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GARY GENSLER: Welcome
back to fintech.

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We're getting together
for our fourth class,

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and we're going
to get going now.

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Thank you for tying in online
via this modern technology.

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Today we're going to move to
important customer interfaces--

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user interfaces and
user experiences that

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have been greatly enhanced
by open application program

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interfaces.

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Now, application
program interfaces

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is not new to finance, and it
didn't start in M&A finance.

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It's a basic concept
of how one computer is

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talking to another computer.

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And again, this is not a
computer science class,

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but we're going to spend
a little bit of time

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on what application
program interfaces are

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and what this
concept of open API

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is and some of the
companies around it

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and how companies have
organized themselves,

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both in terms of finance,
and a little bit even

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outside of finance and some
of the challenges with regard

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to that.

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What API has also led
to is a movement of

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and a greater concentration
around companies

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called data aggregators.

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And we'll get into that as well.

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As I've sort of worked through
with the class already,

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it's my thought that
certain technologies

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have been moving into the
finance technology stack,

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and are really part and parcel
to what finance is in 2020.

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And I think open API, with its
movement around the globe--

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and some countries have
moved further in it,

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some countries have moved
less, some companies have moved

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further, some companies
have moved less--

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that this is a
trend that will be

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fully incorporated into the
technology stack of finance

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country by country, if it
hasn't already been so.

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But it's been a major disruptor
in the last five, seven years.

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And it will continue to
be a bit of a disruptor

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for the next handful of years.

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By the end of this
decade, we'll look back,

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we'll say that that's
probably already happened,

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and there'll be
enhancements around it.

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But we'll be fully inside of it.

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Maybe not as dramatic as
artificial intelligence

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and machine learning
to our minds--

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thinking of machines
extracting correlations

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better than we can.

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But I think it's
fairly dramatic,

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in terms of the
advancement of finance

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and all that we
have in front of us.

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So that's why I decided to
take one class and one lecture

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on it.

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I also want to thank everybody.

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Romain put out a survey.

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About a third of you took it.

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It was a voluntary survey.

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And it's helpful.

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And what I took back from
the desires of students were

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could I do a little bit more
talking about the companies

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in the fintech space?

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And maybe add, if I might say,
a little less, whether it's

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on the broader technology
or broader policy side.

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I'll do my best.

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But I also want
to share with you

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why I think there's
a reason to have

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some foundation-- some
foundation of what

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the technologies are,
or even some foundation

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on the public policy
side, as we move

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into the latter
part of this class.

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The latter part of this class is
really to talk sector by sector

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what the competitive landscape
is, which companies are up,

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which companies are
down, and so forth.

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But as we've already
talked about a bit today,

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the companies really matter.

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And I'll sort of interject
that more as we go forward

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during this semester.

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One other question is whether we
could have some guest speakers.

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I'm kind of going to have
to apologize in advance.

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This is kind of what you get.

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But over the next
handful of sessions,

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if I come up with somebody
to bring in-- it's

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a little hard at this juncture
to bring in guest speakers.

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But I certainly
appreciate the request.

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And with four weeks
to go, you never know.

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But with that, I'm going to
start to share some slides.

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I don't know, Romain
if you have anything

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you took from the feedback,
which was very helpful.

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PROFESSOR 2: Thank you.

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Thank you very much for
filling out the survey.

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That was great.

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Just two small
announcements from my side.

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One, a reminder for
your team formation.

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Friday is the deadline.

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Please register your teams
in Canvas in the People's tab

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using the Groups function.

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If you don't know
how to do that,

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I'll be happy to show you.

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So please register your teams
of three to four students

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for the group assignments.

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And then second reminder,
as per the syllabus,

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have one of your team
members just send me

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an email saying what is the
topic that you wish to study

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for your group assignments.

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Please don't forget to do that.

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The deadline is also
Friday, April the 10th.

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Thank you.

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GARY GENSLER: Thank you.

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And part of that is
just to really help

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you engage in this subject.

