Ruh Roh, RESPA!
By Alex Johnson
3 Fintech News Stories
#1: Ruh Roh, RESPA!
The CFPB handed down an interesting advisory opinion:
The CFPB recently issued an advisory opinion entitled Real Estate Settlement Procedures Act; Digital Mortgage Comparison-Shopping Platforms and Related Payments to Operators.
In the advisory opinion the CFPB provides general guidance on how Digital Mortgage Comparison-Shopping Platforms (Platforms) may be operated in a manner that violates RESPA and other laws, and addresses five specific examples of arrangements that it believes to be non-compliant. While the CFPB mainly addresses RESPA, it appears that UDAAP concerns are a significant motivating force behind the issuance of the advisory opinion. Ominously, the CFPB states that “[b]ased on the evolution of business arrangements and technology platforms, the CFPB’s market monitoring, and regulator activity, the CFPB understands that operators of . . . Platforms and participating settlement service providers in some cases may be engaging in activities that violate RESPA section 8.”
RESPA (the Real Estate Settlement Procedures Act) was enacted in 1974 to protect homeowners by assisting them in becoming better educated while shopping for real estate services and eliminating kickbacks and referral fees, which add unnecessary costs to settlement services.
In this opinion, the CFPB is saying that the prohibition in RESPA against referral fees applies to digital lead aggregation platforms that advertise mortgage products, such as LendingTree, NerdWallet, and Credit Karma.
I’m not a lawyer (and nothing in Fintech Takes is ever legal advice!), but this seems not great for the aggregators. In a prior essay, I argued that platforms like NerdWallet have ceased to be useful to consumers because their product has been infected by their business model (referral fees). RESPA provides the CFPB with a specific avenue to begin attacking this problem, but I personally hope this isn’t the end of their efforts on this front.
Consumers deserve truly unbiased financial product recommendations!
#2: Your Honor, I Object!
Mastercard surveyed 600 small business owners in Canada and found that a majority of them feel positive about open banking:
In general, small business owners feel positive (65%) about the concept of seamlessly sharing financial data between institutions and authorized third parties, indicating they’re ready to seize the opportunity for growth and streamlining offered by open banking.
“Our latest research findings reinforce the message we keep hearing from small businesses across the country: They want better access to innovative, secure financial technology to take control of their finances, access new capital, and succeed,” said Darrell MacMullin, Senior Vice President, Products and Platforms at Mastercard Canada.
One of my favorite scenes in the movie Liar Liar is when Jim Carrey (whose character is an attorney) objects to a witness’s testimony and when the judge asks him why he says, “because it’s devastating to my case!”
I’m not the defense attorney for the global open banking movement, but if I was, I would absolutely be objecting at this point in the trial.
65%? That’s it? I’m a huge advocate for open banking and the positive competitive benefits it will potentially bring for consumers and businesses, but I do sometimes get the feeling that we’re trying to push a change on to customers that they, I don’t know, are kinda ambivalent about? Or maybe we’re just doing a bad job explaining what the tangible benefits will be of “seamlessly sharing financial data between institutions and authorized third parties”?
But regardless, 65%?
This is devastating to my case!
#3: Data, Not AI.
American Express and Microsoft are teaming up to apply AI to expense reports:
With the solution developed by American Express and Microsoft, business travelers will be prompted to upload a photo of the receipt each time they use their American Express Corporate Card, according to the press release.
An AI-powered decision engine will use that photo to categorize the transaction, assign a risk score ranging from “recommended for auto-approval” to “not recommended for approval” and send that information to an expense management system, the release said.
Microsoft’s quest to have “AI” in every single one of its press releases marches on successfully (I wrote about generative AI and what we’ve learned from the early days of Bing Chat in last week’s essay, ICYMI).
That said, this seems more hype than true innovation. The trick in automating expense reporting (a very worthy goal!) is having the necessary contextual data to know what should and shouldn’t be approved, down to an excruciating level of detail, and with the ability to handle all the annoying edge cases. This is why solutions like Navan make sense. They are able to make expense management for travel seamless because they also facilitate travel booking. They have the data!
(Check out this podcast I did with Michael Sindicich at Navan if you’d like to dig deeper into this.)
Now, to be fair, American Express also does travel booking for its corporate clients, so maybe there is a deeper level of integration here that will produce the automated end user experience they are talking about in the press release. However, the “AI” part of the headline is a distraction.
2 Fintech Content Recommendations
#1: Artificial Intelligence and Fintech (by Francisco Javier Arceo, Chaos Engineering) 📚
I wrote a bit about generative AI and fintech last week, but I’m a novice on the subject. Francisco is an expert on both AI and fintech, and he wrote this piece back in December (not sure how I missed it!)
It provides a wonderful primer on the history of machine learning in fintech and financial services (spoiler: we’ve been doing it for a while!) and explores where newer machine learning techniques (including transformers and large language models) make sense and, importantly, where they don’t.
#2: How Embedded Finance Can Unlock Funding For Female Founders (by Nicole Casperson, Fintech is Femme) 📚
Nicole (my Workweek colleague and all-around star) had a wonderful take in Forbes about the potential of embedded finance to bring more women into the fintech ecosystem, a task that is critically important and that we continue to suck at.
She’s absolutely right.
Embedded finance is about finding new places where fintech can add value. Many of these new places will be industries (healthcare, sustainability, mobility) where female founders are better represented than they are in finance and tech. If VCs can be persuaded to fund some of these female founders, the positive externalities will be significant.
BTW, I’m going to be doing a joint launch event with Nicole on March 2 to celebrate the new Fintech community we’re launching. Our goal is to create a safe space for people to have real talk about the future of fintech while providing top-tier resources for growth. Want to be one of the founding community members? Let me know, and I’ll share more details with you!
1 Question to Ponder
I’m considering doing a series of deep dives on how fintech intersects with other industries (healthcare, agriculture, etc.). I’d love your input – what industry (not financial services) does fintech have the most potential to help transform?