Amex's fintech gameplan, SEC hack: Top tech news for January 2024

January 31, 2024 12:15 PM

In this month's roundup of popular tech news: SEC responds to successful hack on its X account, community banks get closer to fintech hubs, the Office of the Comptroller of the Currency weighs in on Blue Ridge Bancshares and more.

Click here to read our list of top tech news for 2023.

If a company with an existing bank relationship approaches Five Star Bank, "we need a pretty convincing story on why they want to leave that bank," said Abraham Rojo, head of digital banking and BaaS at Five Star, pictured at right. Curt Queyrouze, president of Coastal Community Bank (left), expects more fintechs to diversify their sponsor bank relationships, but points out it takes time to launch or wind down a relationship.

Fintechs contend with banking-as-a-service fallout

Article by Miriam Cross

When one child misbehaves, even innocent siblings can expect extra scrutiny when their parents come home.

"It doesn't matter if you're the problem child," said Jason Henrichs, founder and CEO of community bank consortium Alloy Labs Alliance. "You're all in trouble."

The same could be said of players in the banking-as-a-service space. Financial institutions including Blue Ridge Bankshares, Cross River Bank and First Northwest Bancorp have been forced by regulators including the Office of the Comptroller of Currency and the Federal Deposit Insurance Corp. to heighten oversight of their fintech partners, strengthen compliance and more in recent years; in fact, on January 26, the OCC hit Blue Ridge with a second consent order, while the FDIC published consent orders related to fintech partnerships formed by First & Peoples Bank and Trust Company and Choice Financial Group. A recent analysis by S&P Global Market Intelligence found that banks that provide BaaS to fintech partners accounted for 13.5% of severe enforcement actions issued by federal bank regulators in 2023, a disproportionately large number considering how few banks in the U.S. engage in BaaS, the analysis said.

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Blue Ridge Mountains at Shenandoah National Park

Blue Ridge Bank CEO Billy Beale said the consent order with the OCC, made public this week, was based on an exam by the regulator from June 2023.

OCC says Blue Ridge in 'troubled condition' over BaaS

Article by Catherine Leffert

Blue Ridge Bank has been hit with its second regulatory action in less than 18 months, this time taking heat for failing to correct previously reported problems related to its fintech partnerships.

The Martinsville, Virginia, bank has been deemed to be in "troubled condition" by the Office of the Comptroller of the Currency, which entered the consent order on Jan. 24. Billy Beale, CEO of the $3.3 billion-asset bank, said in a written statement to American Banker that the consent order is based on the OCC's findings from a June exam, and is "not reflective of the significant progress that has been made since June."

The regulatory action marks another blow to the banking-as-a-service industry, which has become subject to mounting regulator scrutiny over the last year and a half. On Jan. 26, the Federal Deposit Insurance Corporation also published two other consent orders related to fintech partnerships. The orders, which took effect in mid-December, charged First & Peoples Bank and Trust Company in Russel, Kentucky, and Choice Financial Group in Fargo, North Dakota, with violating parts of the Bank Secrecy Act.

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The Federal Deposit Insurance Corp. (FDIC) and Brighton Bank entered a consent order that was made public last week.

Al Drago/Bloomberg

FDIC action against Tennessee bank emphasizes tech

Article by Catherine Leffert

Brighton Bank has entered an agreement with the Federal Deposit Insurance Corp. to overhaul its anti-money-laundering technology and practices after a report from the regulator last year found the bank violated compliance laws.

The FDIC demanded the community bank, which is based 30 miles north of Memphis, Tennessee, take a broad set of actions to remedy its violations of the Bank Secrecy Act [BSA], according to a consent order that was made public on Dec. 29. The order, which took effect Nov. 30, requires Brighton Bank to appoint a BSA officer, enhance audits of information technology, and train staff in BSA/AML requirements, among other action items.

The consent order emphasizes the need for stronger information technology controls for the bank's compliance and cybersecurity. Brighton Bank did not respond to requests for comment.

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From left: Mohammed Badi, president of global network services at American Express, Trina Dutta, general manager of B2B payments automation and APIs in global commercial services at American Express and Matt Sueoka, global head of Amex Ventures.

The pipeline of brands interested in partnering with American Express is "super healthy," said Mohammed Badi, president of global network services at the company, pictured at left. "It went from people reaching out hesitantly, 'Hey Amex, do you do this' to us getting the word out that Amex is open for business." Trina Dutta, general manager of B2B payments automation and APIs in global commercial services at American Express, is in the center; Matt Sueoka, global head of Amex Ventures, is at right.

'We are picky': Inside Amex's fintech strategy

Article by Miriam Cross

American Express is employing multiple tactics to increase the scale and reach of its products, much of it centered on fintech.

That has included building new platforms that make it easier for fintechs to connect with American Express to co-brand cards or embed its payments capabilities; investing in companies with promising technology; and making selective acquisitions.

The time is ripe to entice new partners, especially for co-branding relationships, as analysts say American Express has successfully heightened its appeal to younger generations. Historically, the stereotype for Amex cards is that they are not widely accepted and they cater to the ultrawealthy, but that has not been true for several years, said Michael Miller, equity analyst at Morningstar.

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"We have all the ingredients to be a fintech hub. Why is everyone leaving and going to the West Coast?” said Julieann Thurlow (right), president and CEO of Reading Cooperative Bank, of Massachusetts' potential as a fintech hub. Ryan Christiansen, executive director of the Stena Center for Financial Technology at the University of Utah, is at left.

Community banks are deepening ties to fintech hubs

Article by Miriam Cross

What makes a city, state or region branding itself a "fintech hub" a true fintech hub, beyond the name?