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To Romain and myself, it doesn't
matter which sector you pick

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or whether you choose
to sort of write

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your paper from the perspective
of incumbents, to big tech,

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or to a venture capitalist.

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But it's really to
help you sort of engage

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in the world of fintech,
that which we're studying,

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and to pick one sector.

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And are you taking it from
the entrepreneurial strategy

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of the disruptor,
or are you taking it

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from a big firm, either
incumbent or a tech firm's

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perspective in this regard?

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So as I said, we're going
to talk a little bit

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about application
program interface, how

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this fits into the
history of finance,

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deeper dive in open
API and open banking.

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You were all asked
to prepare and sort

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of look at the Bank of
International Settlements

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report.

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So I'm not going to dive in.

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I'm going to hopefully
assume that you've had

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a chance to engage with that.

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And then talk a little bit
also about data aggregators

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and a movement amongst many
in large financial firms

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to have a standard
setting group--

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a financial data
exchange on open APIs.

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And then try to close out a
little bit on robotic process

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automation.

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So a lot to cover.

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But I think we'll keep it going.

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And I ask again,
use the Participate

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button to raise the blue hands.

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Use the chat function.

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Romain's going to
keep interrupting me.

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And we'll have hopefully
a good session together.

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So the readings, again, Bank
of International Settlements,

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this consortium of 60 or so
central banks around the globe,

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stands up reports
and studies from time

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to time on new challenges
they're seeing.

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So just that they pick this
topic to write a report that

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came out this past
November of 2019

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is indicative right
there in and of itself

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that it's a movement
around the globe that they

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thought they needed to study,
and an important aspect.

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I picked one article
out of the many articles

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that you can grab off the
internet about fintech

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for the next decade.

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And this was one article
that I thought was relevant,

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because it really
did also include

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this concept of the interface--
the customer user interface

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and what was going on
with regard to APIs.

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And then one
article, again, just

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to give you sort of a primer
on robotic process automation

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that I think is
relevant as well.

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So again, just if anybody wants
to give a little short brief as

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to what are the major
trends on the marketing side

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that's affecting financial
services right now.

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And we can go broader
than API, of course.

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But Romain anybody want
to sort of contribute now?

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PROFESSOR 2: Let's
see, who will be

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our first volunteer of the day?

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Michael.

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AUDIENCE: Not sure if this
is exactly marketing side,

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but I think customer
trust is maybe more--

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must have trust in
connecting your personal data

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to a third party.

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I'm thinking something
like mint.com,

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where I add my bank account.

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I can connect it
and feel comfortable

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giving that information to a
site that's not necessarily

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my bank or my credit card.

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GARY GENSLER: Absolutely.

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Absolutely.

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So one of the major changes--

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and this has been
a number of years,

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as companies like
Mint and others,

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where you'll give
your data to a company

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that you've personally
never met a human being.

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You've downloaded an app
and you're giving your data

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to that company,
to give you advice

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or to give you a better rate.

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Have you used Mint, by the way?

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And do you mind just saying what
product were you shopping for,

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or what service were
you looking for?

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AUDIENCE: I was just trying
to track my spending because I

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was spending way too much.

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GARY GENSLER: All
right, so there are also

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sites where it can help you
keep your personal budget,

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if you wish--

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like personal
accounting and so forth.

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And you give them permission
to look into your bank account.

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But this trend of using--

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and there many
competitors of Mint

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that we'll dive into in
the next couple weeks.

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But there are many competitors.

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It's basically
saying, all right,

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I am going to
permission a website--

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a data service provider,
fintech company--

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I'm going to permission them
to look inside my bank account.

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I have to give them my password
and my username in some way

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and have them linked in.

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Big change.

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It takes away a little of the
comparative advantage possibly

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of the big incumbents, because
you and I can give somebody

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else permission to go in
and look at that data.

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PROFESSOR 2: [? Iqbal? ?]

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AUDIENCE: Hi.

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Morning, professor.

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I just want to
highlight that there's

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an avenue to market or to
showcase financial services.

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It's starting to be on
a lifestyle platform.

