What FinTech Regulation and the Trucking Industry Have in Common

The deregulation of financial services — and particularly of FinTechs — may be viewed by some as a reaction to overregulation, where innovation has been stifled.  Strides are being made in the current administration to chip away at a flurry of regulations and mandates from the Biden administration.

The CFPB and the FDIC have paused — and in some cases, rescinded — rulemaking. The Senate has voted to repeal a CFPB rule governing Big Tech’s ambitions in the digital payments space. However, Bolt President Justin Grooms told Karen Webster in an interview as part of the “Monday Conversation” series that despite the headlines, regulation is still a mainstay of banking and payments.

“The regulatory framework that exists in the United States,” he said, “is still robust. There’s regulation at the state level.  There’s regulation from the Fed for different players in the space….the U.S. has a strong liability system in place, from the courts, which drives larger, more established players, who have a lot to lose, to make sure they’re operating in a way that’s sustainable for the long term.” 

But one of the dangers of regulation, he said, is when rules protect the status quo, entrenching segments of society that already have access to financial services, and will continue to receive those services in ways they’re comfortable with, at the expense of the true innovators.  The CFPB’s a case in point, said Grooms, which was “a little too early” with its “classical understanding of what FinTech and banking is supposed to look like,” and favored regulation while overlooking the importance of innovation, where a real-time transfer of funds can make all the difference to individuals who don’t have the luxury of waiting for a payment to clear and settle over several days.

For Bolt, which offers one-click and other technologies that improve the commerce experience by linking merchants with a “universal shopper network” of 80 million individuals so that retailers can offer them a passwordless experience, “what we’re seeing is this huge need in the market for a universal layer that manages identity so people have access to financial services and their spending power…where consumers can understand the options that are available to them in ways they can digest and put to use.” 

The merchants in dialogue with Bolt want actionable insights derived from consumer-level transaction data, he said, and individuals are willing to provide that granular information in exchange for a personalized shopping experience.  Bolt, he said, has found value in the state-by-state data privacy laws that are helping to shape how consumer privacy will look in the future.

“When we look at privacy and the identity layers,” he said, “that Bolt brings to the picture, we’re giving agency back to the consumers…[which fosters] a deeper relationship with who they shop with. They’re willing to share quite a bit,” Grooms noted.

Proponents of more regulation may subscribe to the theory that banks and FinTechs need to be heavily regulated because of the consumer-facing nature of the products and services. Still, there are key examples of verticals that have improved when market forces determine success. He pointed to the trucking industry, heavily regulated by the Interstate Commerce Commission decades ago — but once some (but of course not all) regulations fell by the wayside, “what we saw evolve over time was a wildly competitive, extremely efficient…safe and reliable infrastructure for moving goods around the country,” said Grooms.  Consumers and companies could choose the solutions providers that worked best for them.

“The same thing is emerging in the FinTech space,” he said, as evidenced by the explosion of BNPL, which helps consumers who have not had access to traditional credit to buy what they need, when they need it.

“It’s a privilege,” he said, “to have the flexibility to explore different payment types and to use different types of currency that some segments of society really enjoy — and other segments of society just don’t get to touch.”

Webster asked Grooms what his prescription for smarter financial services and FinTech regulation would be.  “When we see technological developments or evolutions in how transactions occur in any market — and in the United States — when it’s highly transparent, over time that balances out to a sustainable path where new innovative technologies can evolve, but there’s still accountability.”   Larger players in the payments market also need to have room to innovate in an agile way, because these firms will be the ones that will work aggressively to reach populations that are underserved in the marketplace.

Despite the uncertainty confronting regulation of FinTechs, banks and merchants, Grooms contended that the firms that will be successful will be prepared to deal with change.  He said that forward-thinking merchants are investing in infrastructure to work with loyalty programs, BNPL, and crypto — without flooding consumers with too much choice. Customer data will help them present the relevant options to consumers at the right moment (which also gives banks and FinTechs the opportunity to be “top of wallet” for those consumers).

As he told Webster, “I’m excited that some of the steps happening around regulation may really open this industry up for more accountability and innovation…and evolve to the point where it can serve all aspects of the consumer base in the United States.”

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