Money20/20 Zeros in on AI, Open Banking, and Payment Innovation

The end of October marked the conclusion of another successful year of Money20/20, the premier event for the payments, banking, fintech, and financial services industries. If you missed the conference, fear not. Below is a recap of some of the most talked-about topics in fintech.

Artificial Intelligence

Artificial intelligence (AI) took center stage at Money20/20 this year. Goodwin previously published a Fintech Flash that discussed the use of AI in the broader financial regulatory landscape. We have seen continued strong interest in applying AI-based models to various aspects of financial services:

• Fraud detection. Integrating AI into the consumer financial services sector is projected to greatly improve fraud detection and prevention by enabling adaptive security measures that safeguard consumers and financial institutions. AI’s capabilities for predictive analytics and its ability to process large amounts of information in real time helps flag fraudulent behavior quickly and more precisely, making it a valuable tool for immediate response to security threats. 
• Customer service. AI is transforming customer service interactions. By using “chatbots” as representatives, customers can experience streamlined interactions while financial institutions benefit from improved efficiency. 
• Tailored consumer experience. AI will enable financial services providers to offer personalized products that are tailored to identifying and addressing specific consumer needs in the market. AI technologies can generate individualized financial solutions that align with evolving consumer expectations. Consumer needs and preferences can be predicted by AI, which in turn can increase consumer engagement and satisfaction. 
• Enhanced access to credit. The use of AI can improve access to credit by underserved populations. AI can analyze alternative data sources for credit assessments (e.g., rent and utility payments), which have often been left out of conventional credit scoring methodologies. For example, integrating AI into mortgage underwriting processes can significantly mitigate biases inherent in traditional credit scoring practices, potentially leading to a more equitable distribution of mortgage approvals across diverse demographics.

While AI is a powerful tool for improving efficiency and user experience in the fintech industry, a number of legal and regulatory challenges remain to be addressed, and we should watch their development closely in areas such as:

• Human oversight. The use of AI should not supersede completely human oversight and input. Human intervention and judgment is still required to ensure the use of AI complies with relevant anti-discrimination, privacy, and data security requirements related to the financial services to which AI is applied. 
• Data security and privacy compliance. Given the massive amount of data needed to feed AI models and the vast variety of AI use cases, users will face the challenging task of ensuring the testing, training, and deployment of AI models complies with federal and state privacy, data security, and unfair, deceptive, or abusive acts or practices laws. Organizations are expected to implement rigorous data protection policies and provide consumers with the ability to manage their data and understand how their data will be used to improve products and experiences. It will be interesting to see how the use of AI interacts with the requirements of the newly implemented open-banking rule. 
• AI transparency. Businesses are expected to be transparent with their technology, meaning that their algorithms are explainable and consumers are able to understand credit decisions made by AI. 
• Governance frameworks. Organizations need to develop vigorous monitoring and governance frameworks to prevent unintended bias. Conducting regular evaluations of algorithms and ensuring transparent implementation of AI technologies will be crucial for meeting regulatory standards and customer expectations.

Open Banking

From a keynote address by Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra to panels on open banking’s global reach, open banking was one of the most talked-about financial regulatory topics at Money20/20 this year.

Chopra’s address provided the audience with some clarity on the objectives and expectations of the CFPB’s new open-banking rule. Chopra’s remarks reaffirmed the CFPB’s goals of fostering competition across the banking industry and protecting consumer rights without sacrificing consumer privacy or data security. He stressed open banking’s role in helping break down a monopoly over customers’ financial information and empowering consumers to take control of their own financial data. The move toward open banking in the United States is expected to spur innovation in the financial services industry by allowing smaller banks, fintechs, and other companies to develop innovative financial solutions tailored to consumers’ needs and data. Chopra acknowledged and emphasized that such access must be implemented with stringent data privacy standards to prevent misuse and maintain consumer trust.

Throughout the conferences, industry leaders echoed Chopra’s focus on balancing innovation with regulation. For example, panelists underscored the importance of finding the right balance between regulation and technological progress in the implementation of open banking. Global open-banking paradigms such as the EU’s PSD2 and Brazil’s Open Finance initiative (which have successfully expanded consumer choice and competition) were discussed and were believed to serve as a guide for implementing open-banking rules in the United States.

The international frameworks have shown how open banking can thrive when clear regulations align with technological advancements and innovation in the respective jurisdiction’s financial services industry. Although the United States will face different challenges due to its fragmented financial regulatory environment, as opposed to the more unified regulatory regimes abroad, there is optimism that the CFPB’s rule is a critical step toward modernizing financial data sharing and promoting financial inclusivity, and exciting opportunities await.

The open-banking discussions at Money20/20 reflected open banking’s growing foothold in the United States. We will be interested to see how industry participants strike the right balance as they navigate the evolving open-banking regulatory landscape.

Payment Innovation

The topic of payments — the backbone of money movement in commerce — is never out of date. Innovators at the conference were zealous about taking both consumer and commercial payment experience to the next level.

Creating a seamless and frictionless payment experience through digital wallets and embedded finance was a much-discussed topic. A lot of effort and innovative thought has been put into reducing payments in the background of customers’ day-to-day experience; as such, the collaboration between banks and fintechs has become increasingly vital in developing solutions that prioritize security, efficiency, and user-centered design. Meanwhile, banks and credit unions are investing in and offering digital wallets directly. The emergence of a digital wallet integrated with financial institutions could bring more market competition in the digital payment space, because traditional financial institutions likely find it easier to establish trust and credibility with customers.

The conference also highlighted the benefits of and need for a broader adoption of real-time and instant-payment settlement mechanisms. Instant payments enhance user experiences in both consumer and commercial contexts, such as minimizing delays in accessing money and enabling rapid delivery of goods or services. We expect the adoption of instant payments across numerous industries beyond existing use cases, and continued innovation will address challenges such as security and interoperability, bringing faster payment solutions to all fronts of the financial services industry.

Like other fintech applications, payment innovation is not immune to the use of AI. The enhanced fraud detection and prevention brought by AI could be particularly relevant to the payments industry because it tends to reduce banks’ and merchants’ fraud losses and deter customer identity theft. AI could also support more refined risk assessments and personalized payment solutions, such as obtaining a personal loan at the point of sale, which aligns with evolving consumer expectations.

Final Thoughts

We thoroughly enjoyed our experience at Money20/20, and we left the conference with refreshed ideas about how we can enhance our capabilities and better service our clients in this rapidly evolving and competitive industry. We hope to see you soon at the next Goodwin event and discuss these ideas with you.

Goodwin’s Fintech Team
We practice in every fintech vertical, including lending, alternative finance (e.g., merchant cash advances, earned wage access, and factoring), payments, deposits, insurance, broker-dealers, and investment advisers. In addition to doing product and service development regulatory work, we assist our fintech clients that choose to deliver their solutions through banks in entering into bank partnership and platform agreements.

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.