June 05, 2023
This year my colleagues and I at AIR are celebrating four big milestones:
I recently heard an A16Z podcast with Sriram Krishnan on the Good Time Show. He said that 90% of podcasts don’t make it to episode 20. Of the ones that do, 90% of those don’t make it to episode 40.
So at 200, we’re doing pretty well.
It has been a ride. To remember the 100th show, we have to cast our minds back to the summer of 2019, a hot August in Washington DC. I had just cofounded AIR along with David Ehrich. That week, David and I worked with our Chief of Staff Lexi Frazier (who was already with me), and my former Harvard research assistant Amrita Vir to put on the first-ever U.S. regulatory TechSprint. We did it in conjunction with the U.K. Financial Conduct Authority at the suggestion of its innovation director, Nick Cook. Two years later, Nick became our Chief Innovation Officer, here at AIR.
I remember working on that 100th show, in the midst of the exhausting TechSprint, sitting at my desk one night, long into the evening. As I said in that episode, the FCA approached us about cooperating on that event when AIR was so new that we didn’t even have a logo yet — we just had a picture of a robot. We knew, though, that we were onto something. The event built on the work the FCA had done in a TechSprint the year before, exploring technology that could turn the tide on money laundering. The energy at our sprint was incredible. People were so excited, wanting to sign up to help solve real problems by opening up a whole new box of tools.
Six months later, COVID hit. Like everyone, we locked down, learned to use Zoom, learned how to be effective with zero personal contact. Again, we’re going to tell you AIR’s story in a separate show with our leadership team, but tying it to the podcast show, I think what happened was that the pandemic made the world smaller, and bigger, at the same time. All our shows were recorded on Zoom for about two years, plus our speaking engagements were suddenly all virtual, which made them much more international. We took the opportunity to cast a wide net.
Who did we talk with?
The show’s first hundred episodes, from 2015 to 2019, were heavily focused on fintech innovation. This was the emerging force that was promising — or threatening, depending on your perspective — to “disrupt” financial services. We talked with many, many startup founders, and with bankers who were importing fintech ideas, and with regulators who were organizing themselves to learn about these new technologies. I know for sure that I was the first person to introduce some of our U.S. regulatory agencies to the term, “regtech,” because they told me I was. These ideas, in the first hundred shows, were mostly new to the traditional financial community, so we did a lot aimed at just educating.
The second hundred shows, from 2019 to now, have been a bit different, looking more closely at how these disruptive technologies have evolved, and the government response to them. When COVID began, we pivoted to a special series with top regulatory officials, current and former, to ask how they viewed these novel pandemic risks and how to respond – Jelena McWilliams, Brian Brooks, Gene Ludwig, Rodney Hood, Chris Woolard, our board member Tom Curry, and others.
We also continued, of course, talking with the innovators who were driving market change — Paypal CEO Dan Schulman, Circle CEO Jeremy Allaire, Goldman Sachs executive Stephanie Cohen, Varo CEO Colin Walsh on getting a bank charter, Upgrade CEO Renauld LaPlanche, Starling Bank CEO Anne Boden, Sila founders Shamir Karkal and Angela Wilson, Upgrade CEO Renaud LaPlanceh, Mastercard Vice Chair Ann Cains, and many others. We talked with Kabbage founders Rob Frohwein and Kathryn Petralia before they sold to American Express. We talked with Sunrise Bank CEO David Reiling. We talked with Silicon Valley Bank CEO Greg Becker, back when the horizon looked bright.
We also talked with leaders who are re-molding the industry – people like American Banker Association CEO Rob Nichols, ICBA CEO Rebecca Romero Raimey, and Regtech Association CEO Deborah Young, and BIS officials like Celicia Skingsley and Tara Rice.
And we talked with the social entrepreneurs. One of my favorite shows was with the Gates Foundation's Kosta Peric, on transforming payments in Africa. We also discussed Africa payments challenges with Mojaloop CEO Paula Hunter — she’ll be on the show again soon. We talked with Sara Willis Ertur of Village Capital and Allie Burns of MetLife and the Financial Health Network. We talked with Prudential’s Jamie Kalamarides and Aspen’s Ida Rademacher. We talked with Greta Bull, then the CEO of CGAP and now leading women's initiatives at Gates.
