregoris, who is our Compliance and Risk Operations Manager. 

Regulation has become top of mind over the past 12-18 months for our industry. Why? Fintech has been around for a decade or more, but the pandemic really accelerated its usage, and therefore the amount of attention that regulators started giving to the industry. You can view the full ~30 minute recording here, but I’ve written out a quick overview below. 


Regulator’s point-of-view on fintech

The theme here is that regulators are keen to view the risks, rather than the benefits, associated with fintech. For instance, the Consumer Financial Protection Bureau (CFPB), the primary consumer financial services regulator in the US, has been taking a much closer look at fintech and any risks it could pose to consumers. Before you panic, this doesn’t mean the CFPB and other regulators aren’t willing to look at the benefits. However, it does mean our industry can do a better job at communicating with regulators from early stages.  

Expansion of technology in banking

From mobile banking to open banking, the fintech space is pretty expansive to say the least. There’s also increased pressure from consumers like you and me for any financial institution to meet us in the 21st century. One of the biggest pieces of this is the interconnectedness of data, which is drastically changing the way financial services operate. It’s also an area that regulators are looking at closely to make sure consumer data is not only secure, but that it’s not misused. 

Diversity, equity, inclusion

Inclusion is clearly top of mind for regulators. The CFPB, for instance, is trying to expand their ability to go after discrimination and what counts as “unfair” in credit and beyond (more on this below). While skeptical of some of the recent advances, there are positive developments that regulators have taken note of when it comes to underserved groups, such as faster money movements with FedNow and credit building products. 

Regulatory power grabs

Fintech has matured, and regulators are catching up with pretty aggressive stances. In certain areas of the expansion of power, there’s a question of whether some of the new viewpoints would hold up in court. For instance, just a few weeks ago, the Chamber of Commerce and other trade groups sued the CFPB to stop the regulator’s policy that would allow the agency to bring discrimination claims against financial firms on products and services that aren’t protected by fair lending laws.

What to expect in 2023

This is all to lead us into my favorite segment from the webinar: predictions for 2023! 

  1. Higher bank sponsor standards for fintechs
    • This could mean sponsor fees increase and/or they are going to have more scrutiny about which fintechs they partner with. 
  2. More crypto/DeFi projects, but minimal laws/regs
    • There are certain areas that will see increased regulation, such as interest bearing accounts versus “staking,” but others might not get as much attention as they will in future years.
  3. Apply policy to both banks and fintechs
    • The goal for regulators should be to balance fintech benefits, but minimize the potential risks to the system.
  4. Potential political shift after Nov midterms
    • The outcomes of the election will have a large impact on this, especially if there is a shift in power, which could cause the aggressive tactics to slow down or take a pause.