Modernizing Financial Services Through Innovation and Competition (EventID=116459)

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Connect with the House Financial Services Committee Get the latest news: https://democrats-financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinanci... Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Wednesday, October 25, 2023, at 10:00 a.m. (ET) Subcommittee on Digital Assets, Financial Technology and Inclusion Chair Congressman Hill and Ranking Member Congressman Lynch will hold a hearing entitled, “Modernizing Financial Services Through Innovation and Competition." ___________________________________ Witnesses for this one-panel hearing will be: • Mrs. Jodie Kelley, Chief Executive Officer, Electronic Transactions Association • Mr. Ram Palaniappan, Founder & CEO, EarnIn • Dr. Jimmie H. Lenz, Director, Master of Engineering in FinTech and Managing Principle, Advanced Research & Financial Services, Duke University • Mr. Parris Sanz, Executive Vice President, General Counsel, and Head of Policy and Government Relations, WebBank ___________________________________ New FinTech Products Fill an Existing Void Emerging financial technology companies (fintechs) are offering alternative financial products to meet evolving consumer demand. The term “fintech” is broad, encompassing a range of technologies across the financial services sector. Generally, a fintech firm employs technology to modify and enhance financial services for consumers or businesses. Many established financial institutions have utilized technology or worked with a fintech firm to enhance their services and reach new customers. However, the term “fintech” generally applies to a company employing recently developed technologies to offer financial products in a new or novel way. Comparable to the range of financial products available to consumers, the range of services offered by fintechs is equally broad. Fintech firms may offer products and services in a variety of segments of financial services – including payments, insurance, regulatory and supervisory functions, and cybersecurity, among others. Recently, there has been a substantial increase in consumer demand. This has led to rapid growth in the number of products or services offered by fintech firms, especially around Earned Wage Access and Buy Now Pay Later. Additionally, the number of banks partnering with fintechs has risen dramatically over the past decade. Restricting access to these products and partnerships or forcing them into a regulatory regime that does not fit their business model will only limit options for consumers and businesses. Bank-Fintech Partnerships and the Regulatory Landscape Bank partnerships with third parties are important for a number of reasons. These partnerships allow banks to offer innovative products and services, lower the cost of lending, enhance their consumer interface, grow their deposit base, and preview a future acquisition. According to a recent Ernst &Young study, 55% of banks expect these partnerships to play a very important role in their strategies by 2025. On June 6, 2023, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), issued final guidance regarding risk management expectations for banks partnering with fintechs. Buy Now, Pay Later (BNPL) The development of BNPL products has provided consumers with more payment options and can empower them to manage their personal cash flow with increased flexibility. Retailers also benefit from using BNPL products as it improves customer choice and boost sales. In short, BNPL provides consumers with responsible ways to budget for their purchases. The data is beginning to reflect these benefits. In 2022 alone, five percent of all online purchases were completed through BNPL offerings. It remains to be seen how, or if, the CFPB will regulate in this area. In 2021, the CFPB sent requests for information on the risks and benefits of BNPL to Affirm, Afterpay, Klarna, PayPal, and Zip. Later, on September 7, 2023, the CFPB issued a report highlighting the role that technology firms play in the payment space. While the report mostly addressed the companies’ use of data, these overarching concerns may also impact BNPL service providers. Earned Wage Access (EWA) Products There are two types of EWA products: an employer-based model and a direct-to-consumer model. Employer or payroll-partnered EWA-providers work with an employer to manage earned wage information and offer access to an employee. EWA providers deposit earned wages directly into an employee’s account or onto a prepaid card. The employer then collects the repayment amount through payroll deductions or account debits. Increasingly, both traditional and gig-workers seek flexible arrangements to receive wages faster... ___________________________________ Hearing page: https://democrats-financialservices.house.gov/events/eventsingle.aspx?EventID=410860