And of course, we continued talking with regulators, all over the world. We talked with many agency heads. Some have now left office, like FDIC Chair Jelena McWilliams, Comptrollers of the Currency Brian Brooks and Joseph Otting, Federal Reserve Vice Chairman Randal Quarles, acting head of the UK Financial Conduct Authority Chris Woolard, CFTC Chairman Chris Giancarlo, NCUA Chairman Rodney Hood, and former Small Business Administrator Karen Mills. We also talked with many top regulators who are currently in office, like Ravi Menon, who leads the Monetary Authority of Singapore, and Nikhil Rathi, CEO of the UK Financial Conduct Authority, and Todd Harper, chairman of the NCUA — and also with his fellow board member Kyle Hauptman. We talked with people who were then US state banking regulators, like New York’s Linda Lacewell and Wyoming’s Albert Forkner, and of course with my very dear friend, the late John Ryan, CEO of the Conference of State Bank Supervisors, who passed away last year. In that show, I said that John had the distinction of being the nicest person we ever interviewed, because I had multiple failures of the recording technology — like, two or three — and he was just infinitely patient and good natured.
We also talked with some people who were not leading agencies at the time, but are today. For example, we talked with Michael Barr, who is now Vice Chairman of the Federal Reserve, and Adrienne Harris, who now leads the New York Department of Financial Services, about their Gates Foundation project on the Future of the Central Bank.
Of course, we talked extensively with the innovation leaders at regulatory agencies around the world. Early in the second 100 shows we talked with Nick Cook and his then-colleague Francesca Hopwood Road, who was then at the FCA and is now at the BIS Innovation Hub. Nick has identified the three-part journey that most regulatory agencies travel on the road to the digital age, saying that they first organize themselves to learn about fintech, and then they educate themselves on how the industry can use regtech, and last, they tackle the more difficult job of adopting new technology for themselves – modernizing their own tech stacks, moving into the cloud, and adopting technology for supervising financial companies, so-called “suptech.” We talked with people in different stages of that journey, including the FCA, FINRA, the MSRB, and MAS, and, again, the BIS Innovation Hub in relation to the G20 Global Regtech TechSprint, in which I was a judge.
Many guests have been partners in the work that AIR is doing. We talked with the founder of the Reserve Bank of India’s Innovation Hub, Rajesh Bansal, on the TechSprint that we did with them in 2022 on women’s economic empowerment. We talked with Amy Friend, former chief counsel of the OCC, about the report she wrote for us on the innovation journey that has been traveled by the UK Financial Conduct Authority. We talked with Jerry Buckly and Sasha Leonhardt on the pro bono report written for us by the Buckley law firm (now Orrick), called the Financial Regulators’ Dilemma. That was based on confidential interviews with the innovation heads of the U.S. regulatory agencies, talking about the government-wide laws and protocols that tie their hands in trying to learn about technology and experiment with new methods. They are still helping us with that effort.
We talked with some legends, like Intuit founder Scott Cook.
What did we learn?
In the first episode of Barefoot Innovation, I laid out the goal of the show:
“These podcasts are designed as a search for ideas on how to do better for financial consumers. We’re seeking out better products and practices, smarter regulation, new kinds of business models and cultures, and new ways to empower consumers, and above all, and above all, new technology, which is suddenly making it both possible, and necessary, to rethink today’s system.
We’re conducting our search through conversations. We’re finding the most fascinating people in the field. That includes, importantly, lots of people who don’t know each other – who barely even know about each other – but who are actually working on the very same challenges from different angles, amidst rapid change. We listen to them, mix their insights, and through the mixing, germinate new ideas.
Finding new ideas is urgent, because consumer financial services is the first industry to face technology-driven disruption while being both essential to everyone, and massively regulated. The changes coming will be both good and bad – which means they will, inevitably, disrupt the regulatory system, too – with all its enormous complexity.
So, what have we found in this search so far. What have we learned? And what lessons have stayed on my own mind, for these four years?
