JJ Hornblass, Royal Media CEO

Hi everyone. I’m JJ Hornblass and welcome to Fintech Unfiltered, the podcast from Bank Innovation on what’s new in banking technology and innovation. This is our Weekly Wrap for what’s happening in our market for the week of October 5, 2020. I want to thank all the advertisers who have been supporting us Blend, Q2ebanking and Mambu for their support. Thank you to them. And I am happy to be joined by Rick Morgan and Bianca Chan from Bank Innovation. Hello to both of you. It is Friday, October 9 this week, the federal stimulus bill continued to stutter. The vice presidential debate was held while the next presidential debate seems now unlikely. A Wall Street Journal survey found economists don’t expect a full market a full job market rebounds until 2023. A new data shows that the federal government’s budget gap and fiscal year 2020 widened to $3.1 trillion from $984 billion a year earlier, a threefold increase. Hurricane Delta, a powerful category three storm was forecast to make landfall this evening near Lake Charles, Louisiana six weeks after Hurricane Laura struck the same area. This would mark the first time on record that a major hurricane hit the same location twice in one season. And finally this week, Bank Innovation was redesigned and its redesigned site was launched. And we hope you like it very, very, very much. One of the key stories that we published this week, focused on robotic process automation or RPA in banking. Bianca, let’s start by just defining what that means. Before we get into a bit of a discussion on what’s the state of RPA in banking today.

Bianca Chan, news editor at Bank Innovation  

Yes, robotic process automation is basically a term used to describe software that either partially or fully automates like typically repetitive mundane tasks that humans usually carry out. So stuff like data entry or processing transactions.

JJ Hornblass 

So what are some of the key hurdles to implement? Well, let’s start by, let’s first start by, to what degree has RPA been adopted in banking today? How pervasive is it in banking?

Bianca Chan 

Okay, so RPA, I think many banks today are using it, but to the extent of how advanced those applications are, is still in question. So in financial services, much of the applications are still just Yes, like the very typical, very, almost simple tasks to carry out. But there’s more, there’s more potential here is what industry experts and panelists said at the Sibos conference this week, and used in concert with other sorts of like other sorts of machinery, like artificial intelligence, machine learning, cloud computing, 5g, Internet of Things, IoT, it can become quite powerful. And one of the things that stood out was how it can help banks overcome the hurdle of dealing with legacy systems. So we’ve been speaking to two sources about this for the past few weeks now. And what it sounds like is there are two kind of main integrations to unlocking legacy systems. One way is through native integration via API’s. The other way is with RPA robotic process automation. And now it’s a little complex. But the way that that is done is you basically create robotic processes that use graphical user interface. So that’s basically a fancy term to say, you know, the icons you see on your computer screen or, you know, the words the text boxes that you see. And this program software, essentially, you can create program software that essentially will carry out the same sort of manual tasks that are built into the systems, the way the legacy infrastructures are just built. And so it doesn’t necessarily make any hard changes to the actual tech stack, but it’s more streamlining the processes, the manual processes that are built into the legacy system. By having robots do the manual tasks versus humans.

JJ Hornblass 

So what are the impediments to this?

Bianca Chan  

Well, it’s it’s even though it’s been in the technologies kind of was introduced decades ago, we’re still in the nascent periods. Like we haven’t figured it all out. CEO Blue Prism, which creates robotic process automation software for big companies like Microsoft, Google. He says that we’re still figuring it out how how it connects more largely to big and beyond just the the easy sort of manual tasks that could be completed through RPA.

JJ Hornblass  

What would you expect for RPA? Let’s say over the next I don’t know year, I mean, how would you, first of all, how could we measure its adoption? What would be a mark of progress? In terms of adoption of RPA and banking? You know, over the next call it 12 months?

Bianca Chan 

Yeah. So I think we could use the forecasts that are out there. So Gartner, which is a global research advisory firm, has done a lot of research on RPA adoption, and we can see the growth or track the growth based on their predictions. So they’re, they’re expecting a 20% year over year increase in RPA. Software revenue to 1.89 billion by 2021. The other kind of marker that we can also use is that same report says that by 2020 to 85%, or 90% of companies surveyed in their report will be using RPA. That’s compared with about 25% today, so we should see it skyrocket.

JJ Hornblass

That number for RPA is not that high? I mean, it’s not from a it’s not a big dollar amount. I mean, on a relative basis. I mean, when you look at I don’t know the numbers spent on cloud computing, for example.

Bianca Chan   

Well, I think cloud computing makes it possible for simple uses of RPA to be accessible.

JJ Hornblass  

Another development that we’ve been focusing on is on the regulatory side in terms of payment charters. So Rick, what as what’s the OCC, the Office of the Comptroller of the Currency, what is the OCC trying to do in regards to charters?

Rick Morgan, news editor at Bank Innovation

Well, they’re trying to sort of create a new version of the FinTech charter that’s being held up in the Southern District of New York. And instead of including lending and payments in this charter, it’s simply just a payments charter. So it’s a little bit pared down, it’s a little bit simpler. You know, lending can be a little bit controversial. So they figured if they just strip it down and make it a little bit simpler, this is something that people might get on board with. The payment charter is a way for payment charters to sort of not have to get state by state licensing, they’ll be able to operate nationally. banks don’t like it because they say it’s going to create this light regulatory environment. But the fintechs and a lot of experts in the industry say that the current state by state licensing system is archaic, slow, costly, and it ends up hurting consumers.

JJ Hornblass 

So I guess my question I asked this really to both of you, is, you know, first of all, this charter seems unlikely to go through. If the FinTech charter, if the FinTech charter got shot down through the courts. I don’t know how hard it is. I don’t really understand how this wouldn’t get shot down.

