Politics and Payments: What's Ahead?

Transcription:

Jodie Kelley (00:08):

Hello everybody. Boy, those lights are something, aren't they? Yeah. I'm Jodie Kelley. I am the CEO of the Electronic Transactions Association. We are the trade association that represents the payments industry. So we are purely payments focused. Many of the folks I've had the pleasure of chatting with today or with companies who are members of ours, we do for our members what trade associations do. So in addition to content like this amazing content you're putting on here, we have other events including a trade show coming up, very active on government relations. So I thought the ending of the last chat is a good way to start this one. And we do GR at the federal, the state levels here in the US and in Canada. And we also educate the industry through some online products.

Daniel Wolfe (00:55):

You're right. That is a good segue. Yeah. So what I wanted to ask was what are the three or four biggest political regulatory issues for the payments industry that you're seeing this year?

Jodie Kelley (01:07):

Yeah, and I'll say what's interesting about the phrasing of that question is a lot of what we are seeing that is regulatory is also political. There are a lot of what I would call political headwinds that the industry is facing this year. And some of them are related to the fact that this is an election year. And so you're seeing a lot of politicking, as I'm sure you've all seen, you're seeing a lot of positioning and we're seeing ways in which that affects the industry in Congress right now, there's not a lot happening other than the TikTok ban, which may be the only bipartisan quickly moving legislation we'll see for some time. But as those of us who follow politics know Congress is pretty gridlocked and everybody is looking forward to the election. That is not true in the regulatory agencies. So in the regulatory agencies, they have been off and running and they continue to be the CFPB is one example of the FTC is another. And I will say surrounding all of that, we're seeing the rhetoric ratchet up and that's including rhetoric aimed at our industry, which is a relatively new phenomenon. Payments historically slid under that radar screen, but that's no longer true. We're being targeted by the regulatory agencies and we're getting swept up in the politics in the moment.

Daniel Wolfe (02:33):

Okay. So can you tell me about what each of those agencies has been doing that the payments industry should be top of mind for?

Jodie Kelley (02:41):

Yeah, so if you look at the CFPB, this is an agency that is both regulating right now by rulemaking and is also doing a fair amount of regulating from the bully pulpit. Very, very, very outward facing, very visible and really pushing companies, payments, companies included to make changes to their business practices in a way that feels as we look towards the election, you could characterize it as populist. Everyone is a populist now. So we heard about junk fees. We've seen them take action both formal and informal in all kinds of industries. Student loans, automotive mortgages with respect to begging and payments, a lot of rhetoric around junk fees and then actions as well, right? So NSF fees, overdraft fees and others. And it continues and all with an eye towards in the name of protecting consumers, again, with an election on the horizon. The FTC is very active against payments companies, including payments processors. And there a lot of what underlies those cases is should have knowns and again, both very active in their engagement and then very active in the publicizing of what they're doing in the wake of that.

Daniel Wolfe (04:14):

Okay. And of course, as you preface this, this is an election year. There is the possibility of any of the houses of Congress or the White House flipping there is the possibility of that not happening, but then you still have a president in his final term. What can we expect from any of those scenarios and how can the industry prepare for that this far ahead?

Jodie Kelley (04:38):

So in terms of what we can expect as I think of the period from now until the election, and then I'll talk about election, I wrote some of these down so I wouldn't forget them. But as we look at the rhetoric, again, like the negative attention paid on our industry, some of the rhetoric we've heard both from ccf, PB NFTC and from the president, we already talked about junk fees. They talk about payments, companies being engaged in financial surveillance, people being taken advantage of, large firms are acting like many governments. The risk that we are imposing on consumers financial censorship, I mean this is really overheated rhetoric. And so I think we can expect more of the same. Again, we're kind of in the sites and we're in the sites from both sides, which is an unfortunate place to be as we move towards the election in terms of what we can expect from the election.

(05:33):

I say if I could tell you, then I would also be out buying lottery tickets because I have to say there's fewer options here, but I really, it's, it's just a fascinating moment if you follow politics. We had this guy, Jonathan Swan, I don't know if anybody follows Axios. He's a Reporter. He's so good. He came and spoke to our board and it was in 2020 and the question was what was going to happen in the election? And he got very animated and he said, well, in a normal year, I'd say, and then he said, but, and I kind of feel we're in a but moment. Again, there's just so many factors at play. And then you have a house and a Senate that are so close that I think conventional wisdom would say both the House and the Senate are going to flip, but the numbers are small.

(06:24):

And if you look at the polling on the presidential, I think anything could happen. One of the things I find interesting about that is it is also a big open question about what that would mean in any of those various scenarios. I think we're likely to have some divided government. If we didn't, that would obviously be a different scenario. But I think as we look forward, I mean, again, we have two parties that are in different ways, but positioning themselves as very populist. You have, again, Democrat in the White House, CPP, NFTC, very active protecting consumers, which you'd expect during the first Trump administration, we saw a more business friendly environment, but that administration, there was a mix of professional bureaucrats, for lack of a better term and not, I think there's a good chance in a second Trump administration that would look different.