Well, if I may say so, one thing we’ve learned is that we were right about a whole lot. Many of our guests’ predictions of change, dramatic as they may have sounded along the way, have been coming true. In fact, many have turned out to be understated. And another set of predictions have not yet panned out. Here are my main takeaways, from the second 100 shows.
The first is that speed is the key. From almost the start of this show eight years ago, we’ve been warning that digital technology is accelerating exponentially, which will mean that the regulatory framework won’t be able to keep up with it. When we did the 100th show, most of our vocabularies didn’t even include terms that have become everyday language. We had no concept of an NFT, a DAO, Web3, DeFi, the Metaverse, or GPT. If you read AIR’s paper from early 2020, the Regtech Manifesto, none of those terms even appear in it. Think about this speed. In this short span of years, we’ve seen a whole business cycle in the crypto space, and full boom and bust. We’ve seen America’s first social media-driven bank run, which closed down a regional bank in a matter of hours. And we’ve seen novel risk vectors, like the Robinhood/Gamestop episode. The danger of regulators falling behind is ratcheting upward.
And now, Generative AI, in particular, is coming at us so fast that it’s impossible to prepare well for it. I hope you enjoyed my talk with my guest for the 199th show, which was ChatGPT.
The speed of change was a challenge that reached beyond technology. Our 101st guest was the great Chris Skinner. Four years later, the guest for the 199th show was ChatGPT. If you had told me four years ago that the 199th conversation would be with a robot, I would not have believed.
Little did we know, back then, what was ahead. The early guests in these hundred shows had no idea that a global pandemic would seize the world and, in just a few weeks, transform daily life for almost everyone on earth, all at the same time, and would dominate everything for nearly two years. No one knew the U.S. presidential election would bring unprecedented turmoil and bitter, and even violent polarization. In finance, the guests in the first half of the group saw the crypto boom riding high, with no idea that crypto winter lay ahead, much less the FTX disaster and Sam Bankman Fried, or the evaporation of venture funding and failures of promising startups that ran out of runway. The fintech community didn’t know that the arrival of the Biden Administration in 2021 was going to bring senior regulators into office who were deeply suspicious of their technology and even of the word “innovation.” No one knew Russia would invade Ukraine. Almost no one accurately predicted how COVID relief funding would impact household spending, borrowing and saving. Only a few voices predicted that inflation would infect the economy, or that after years of artificially low interest rates, the Fed would take us through the steepest, fastest rate increases in U.S. history. The bank regulators we talked to had no idea that Silicon Valley Bank was headed to failure.
We can say that any four year period brings a lot of change, but my view is that many of these shifts reflect shortening cycles of change, and new, deeper, more mold-breaking kinds of change than we have seen before, in technology, policy, and society.
My biggest piece of advice for everyone is, speed up. It’s not easy, obviously, but holding still has become more risky than moving forward.
Second, innovation is a mixed force, both good and bad. This isn’t a new learning, but the shows do tell the story. Some innovation will fail. Some will cause harm. Technology is a tool. It’s neutral, amoral. It can be used for good or ill. It can also be left unused. It’s always been my view, and is today more than ever, that whether the good or the bad will dominate in financial innovation is going to depend on how wisely we regulate this change. I worry that we will fail to prevent harm. I worry, even more, that we will fail to reap the potential benefits, by regulating these changes in ways that accidentally choke off new approaches that could have solved hard problems, leaping us forward in areas like financial inclusion, fair lending, consumer protection, anti-money laundering, and economic stability.
Third, the nature, or at least the design, of “money” itself is changing. We have crypto winter, yes. We have seen big financial fads soar into the stratosphere and then fall back to earth. We’ve seen wild speculation and fortunes made and fortunes lost. We have a lot of visionaries who struggle to explain what it is that they are seeing, over the horizon, as they talk to us with buzzy words like Defi and Web3. I know that I don’t know the future. But, I’m with the voices saying that most of the shakeout is a healthy correction. People sometimes ask if fintech and crypto are like the dotcom bubble. My answer is, yes, in that lots of companies won’t make it, but also yes in impact. After all, we are all using the internet, aren’t we?
