Lawmaker Asks: Can Smartphones Help the Unbanked?

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Regulations and lack of infrastructure could get in the way, financial technology experts said.

Smartphones are quickly becoming financial services hubs: Apps like Venmo let users instantly send each other money, and budgeting systems like Mint let users track their spending in real time. These services might be convenient, but what do they do for citizens who don’t have bank accounts?

That’s one of many questions lawmakers posed during a House Energy and Commerce subcommittee hearing Thursday. Here are a few other takeaways from that conversation:

Some advocate for one unified financial regulation agency.

The Consumer Finance Protection Bureau oversees some regulation targeting deceptive practices, but many financial technology companies need to get licensed in each state before they can operate, Peter Van Valkenburgh, research director at digital currency advocacy group the Coin Center, testified. He proposed states and federal regulators should better coordinate their oversight.

“We are agnostic as to which agency takes on that authority,” he said, but a more effective system might look like the Financial Conduct Authority in the United Kingdom, which handles all financial regulations in the nation.

Companies who hold other people’s digital currency often have to deal with a “chaotic patchwork of state and federal financial services regulation,” so an entrepreneur “dreaming of building the financial infrastructure of the future would be well-advised to leave the U.S.” he said in written testimony.

“Not because she should try and avoid justifiable consumer protections, or do it on the cheap in a foreign state that will look the other way, but—instead—because simply determining what the U.S. regulatory landscape demands from her is a herculean undertaking.”

There’s concern rural citizens may not get the same access to fintech options as urban residents.

Rep. David McKinley, R-W.V., asked how fintech companies were addressing the needs of rural communities, some of whom live in mountainous areas with spotty connectivity.

“Wi-Fi is not necessarily ubiquitous or cost-free,” Jeanne Hogarth, vice president of the Center for Financial Services Innovation, a nonprofit consultancy, testified. “For many low-income households, accessing data plans is a really tough pull on their budgets." 

She proposed an infrastructure program to “provide access to reliable high-quality broadband services whether that’s a wired line, a fiber optic line, or Wi-Fi.”

At least one lawmaker is concerned fintech could obviate banks altogether. 

Rep. Larry Bucshon, R-Ind., asked witnesses what would happen to traditional banking if financial services move to apps.

“For my parents ... who have gone to a bank for years and years, what happens when there’s no longer a bank on the corner?” he asked.

He added that “we need to make sure the services available are intuitive, are easily accessible not only to my sons who are in their 20s” but also to people in their 80s.

But the lack of human interaction is what often makes online banking appealing, Javier Saade, managing director at Fenway Summer Ventures, said during the hearing.

That sort of faceless ability enables you to access things with a lot less friction, and lack of friction leads to lower cost," he said.

Many fintech services are designed for people who have bank accounts, but some can help low-income users manage their budgets. 

Many businesses in the digital currency space require users to have bank accounts so their dollars can be transferred into digital currency, Van Valkenburgh said, though he added some companies struggle to maintain relationships with those banks because digital currency companies are occasionally viewed as money laundering operations. 

Some financial apps, especially those dedicated to budgeting, might help users track their spending and identify when they're being charged erroneous fees, Hogarth said during the hearing. 

“A lot of times, you're operating in one-off decisions, when you don't really understand the interaction of decision X with decision Y ... many of the apps right now are really trying to help consumers get that fuller picture of their financial lives," he said.

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