(07:25):

And so I think we're in a but world, it's just very hard to predict both what's going to happen in November and what's that going to mean. And so how do we prepare? I think there's at least two things we need to be doing, and we're certainly doing both of them ourselves. So one is we need to tell the positive story of our industry. We have a great industry, we do wonderful things. We support the economy, we help low-income consumers, we increase choice for people. We do it securely. We're doing it instantaneously. More and more. We have a remarkable story. And if you don't define yourself, you will get defined, particularly in Washington, when people start talking about you as an industry that's treating people like suckers, it is time to kind of write the record and talk about the good we're doing. So I think that's incredibly important to just get the communications aspect of it and then look, it's developing relationships on both sides of the aisle. Whatever happens, we want champions, and we are an industry that should be nonpartisan, that people, regardless of your political affiliation, should want payments to work well and want policy that supports that. And again, it's a little hard in a moment such as now when the rhetoric is so overheated. But I think there's a path certainly post-November.

Daniel Wolfe (08:56):

Okay. What about at the state level? What are you seeing state by state that our industry should be concerned about and how does that stand to change in November?

Jodie Kelley (09:06):

Yeah, so the states are fascinating right now. They are incredibly active on the legislative front and frequently in a way that is not helpful. It is the session, we're heading towards the end of state sessions for those states that are not in all year. And we are grateful for that, I have to say, because they, they've been all over legislation that has the potential to affect our industry. And we see this frequently when there is some sort of vacuum at the federal level. An example is privacy. We've been trying with many, many, many others to get a federal privacy statute passed without any luck. And so what you see is states coming in, filling the void, passing their own statutes. Now that by itself is challenging because you end up with multiple requirements on the same topic as opposed to just one.

(10:12):

And I'll mention in a moment, and sometimes what you end up when you see things state by state is conflicting requirements, which when you're running a business is suboptimal to say the least. And so we're seeing that dynamic at the states, both kind of a filling the gap dynamic, but we're also seeing, again, it's a highly political year. And so we're seeing a lot of what we call, although I can never pronounce it the politicization, I need a new word, I can never say it, but a payments. And it's really happening in particular in the states. So for political gain, you see legislators coming in there and introducing legislation. An example of this that some of you may be familiar with, many of you may be is the MCC code for gun stores that ISO passed. So ISO put in place and MCC code for standalone gun stores.

(11:11):

And immediately what we saw and what we continue to see this term or the session is a bunch of states banning the use of the code, enraged that anyone would dare to say that you need to use the code and identify a gun or we see other states mandating the use of the code. You have to use the code. And then we've seen some things in between. And it is at the end of the day, this is a political issue and you see it play out in the states in exactly the way you would expect it to see play out. And we're certainly seeing that. So ESG, obviously we're seeing active in the states money transmission laws. We're seeing activity on, I will say it's a bright spot at a time when I feel there are few bright spots, but we're seeing a move to make this more uniform across the states.

(12:06):

And any uniformity is good for business, continuing to see activity on privacy. And again, in that kind of filling the gap way, we're seeing a lot on ai. We're seeing states very interested in AI setting up task forces, some of them legislating the way that government agencies can or cannot utilize ai, some of them legislating substantively, but much more at this point trying to figure it out. But I think it'll be really interesting to see how the federal government is looking at it being AI and states are individually looking at it. And it's a complex topic as you know. And so it'll be really interesting to see how that plays out. And we're engaging everywhere that anyone's talking about AI trying to help create some uniformity around just the way this may evolve, but it's certainly going to be a wild ride.

Daniel Wolfe (13:05):

Is there any particular area in the payments industry's use of AI where they may feel held back by regulatory uncertainty or any area where there's a disconnect between the industry and the regulators?

Jodie Kelley (13:20):

So I think it is definitely the case that the payments industry is constrained by regulatory uncertainty wherever it exists. And that's true in AI as well. I was thinking about this two years ago. You and I were in similar forum talking about crypto crypto, and I'm confident that we talked then about if something's going to be used in financial services as a payment mechanism, the need to have a regulatory framework. Our companies are cautious for good reason, they're heavily regulated. And so there's no question that we're going to need a regulatory framework so that everyone understands where the guardrails are and they know how to stay within them. And so I think what you see right now in AI is a lot of experimentation about how payments companies might use it. And what I mean by that is not predictive ai, which payments companies have been using for absolute ever in ways that are very helpful and beneficial and well understood and regulated. But when you look forward to generative ai, I think that's where you see the difference, where there's less clarity from a regulatory perspective, it's a newer technology, less certainty about which use cases are going to rise to the top. And so I think you see a lot of experimentation, but a recognition that it's going to take a while and before we really understand the value that that technology can deliver. And one of the things that will be necessary to get to that point is a regulatory framework within which our payments companies can operate.