I’m going to follow up today’s show with a special episode (or two) in which we go back and listen again to parts of what some of these visionaries told us in these hundred shows, and encourage you all to join me in listening really closely. I think they are seeing the future.
Fourth, using technology to drive financial inclusion and fairness is hard, but is happening, and the same is true for combating financial crime. We have had so many guests who are devoting their lives to this. People at international organizations, foundations, central banks, and in the private sector, both in the U.S. and all around the world. One show focused on AIR’s work with the National Bankers Association to help Minority Depository Institutions stay competitive through digitization, to carry on their mission in serving communities of color. Some guests were people at the World Bank and the Gates Foundation, devoting decades of hard work to driving for complete financial inclusion by building on the incredible possibilities created by the mobile phone, which I think is the most democratizing force in the history of finance. The cell phone has brought access to fair financial services to billions of people for whom no bank was ever planning to build and staff a branch. This work is so difficult, but it is making a difference. I think it will change everything. We will include this theme, too, in the follow up show or shows, and listen to some of our most inspiring guests.
The same goes for progress against financial crime. AIR does a lot of work on this — I’m realizing that our podcasts haven’t told that story fully enough. But, there is no question that technology innovation is starting to equip the good guys with tools that can actually fight back against rising, global networks of crime. Remember, these are evils arising out of the high profitability of laundering money through the banking system, and the vanishingly low risk of getting caught, because the banks and law enforcement mostly use outdated technology. The result is rising levels of crimes like human trafficking. People all over the world are working on this, and I have no doubt that real progress is coming.
Fifth, regulation is coming for the financial innovators. When fintech was small, when crypto was tiny and obscure, policymakers could largely ignore them. Government could even afford to be patient and let these nascent trends develop a bit, rather than intervening in infant markets before it was possible to understand them well. As these innovations come of age, they are naturally attracting rising attention from lawmakers and regulators.
As I have argued countless times, these new technologies are breaking old molds. Yes, they are covered by other financial services rules, but that coverage is often unclear and patchy, leaving a lot of confusion and white space. Throughout the world, lawmakers and regulators are moving to change that, now that these innovations have moved from infancy to adolescence.
Sixth, there is a huge difference in how fintech is viewed in the U.S. versus the rest of the world, and especially in emerging markets. I think it’s fair to say that policymakers most everywhere are concerned about big tech in general, and about fintech specifically, on issues like data use, privacy, security, and competition. But most of the world also looks at fintech as creating a massive chance to include everyone in the formal financial system and to drive for better affordability, transparency, and fairness. We talked with the central bank of Kenya, which was the cradle of mobile money. We talk with a lot of regulators in emerging countries and officials at organizations like the World Bank and the Gates Foundation, who believe that digital financial services can bring actual, full financial inclusion, driven mainly, again, by the mobile phone bringing financial access to everyone. In the United States, in contrast, many public officials view fintech innovation mainly as a negative, especially when it involves lending business models that can bypass state usury laws. There is no doubt that these downside risks are real, but one theme of the show has been to try to hear from passionate advocates of financial inclusion and consumer protection, people who see a historic chance that technology can solve problems we’ve never been able to solve before.
Seventh, traditional regulation is not going to work. Yes, the principles stay the same. Yes, we need human experience and judgment more than ever. As most of you know, I’m a former regulator and I believe in the accumulated wisdom of the regulatory community. But the fact remains that traditional regulation will increasingly fail as the system speeds up and becomes mainly about digital technology and AI.
Some of the regulatory responses to the digital revolution are going to be off base. I believe, frankly, that some will do more harm than good to consumers and to regulatory goals like financial stability and combating financial crime. Why? Partly because the technology is changing faster than the rules can (more on that later). Partly because, also, that many policymakers don’t yet understand the technology issues, although that is changing fast.. And also partly because, frankly, too many of the founders and builders of the new challengers have gotten it wrong. Fintech has massive potential to make financial services better — more affordable, accessible, fair and everything else we want. But it doesn’t achieve those goals automatically. A combination of some truly bad actors and just a lot of indifference to customers’ wellbeing has put the whole sector on defense. The industry will be working for a long time to get out of the penalty box in the minds of many consumer advocates and public officials. It could have been avoided.