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So if you look at, for example,
Alipay, it's all about access

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to [INAUDIBLE] online shopping.

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And WeChat's about
access to its gaming.

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But there's a lot of these
conflicting financial services

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and key services
that people want.

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So it's nothing new.

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In fact, Walmart and even
now [? Star Market ?]

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has banks opened up
within its grocery stores.

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So I think there'll
be a trend that

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will be for the [INAUDIBLE].

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GARY GENSLER: And so what
[? Iqbal ?] has raised is not

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new-- decades old--

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that even big retailers,
bricks and mortar retailers,

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thought, well, should we
have a counter for you

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to do some finance?

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Should we embed finance
into the retailing business

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with the trends with
in-store and branded credit

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cards for decades?

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But now online
embedded finance inside

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of Alipay, which was mentioned
just then, and other companies,

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to embed the financial
aspects right in their product

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offerings.

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And some of that
embedded finance

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is an Amazon credit card or
an Alipay payment mechanism.

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Some of the embedded
finance can even

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be that if you're buying
a mattress from Casper--

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I think I may have
referenced this already--

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but if you're buying a
mattress from cash online,

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that they might offer what's
called point-of-sale financing.

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00:12:21,390 --> 00:12:23,330
Now, you and I don't
think of it that way.

253
00:12:23,330 --> 00:12:26,120
They just say, you can pay
over four installments.

254
00:12:26,120 --> 00:12:28,700
But in fact, they're lending
you money for those four

255
00:12:28,700 --> 00:12:31,880
installments, and it's
embedded right in the product.

256
00:12:31,880 --> 00:12:36,680
And Uber and Lyft actually
embed some finance right

257
00:12:36,680 --> 00:12:38,490
in their app.

258
00:12:38,490 --> 00:12:40,925
Now, they've built it on top
of credit card companies.

259
00:12:40,925 --> 00:12:42,300
But they could
choose to build it

260
00:12:42,300 --> 00:12:45,810
on top of their own sort
of financing mechanism

261
00:12:45,810 --> 00:12:48,100
with their drivers and the like.

262
00:12:48,100 --> 00:12:51,620
So big change, embedded finance.

263
00:12:51,620 --> 00:12:53,540
Multi decades in
coming, but now it's

264
00:12:53,540 --> 00:12:56,060
embedded finance in
a technological way

265
00:12:56,060 --> 00:12:59,390
that it looks
seamless to the user--

266
00:12:59,390 --> 00:13:00,320
or can look seamless.

267
00:13:03,630 --> 00:13:05,713
PROFESSOR 2: Nikhil.

268
00:13:05,713 --> 00:13:07,380
AUDIENCE: The other
piece that I thought

269
00:13:07,380 --> 00:13:11,880
was interesting was the article
talk about first the uncoupling

270
00:13:11,880 --> 00:13:12,970
of financial services.

271
00:13:12,970 --> 00:13:16,720
So a lot of fintech incumbents
decouple the product offerings.

272
00:13:16,720 --> 00:13:19,560
But then there's a resurgence
of bundling products again.

273
00:13:19,560 --> 00:13:21,450
So when you look at
Wealthfront, they

274
00:13:21,450 --> 00:13:23,070
started with just
asset management.

275
00:13:23,070 --> 00:13:24,910
But now they're offering
cash management.

276
00:13:24,910 --> 00:13:25,990
Robinhood's the same way.

277
00:13:25,990 --> 00:13:28,032
It came out trading,
but again, they're

278
00:13:28,032 --> 00:13:29,490
trying to pivot to
cash management.

279
00:13:29,490 --> 00:13:32,610
So they focus on very niche
products to begin with,

280
00:13:32,610 --> 00:13:34,977
but there seems to be
bundling happening again.

281
00:13:34,977 --> 00:13:35,810
GARY GENSLER: Right.

282
00:13:35,810 --> 00:13:40,320
And I think this is
unbundling and rebundling

283
00:13:40,320 --> 00:13:44,050
happens in many industries.

