The motto in early stage technology company building is move fast and break stuff. The motto in early stage financial technology company building is move methodically and work with the regulator. This is true more than ever today because as Ben Lawsky put it, just 6 mos ago we were in a state of hyper regulation.
Members of the fintech ecosystem often point fingers at the regulator as slow to respond and inflexible. The reality is, the regulator has an incredibly challenging job balancing consumer protection, rapid technology + business model iterations and supporting economic growth. We discussed both sides of the issue with two prominent ex-regulators and two fintech entrepreneurs at this quarter’s FinTech Central at NASDAQ in New York — Ben Lawsky former Head of the DFS, Troy Paredes former SEC Commissioner, Matt Burton CEO of Orchard, and Lowell Putnam CEO of Quovo.
The question I hear most often from entrepreneurs is “how do I even begin to think about approaching a regulator to talk about regulatory change?” The answer from Troy was simple — just ask. He was happy to meet with companies and eager to collaborate and problem solve when he was in office (and now!). Troy also noted that the entrepreneurs who were most successful were the ones who showed up to his meetings with a thorough analysis of whatever topic they wanted to discuss. He pointed out that an entrepreneur shouldn’t necessarily reach out to push one way or another on an issue. It is most effective to arm the regulator with facts and share perspectives in order to jointly develop a better understanding of the issue at hand. Ben highlighted that the approach needs to be multidimensional. In addition to the regulator, you should be thinking about trade and political groups, governors and other people in your industry who have aligned interests. Regulators sit down with companies every day — their clients are the industry. Work with them and build trust, just like any other business relationship.
Unsurprisingly, the entrepreneurs on the panel had questions and expectations of the regulator consistent with their desire to rapidly grow their businesses. Matt reflected on some of his own experiences and asked about situations where multiple regulators have conflicting advice or guidance on a topic. Lowell described the best regulators as the ones who are able to monitor trends and pass legislation that support growth based on technological innovation. Ben and Troy quickly pointed out that while an operator only has to keep up on trends in one vertical, regulators are tasked with monitoring all trends in tech, and even if you spent 24/7 monitoring the space, you simply cannot keep up with fintechs — this is undoubtedly a problem for regulators. Ben went on to point call out some specific challenges that the regulator faces today. There were 1,400 people at the DFS. Of the 1,400, ~1k had been there for 25 years (before there was internet or email…).
My favorite part of the panel is a classic story on Square getting its application through the agency. Check it out at 32:00 in the video, you won’t be disappointed.
As always, I ended the panel asking each individual what they felt was the biggest opportunity in fintech today. Lowell would start a credit card business because it’s way too hard for many people to get credit today (I agree). Troy stuck to his roots and would start a business in regtech while Ben thinks there’s an opportunity in the annuity space. Lastly, as more data comes online with transactions, Matt would start a personal financial management solution.
To everyone working on a fintech company today — please work with the regulators. There really isn’t any other way to build a successful company in the space.