Daniel Wolfe (15:02):

So what should payments companies emphasize in their communications with regulators or legislators or anyone who has the ability to influence this?

Jodie Kelley (15:12):

And I think definitely among those constituents, and just more broadly, I talk about telling the story of the industry, I think that's part of it as we started to dive into this, what I would find is talking to some folks, some payments companies, and they would say, oh, we've been using AI for decades. This is not a new thing. But I think for a lot of people it feels like a new thing and it feels like a new thing because the sensational stories about generative AI inevitably capture a lot of attention. And so I think part of it is just telling the good story about the ways in which financial services and payments currently incorporates ai, typically predictive ai, but in ways that have really made the entire ecosystem more secure, have benefited consumers. There's just a lot to talk about there, and we just need to be very conscious of telling that story and talking about it and not getting swept up in the robots are taking over the world.

Daniel Wolfe (16:20):

There's so much fun to get swept up in that.

Jodie Kelley (16:22):

It is much more fun. I read those stories about the New York Times reporter, the chat GPT told him to leave his wife, and I thought that was really fun, but not what we're doing in payments. I mean, a lot of what we're doing with AI is actually pretty mundane in a good way, if you know what I mean. You're not going to look at it and be like, whoa. But that's in part because it's successful, it's embedded. The models work, they make it safer. It's a good news story even if it doesn't involve a talking robot.

Daniel Wolfe (16:58):

So we talk about that disconnect between the regulators or the legislators and the industry. What about a more productive relationship? Is there a way for regulators and legislators to foster innovation when we're talking about AI or anything else you're seeing in the trends you're seeing in the payments industry?

Jodie Kelley (17:18):

Absolutely. And look, I think notwithstanding my comments, which I will stand by about just how political this moment is and how much you kind of have to judge through that lens because I think you do, I still think there's a ton of opportunity to engage constructively. And I'll say, for example, we last week were in a meeting, the House financial services committee now has a bipartisan AI task force that they've developed, and they're very interested in hearing from industry everything. They're starting from scratch. What is this? How does it work? How do you deploy it? How do you know it's not going to go off the rails? They've heard people talk about hallucinations. You're like, what is that? How do you deal with it? And they have invited us in. So we were in there last week talking to them, and there's clearly a real desire to learn.

(18:16):

They want to understand this. And I do think there's a desire to ensure that it is you. Any technology, including this one, is used in a way that benefits consumers and the economy, small business, large business, but also a desire to make sure that consumers are protected. And that's what we want to, right? That's exactly the same set of goals that we have. And so I think there is a lot of opportunity. I think it's incumbent on industry. And again, sorry, we're spending a lot of time on that ourselves, just making sure that we're putting together that story in a coherently way because it's really hard not to talk about the cool stuff, which is also the scarier stuff. And we found this when we brought our folks in from our member companies to kind of brief the committee. We had to keep saying, talk about what you're actually doing.

(19:15):

Everybody gets excited and they want to talk about, and it's really good reason to be excited. We were talking to them about a fraud technology that they're trying to figure out now, or an anti-fraud technology that not only is kind of voice, so it recognizes your voice if you call to a company by your card, for example. But it can also recognize the way your voice bounces off other objects in the room in which you normally sit. And so it's not only recognizing your voice, but it's recognizing whether your voice makes sense in that context in which you normally present. And it's just another effort to make sure that you are who you say you are when you're on the phone. And well, that's cool, but that's not now. That's something that's being experimented with and trying to see if that's the kind of use of this technology that can be deployed.

(20:17):

The other thing I would say is there's a lot of concern among regulators and it's legitimate concern about AI being used in decisioning underwriting, for example, loans. And there's a lot of concern about implicit bias. There's a lot of concern not only in understanding the way the models are built, but understanding inputs and outputs to the models, particularly in a generative context where things change. All good questions, all important debates, all things that are important for us to be talking to regulators about. But I think the other thing we have to say at the beginning of those conversations is we are not currently using it for decisioning, so it's something we should work together to put a framework around. But these are not the droids you're looking for, right? It's not happening now. And so let's focus on, let's make sure we don't do anything unintended because there's so much good that is happening now.

Daniel Wolfe (21:17):

So before we move on to next question, I wanted to see if there were questions from the audience on any of the topics that we've been discussing. Who's brave? I don't see anybody. Do you see anybody?

Jodie Kelley (21:34):

I can't. But mostly I see the lights.

Daniel Wolfe (21:36):

Yeah, I mostly see the lights. All right. Well, we do have more questions we can discuss. We do. Okay. So all of these issues aren't just domestic. What are you seeing in other countries that are relevant to the payments industry? And what then for those of us in the US, why does that matter to us?