284
00:13:44,050 --> 00:13:48,750
Some of the proponents in
the most optimistic side

285
00:13:48,750 --> 00:13:51,600
of financial
technology say, we can

286
00:13:51,600 --> 00:13:53,100
have a flattening of finance.

287
00:13:53,100 --> 00:13:55,590
We can have a full
unbundling, where

288
00:13:55,590 --> 00:13:58,410
you can get each of your
products separately.

289
00:13:58,410 --> 00:14:02,010
And while the
technology can and does

290
00:14:02,010 --> 00:14:06,210
facilitate that, I
think our tendencies

291
00:14:06,210 --> 00:14:10,530
in markets and as humans,
and our behavioral science

292
00:14:10,530 --> 00:14:13,900
tells us that bundling happens.

293
00:14:13,900 --> 00:14:16,900
So even if this transitional
period of time--

294
00:14:16,900 --> 00:14:21,810
even if this late 20-teens
and early 2020's allows

295
00:14:21,810 --> 00:14:26,400
for a lot of unbundling, I
believe that a lot of this

296
00:14:26,400 --> 00:14:31,840
will stay bundled and rebundled
within particular websites,

297
00:14:31,840 --> 00:14:33,990
particular product offerings.

298
00:14:33,990 --> 00:14:36,210
I don't know of Leonora
is trying to speak,

299
00:14:36,210 --> 00:14:41,330
because your name's popping
up here on the screen.

300
00:14:41,330 --> 00:14:46,410
But if not-- how would
open API initiatives

301
00:14:46,410 --> 00:14:48,150
influence all of this?

302
00:14:48,150 --> 00:14:50,340
I've sort of said it
a little bit myself,

303
00:14:50,340 --> 00:14:52,650
but anybody want to chime in?

304
00:14:59,380 --> 00:15:02,100
PROFESSOR 2: Geetha?

305
00:15:02,100 --> 00:15:06,100
AUDIENCE: Yeah, I think I
speak from the incumbent side.

306
00:15:06,100 --> 00:15:10,180
I think open APIs have made
it so easy from a banking

307
00:15:10,180 --> 00:15:17,670
perspective, in terms of ability
to track what is being accessed

308
00:15:17,670 --> 00:15:19,390
of customer data.

309
00:15:19,390 --> 00:15:21,460
Because before APIs
and before some

310
00:15:21,460 --> 00:15:24,730
of the standouts
like OAuth and OIDC,

311
00:15:24,730 --> 00:15:29,770
they were pretty much
dependent on screen scraping.

312
00:15:29,770 --> 00:15:33,420
And it was very difficult
for us to track.

313
00:15:33,420 --> 00:15:36,640
And the customers pretty much
gave their user ID and password

314
00:15:36,640 --> 00:15:38,230
to these vendors.

315
00:15:38,230 --> 00:15:41,200
And they could pretty much log
in and screen scrape anything,

316
00:15:41,200 --> 00:15:43,400
and we won't even know.

317
00:15:43,400 --> 00:15:47,340
GARY GENSLER: So you're saying
Gita, from the incumbent side--

318
00:15:47,340 --> 00:15:52,580
from the big financial firm
side, these new startups--

319
00:15:52,580 --> 00:15:54,760
the Mints of the
world, so to speak--

320
00:15:54,760 --> 00:15:59,170
were able to get folks'
usernames and passwords,

321
00:15:59,170 --> 00:16:02,440
and come into the
incumbent systems,

322
00:16:02,440 --> 00:16:04,510
and grab the data
through a method

323
00:16:04,510 --> 00:16:08,170
called screen scraping, or
even through a robotic process

324
00:16:08,170 --> 00:16:10,870
automation, which we're
going to chat about.

325
00:16:10,870 --> 00:16:14,200
And you're saying you feel from
an incumbent side it's better

326
00:16:14,200 --> 00:16:17,080
to manage all of that--

327
00:16:17,080 --> 00:16:21,550
those interfaces, which
could be disruptive.

328
00:16:21,550 --> 00:16:24,970
You'd have more awareness
and more security

329
00:16:24,970 --> 00:16:27,071
around that interface.