Rick Morgan  

They definitely stand and fall together. That is something we heard. It’s important to note that that FinTech charter fight is very far from over. The OCC, it sounds like it’s prepared to take that all the way to the Supreme Court that they need to so that that’s still something that’s being fought right now. And the payment charter is going you’re right, that’s going to face the same thing. Pretty much everyone I spoke with said that, yes, as soon as someone gets one of these payment charters, it’s going to get held up in court, and the OCC is gonna challenge it, and they’re going to take it all the way to the Supreme Court. And that seems to be where this is headed.

JJ Hornblass 

This becomes like a political thing. So just from a political standpoint, it would see I mean, the FinTech charter initiative was started during the last administration.

Rick Morgan  

That’s an important thing to note is that it was started by Curry who was an Obama appointee. Now it’s being championed by Brooks, who’s the acting comptroller Brian Brooks. And he is obviously a Trump appointee. So this has kind of gone across party lines, they both championed it. You know, obviously, the election does sort of muddy the future a little bit in terms of what will happen. But this has certainly been a bipartisan effort that has crossed party lines.

JJ Hornblass 

So the legal the legal challenge to it is based on what principle?

Rick Morgan 

That these institutions that they want to become chartered institutions shouldn’t be able to skirt important regulatory issues like the CRA, the bank holding company act, and other regulations that deposit taking institutions are subject to now what some of the experts I spoke with said is that, well, these payments fintechs aren’t taking deposits. So why would they be held to the same deposit-taking institution standards?

JJ Hornblass  

There, there are plenty of financial regulatory frameworks that they probably, you know, they could be that could apply to this. Yeah, I’ve been through these charters. I don’t think they are contemplating right now.

Rick Morgan  

Yeah, I mean, who knows? I think the OCC still plans on regulating these fintechs very stringently. I think that’s the argument they’re making is that, you know, this isn’t gonna be regulation light, as everyone likes to call it, this is still gonna, they’re still going to be subject to a lot of rules and regulations. And the OCC does have the authority to grant special purpose charters. So that’s the argument they’re going to take to the Supreme Court. Well, how that goes. I don’t know. You know, what, what the right or wrong answer is beyond me as well. But right, this will go, this seems like it’s going gonna keep up.

JJ Hornblass   

Yeah, let’s leave the legal argument aside for a second to try to. It’s difficult to discern whether a more conservative Court, which seems like we’re going to have, at this point, considering the nomination of Judge Barrett, right. Yeah. So let’s leave the legal discussion aside, what I want you to focus on more, was the market neat. Now, if you want to go ahead and get this charter, the present there was there was what one FinTech charter? Granted, I believe.

Rick Morgan  

Yeah, but I forget who got it.

JJ Hornblass

Yeah. So to acquire a charter costs a lot of money and effort. Yeah. And it seems that there are plenty of fintechs that are getting by just fine. Using bank charter services from existing banks. You know, there’s so you can argue that there is a cost that’s getting folded into the system, as a result of that. Have that requirement? But is the cost that much greater than what a charter would cost to not just secure, but also maintain? And so if that’s the case, like, is this? Is this really worth the effort? And is it really going to have that level of adoption that the OCC thinks it will have?

Rick Morgan 

That’s a really good question. I mean, only time will tell and it’s hard to say, since the FinTech charter has been blocked, and the payment charter is so nascent, right, it’s hard for me to say, you know, is it worth it from a market standpoint? You’re right, I mean, the payment charter will cost money to get and whether or not that cost will be better for fintechs, then getting state by state licensing or going through a partner bank, which also costs money. It’s hard to say, unless you are looking at their books, I would say.

JJ Hornblass  

Bianca, you want to weigh in?

Bianca Chan  

Yeah, sure. I think in terms of market opportunity, yeah, like, it’s gonna be a big jump, to really try to get that payment starter, as soon as we’ve seen with the FinTech charter is obviously going to cost a lot of money. I think it comes down to what that fintechs roadmap is do they want to just continue to offer the services that that they can offer via, you know, being backed by partner banks, or do they want to have more control more in house control, I guess, and be able to kind of branch out to do whatever would be on the roadmap.

JJ Hornblass 

I mean, we’ve seen so much more competition on that side, from the from the, you know, the bank charter providers, so I don’t know. I think that this is really gonna end up appealing to a very small slice of fintechs meaning and most likely, really big ones that probably don’t really need the financial relief or, or can you know that service for them? It’s just hard to see. And then more fascinating to me is the fact that this is actually going through under Republican administration. Why exactly there. Why this says, enchanted them, I don’t really quite fully grasp, when, as a general principle, they advocate for less government involvement as generally speaking, so it’s hard. It’s hard for me to reconcile. But that’s a question that we definitely cannot answer today. What do we have in store for our esteemed readers in the forthcoming week?

Bianca Chan   

We’ll be digging into some new API’s from Bank of America and the implications.

Rick Morgan  

Nice, and I’m gonna be looking at a handful of minority-owned banks and how they’re using technology to reach their customers and help other communities.

JJ Hornblass  

We are so happy that you’ve listened to this podcast. Please subscribe, where you listen to your podcasts and also rate us on your podcast platforms. And follow us of course on Twitter and LinkedIn. We’d also love to see you at Bankinnovation.net, where you can subscribe to our news service. And speaking of RPA, we have the Banking Automation Summit. That is coming up in November, where we’ll delve very much more deeply into automation related issues. In the meantime, and you can find out more about that at bankingautomationsummit.com. Rick and Bianca, thank you so much. And thank you all so much for joining us. We’ll see you next time.