Finally, the biggest missing piece in meeting the regulatory challenge is that the regulators, themselves, need better technology. The regulators are very smart. At this point, there are regulatory leaders all over the world who do fully understand the technology challenge, and who have elevated technology issues to the top levels of their agendas. Only a tiny few, however, are making real progress in overhauling their own technology to meet the challenge. They are going to have to do this. We talked with some of the leaders who are taking these steps — again, Nikhil Rathi at the FCA, the innovation heads of FINRA, the incredible chief innovation officer of the Federal Reserve System, Sunayna Tuteja, leaders from the Bank for International Settlements, Ravi Menon of the Monetary Authority of Singapore, and the leaders who have taken the MSRB fully into the cloud and redesigned the agency’s entire information architecture around it. Modernizing the regulatory information “plumbing” issue may not be as sexy as cool new consumer products are. Still, I think it’s the single most important thing we need to get right. I think it is the single factor that is most likely to go wrong, as the world of finance remakes itself for the digital age.
We’ll have much more on this, in the next hundred shows. The regulators are going to need to meet fire, with fire.
Our first hundred shows were full of adventures that were caused by the places where we recorded them. In episode 100 in August 2019, I shared memories of some of those crazy times – fleeing from thunderstorms, recording among noisy seagulls on the beach in Fiji, getting thrown out of more than one conference room. One way in which the second hundred have been different is that once COVID hit, we did nearly every episode on Zoom, with me just sitting at my desk in Washington DC and my guest doing the equivalent. The biggest misadventures were when someone’s dog barked or a cat jumped into the Zoom frame.
Still, woven into all these conversations is the human story — successes, failures, reversals of fortunes, journeys of change. Again, this time period saw the social and economic convulsion caused by COVID, the U.S. election of 2020, and the murder of George Floyd. And, again, it included the Russian invasion of Ukraine.
I remember the day I got a call from Stu Watkins in Prague. We had gotten to know his firm, Zenoo, early in the pandemic when we held a virtual techsprint on how banks and fintechs could use technology to get US federal rescue funds to small businesses as quickly as possible. In April 2022, Stu reached out to propose a podcast on his efforts to help protect Ukrainian refugees from human traffickers who were beginning to prey on them as they arrived at the border. Stu and others put together an identity screening process, essentially equivalent to a bank KYC review, so that refugees could verify who a person was before, say, getting into a car or accepting lodging from strangers. And this audience helped support his efforts.
Again, I’m working on another special episode that is essentially a cut and paste of some of the most thought-provoking discussions that happened in the second hundred shows. I’m organizing it not around who the guest was, but around what they talked about — the key themes. I think you’ll enjoy it — at times, it’s almost as if some of these guests were talking with each other. So watch for that, coming soon.
In the meantime, for today, I’m going to close by sharing a few short clips of some of the voices we’ve heard from over the last four years. Before we do that, I want to say a quick thank you to one of the visionaries we’ve had on the show, Hummingbird Co-CEO Matt Van Buskirk. It was Matt who, in 2014, over a breakfast of huevos rancheros in a restaurant in New Mexico, told me that I should start a podcast show. I know this is hard to imagine in 2023, but nine years ago, I had never even heard a podcast, and I suspect the same was true at the time for many of you. Matt urged me to listen to the first show that had been put out by the legendary Tim Ferris, and, I got it. In a podcast, I can sit down with a guest whom my listeners will probably never meet, and I can get her or him to talk in ways that we otherwise might never hear. They can explain what they’re doing, and why, and the passion that’s driving them. Do you notice how, so often, we can hear that passion? And we can hear the journey — what they’re figuring out, what they’re learning, why it matters. And we can learn from them, and be inspired, and have their ideas and examples help us take our own journeys forward. It’s such a privilege, to be able to talk with them.
So, let’s hear some short clips of some of the voices of our last 100 guests. And let’s start with
Stu Watkins, on why he was working to use technology to protect refugees as they fled Ukraine to save their freedom, and their lives.
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