330
00:16:27,071 --> 00:16:29,502
AUDIENCE: Correct.

331
00:16:29,502 --> 00:16:31,460
GARY GENSLER: And then
how does it influence it

332
00:16:31,460 --> 00:16:32,630
from the consumer side?

333
00:16:32,630 --> 00:16:35,660
Anybody want to throw an
idea from the customer side?

334
00:16:35,660 --> 00:16:38,120
I agree with what Gita's saying.

335
00:16:38,120 --> 00:16:40,120
PROFESSOR 2: So I'm not
sure it will be related,

336
00:16:40,120 --> 00:16:42,120
but Yi had his hand up.

337
00:16:42,120 --> 00:16:43,430
GARY GENSLER: Sure.

338
00:16:43,430 --> 00:16:44,930
AUDIENCE: Yeah, I
think the benefits

339
00:16:44,930 --> 00:16:48,290
is more for the fintech company
rather than the incumbent.

340
00:16:48,290 --> 00:16:53,330
Because it basically
lowered the entry barriers.

341
00:16:53,330 --> 00:16:56,330
So I guess from the
consumer perspective,

342
00:16:56,330 --> 00:16:58,820
now you have many more options.

343
00:16:58,820 --> 00:17:02,470
Previously, you can only work
with those like large banks.

344
00:17:02,470 --> 00:17:06,800
But now you can work with many
more companies that are there.

345
00:17:06,800 --> 00:17:10,530
So the market is more
competitive, basically.

346
00:17:10,530 --> 00:17:13,430
GARY GENSLER: So if I
permission a company like Mint,

347
00:17:13,430 --> 00:17:16,579
Mint can give me advice around
my cash flow management.

348
00:17:16,579 --> 00:17:18,380
If I have permission
a company like so

349
00:17:18,380 --> 00:17:21,920
SoFi, which is, frankly,
competing with the banks--

350
00:17:21,920 --> 00:17:24,200
competing with lending products.

351
00:17:24,200 --> 00:17:28,200
But if my SoFi to
see my accounts,

352
00:17:28,200 --> 00:17:31,020
then I get more
options as a consumer.

353
00:17:31,020 --> 00:17:32,940
SoFi might compete
with the banks,

354
00:17:32,940 --> 00:17:37,200
but also give me a better user
interface-- user experience

355
00:17:37,200 --> 00:17:39,180
as well.

356
00:17:39,180 --> 00:17:46,460
So it's far broadened out
the world for the consumers.

357
00:17:46,460 --> 00:17:48,980
And then I put a
couple of readings

358
00:17:48,980 --> 00:17:52,780
in about robotic process
automation and screen scraping.

359
00:17:52,780 --> 00:17:57,410
Gita's already
raised this a bit.

360
00:17:57,410 --> 00:17:59,410
And it's being used.

361
00:17:59,410 --> 00:18:01,890
It's also being used by
the financial sector.

362
00:18:01,890 --> 00:18:06,440
So anybody want to add how you
think about robotic process

363
00:18:06,440 --> 00:18:08,600
automation in a positive way?

364
00:18:08,600 --> 00:18:11,990
In a way from the incumbents
and the financial firms,

365
00:18:11,990 --> 00:18:14,060
how they're using it.

366
00:18:14,060 --> 00:18:17,090
It's certainly also being
used by the disruptors trying

367
00:18:17,090 --> 00:18:20,330
to get information
out of the incumbents.

368
00:18:20,330 --> 00:18:23,300
They're using it as sort of
an automated screen scraping

369
00:18:23,300 --> 00:18:25,880
to grab information
from the incumbents.

370
00:18:25,880 --> 00:18:27,380
But does anybody
want to sort of say

371
00:18:27,380 --> 00:18:29,230
how maybe the
incumbents are using it

372
00:18:29,230 --> 00:18:30,600
in their business models?

373
00:18:36,027 --> 00:18:36,860
PROFESSOR 2: Hassan.