Jodie Kelley (21:56):

So there are a lot of interesting things happening globally. I would say if we start with ai, for example, where we just were talking, the EU is out in front on AI legislation. They passed a framework. It's a risk-based framework. As the US looks to figure out how it wants to deal with this technology, it is just the case that the EU is ahead of us. That is not uncommon. Think about privacy regime, gdp, DP and others like that, environmental. And so that's happening here as well. I think there's some other really interesting trends, some that I think are worth keeping an eye on just as we think about payments and politics and how all this knits together. And one example would be Brazil. So Brazil, let's put a real time rail in place. Its picks government run, and there are a couple of, and it's taken off. It's like wildfire. You can make a payment from your phone. My phone is almost always here, but it's not. You can make a payment from your phone.

Daniel Wolfe (23:08):

Has anybody seen Jodi's phone? Right?

Jodie Kelley (23:11):

That would be terrible to lose the phone. And it's been wildly successful. I will say probably wisely if you're the government of Brazil. One of the ways they made it wildly successful was they quashed some of the competition. And one of the ways they met wildly successful was they mandated acceptance. I bet every company here would love that kind of leg out. It's just going to help if you get that. And it has now, to their credit, it works well and people have really embraced it. And I do think it is something to learn about consumer behavior. I think we can learn here about consumer behavior and providing them a tool that they find really useful and how quickly you can see adoption, albeit with these other things that helped make it successful. One thing I find particularly fascinating, and it's just me though, is it's kind of the law of unintended consequences.

(24:14):

So it is so easy to use and so instant, and we all want fastest payments. And this is certainly that so easy, so instant that there is now an entire fraud ecosystem. I is the right word, but people who if you're standing on the street using your phone, which means it's unlocked using it, people skateboard by, grab your phone out of your hand, go around the corner, make a payment to themselves, throw your phone down, and it's gone. Right? The payment's gone. Some of them probably don't skateboard, but I thought the skateboarding aspect was particularly profiling

Daniel Wolfe (24:54):

Tony Hawk here in it's a negative way.

Jodie Kelley (24:56):

Exactly. But anyway, it struck me as an interesting example, both of government intervention the payment system and how that can really change the landscape and how when you have those advantages and you push something that hard, that quickly and get such universal adoption, some of the laws of unintended consequences. And I know circling back to where we started with the ccf PB, I did a fireside with ROIC Chopra a year or so ago and maybe a little more. And I was talking to him about proposed changes that they were talking about with Reggie. And the question was, who is liable if you push a payment? And it is, you actually did it, right? So I actually said, please send money to this person. And then it turns out that that person wasn't who you thought they were.

(25:54):

And right now if there's fraud, you did not push the payment, you get the money back. But if you did and you regret having done so, you're on the hook. And that's statutory can't really be changed. But CCF PB was making noise about it. And we had an interesting conversation about the law of unintended consequences. It's like if I can send a payment to the sultan of whatever, who says, I have all this money locked away and if you send me a thousand dollars, I can get it and I'll share it with you. And I know that's probably iffy, but I send it anyway and then I say, oh, I was scammed and I get the money back. What kind of incentives are we creating in a system? So I think that kind of law, unintended consequences, incentivizing different payments. We see it one flavor of it in Brazil, but I also think it's something important to learn and something to keep in mind with the focus on faster payments that we see because with faster payments comes faster fraud. And again, always balancing consumer demand with consumer protection. Okay.

Daniel Wolfe (27:13):

So let's say we come back here in a year, the November election is over, the dust has settled, we hope, let's hope, and new issues are arising. What do you see past that horizon that the payments industry should be prepared for or concerned about a year from now?

Jodie Kelley (27:35):

Look, I think it is, I don't think there's any, we're going to be talking about the same things, and I do not think Congress will suddenly become whatever the opposite of gridlock is. I don't think they will function smoothly and quickly.

Daniel Wolfe (27:53):

The old joke, the opposite of progress. It's Congress.

Jodie Kelley (27:56):

I like it. I like it. This is the second thing you've told me today that I'm going to use later. There you go. So look, I think all of that will be the same, but what I hope we can see is some, once the dust settles, to your point, some progress on stablecoin legislation, for example, which was really close but just didn't get over the finish line, I think we'll see some, we'll be in a position of some meaningful progress on AI regulatory framework, which I think is really important for the industry. And I do think the rhetoric will kind of tone down a little bit, which I think will allow us hopefully to focus on what matters a little more.

Daniel Wolfe (28:43):

Alright, well thank you very much for your time today, Jodie.

Jodie Kelley (28:45):

Thank you. I really enjoyed it.

Daniel Wolfe (28:46):

Okay. Thank you all for your time as well.