The ingredients of a thriving fintech hub — essentially, a geographic area with a concentration of resources for founders that seek to start a fintech company and see it flourish — include access to venture capital funding, the presence of incubators and accelerators, universities with relevant programming drawing a steady stream of potential talent and state or local regulation that is friendly to innovation, such as regulatory sandboxes or tax incentives.

"You always need some marketing to help your efforts," said Ryan Christiansen, executive director of the Stena Center for Financial Technology at the University of Utah. "That said, if the programs or focus or leadership aren't sufficient to support the promise of the marketing message, then all the participants will lose confidence in the message."

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Eugene Ludwig, former Comptroller of the Currency and current co-founder of Canapi Ventures, a fintech VC, reflects on how 2023 treated fintechs, how far the fintech movement has come and what banks and their regulators need to look out for in 2024.

Randi Baird Photography

'They'll stamp AI on everything': Ludwig on vetting fintechs

Article by Penny Crosman

If you were looking for someone to weigh in on bank regulators' ability to keep up with advances in technology, you'd have trouble finding anyone better informed, and holding clearer opinions, than Eugene Ludwig.

"We already know where the direction of the world is going — it's going to be more tech, more tech, more tech," said Ludwig, who was Comptroller of the Currency under President Bill Clinton. "So at this point, there's no excuse for the bank regulators not to have top people in their organizations that are well versed in tech. And they've got to get them from the private sector."

Further, banking agencies ought to be paying up for senior talent, he said. "They've got to get people who come from industry who are knowledgeable and top notch and they've got to pay for it," he said.

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Exhausted stressed millennial laptop user woman touching head

The Consumer Financial Protection Bureau received 2,941 complaints about bank savings and checking account closures in 2023, about a 50% increase from 2022 and nearly double what it was in 2020.

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To reduce bank account closures, AI needs data — and humans

Article by Penny Crosman

There has been a rise in bank account closures in the past year, especially among large banks, due to a combination of (possibly outdated) anti-money-laundering rules set by the government, a push for speed and efficiency and a digital age in which bank employees no longer understand customers the way they once did.

The Consumer Financial Protection Bureau received 2,941 complaints about bank savings and checking account closures in 2023, about a 50% increase from 2022 and nearly double what it was in 2020. In addition, journalists at The New York Times have received more than a thousand complaints about sudden bank account closures in the past year.

Insiders chalk the increases up to a combination of aggressive AML rules, the automation of AML and the quest for efficiency and cost-cutting which leads to quicker investigations of suspicious transactions, if they are investigated at all. But a combination of advanced AI, richer customer data and more human involvement could help reduce the volume of closed accounts.

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Loan application form fair credit score with pen

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The tech Upgrade plans to use to keep AI-based lending fair

Article by Penny Crosman

As regulators repeatedly warn banks and fintechs that their artificial intelligence models have to be transparent, explainable, fair and free of bias, especially when making loan decisions, banks and fintechs are taking extra steps to prove that their algorithms meet all of those requirements.

A case in point is Upgrade, a San Francisco-based challenger bank that provides mobile banking, personal loans, a hybrid debit and credit card, a credit builder card, auto loans and home improvement loans to five million consumers. Upgrade is partnering with an "embedded fairness" provider called FairPlay to backtest and monitor its models in real time to make sure the decisions supported by the models are free of bias. FairPlay already works with 25 banks and fintechs, including Varo Bank, Figure and Octane Lending.

"What [the partnership with FairPlay] is accomplishing for us is making sure we are fair and compliant and making appropriate credit decisions that don't have a disparate impact on any protected category," said Renaud Laplanche, founder and CEO of Upgrade, in an interview. Over time, Upgrade plans to apply FairPlay to all its credit products.

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SEC Chairman Gary Gensler clarified on Jan. 9 that a post on X from the official SEC account that the commission had approved bitcoin ETFs was the result of a hack. X said the SEC did not have multifactor authentication enabled on its account.

Gabby Jones/Bloomberg and Samuel Corum/Bloomberg

Hacker hijacked phone number to post fake SEC tweet

Article by Carter Pape

On a week when the Securities and Exchange Commission was expected to announce whether it would approve bitcoin ETFs, a hacker got access to the SEC's account on X, formerly known as Twitter, and falsely claimed Jan. 9 that the commission had approved such funds. The fiasco caused major fluctuations in the price of bitcoin.

In a post on X after the SEC regained control of the account, the commission acknowledged its X account had been compromised and that it had not approved spot bitcoin exchange-traded products.

An official X account said the compromise was not due to any breach of the social media platform's own systems. Rather, through a third party, "an unidentified individual" gained control over a phone number associated with the SEC's official government account.

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New York Times Suspends Quarterly Dividend In Order To Save Cash

Mario Tama/Photographer: Mario Tama/Getty I

Ripple effects of New York Times' suit of OpenAI, Microsoft

Article by Penny Crosman

There is a common tendency to be cavalier about copyright protection, and to use or share protected material such as newspaper articles without permission because companies so rarely get caught or penalized for doing so. But if The New York Times prevails in its copyright infringement lawsuit against Microsoft and OpenAI for using its articles to train ChatGPT, this could change.

At a minimum, companies that use generative AI will need to be more mindful of copyright law. They will need to watch the articles, research and data used to train the large language models they use, even if the training is done by a third party, and know whether any of that content is protected by copyright law and therefore off limits. This is especially true for banks that plan to open up a large language model to customers in the form of a chatbot, the way OpenAI has done with ChatGPT.

U.S. copyright law gives the owner of a copyright — the creator of a piece of content or that creator's employer — the right to control the copying of that work and control the modification or adaptation of the work into new works.

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