374
00:18:39,860 --> 00:18:40,860
AUDIENCE: Hi, professor.

375
00:18:40,860 --> 00:18:46,780
Yeah, I just have a
question about the APIs.

376
00:18:46,780 --> 00:18:49,460
I don't actually totally
understand what are these.

377
00:18:49,460 --> 00:18:51,830
I mean, is it like
an operating system?

378
00:18:51,830 --> 00:18:53,960
I mean, what's an API exactly?

379
00:18:53,960 --> 00:18:56,570
I've tried to google it, but
I've not quite understood.

380
00:18:56,570 --> 00:18:58,790
GARY GENSLER: So I'm
going to dive into it.

381
00:18:58,790 --> 00:19:00,590
Can I hold that, Hassan,
just for a minute?

382
00:19:00,590 --> 00:19:03,830
Because I'm going to dive into
it in the next six minutes.

383
00:19:03,830 --> 00:19:10,800
But fundamentally, an
application program interface

384
00:19:10,800 --> 00:19:14,010
is a method that two
computers can speak to.

385
00:19:14,010 --> 00:19:16,330
And the traditional
way, and the old way,

386
00:19:16,330 --> 00:19:22,820
it was just how one system
can go in and get information,

387
00:19:22,820 --> 00:19:26,280
get objects out of
the other system.

388
00:19:26,280 --> 00:19:30,470
And then we'll do a
little cursory dive

389
00:19:30,470 --> 00:19:31,910
into what it looks like today.

390
00:19:31,910 --> 00:19:35,950
Because it's moved a lot
from that traditional method.

391
00:19:35,950 --> 00:19:41,560
On a web-based API system, you
can actually sort of almost--

392
00:19:41,560 --> 00:19:45,860
it feels like on your computer,
on your laptop, so to speak,

393
00:19:45,860 --> 00:19:50,760
that you're actually operating
that system at a distance.

394
00:19:50,760 --> 00:19:53,270
So you sort of think of it like
it's not only just grabbing

395
00:19:53,270 --> 00:19:56,690
some data or objects or
records, but it's actually

396
00:19:56,690 --> 00:20:00,770
sort of grabbing
some application,

397
00:20:00,770 --> 00:20:02,600
as if it feels
like you're really

398
00:20:02,600 --> 00:20:05,090
operating it on your system.

399
00:20:05,090 --> 00:20:09,080
Open API is this
conceptual framework

400
00:20:09,080 --> 00:20:12,020
that it's a public
interface, rather than

401
00:20:12,020 --> 00:20:13,630
a private interface.

402
00:20:13,630 --> 00:20:15,890
And if you think that
you could literally

403
00:20:15,890 --> 00:20:19,430
have just a restricted private
interface that you give one

404
00:20:19,430 --> 00:20:22,820
other computer, whether
it's an affiliate of yours

405
00:20:22,820 --> 00:20:27,170
or a customer of yours,
a contractual private

406
00:20:27,170 --> 00:20:32,430
interface to do that which
they wish to do, or is it

407
00:20:32,430 --> 00:20:37,350
a public interface, where
broadly it can be interfaced?

408
00:20:37,350 --> 00:20:40,080
And so that's sort
of a thumbnail.

409
00:20:40,080 --> 00:20:42,930
But let me sort of develop
that a little bit more

410
00:20:42,930 --> 00:20:44,910
over the next half hour.

411
00:20:44,910 --> 00:20:47,300
Does that help?

412
00:20:47,300 --> 00:20:48,010
AUDIENCE: Yeah.

413
00:20:48,010 --> 00:20:48,873
Thank you very much.

414
00:20:48,873 --> 00:20:50,790
PROFESSOR 2: So to answer
your question, Gary,

415
00:20:50,790 --> 00:20:52,962
we have Ivy and then Andrea.

416
00:20:52,962 --> 00:20:53,670
GARY GENSLER: OK.

417
00:20:53,670 --> 00:20:54,870
And then I'll move on.

418
00:20:54,870 --> 00:20:55,540
Thanks, Ivy.

419
00:20:58,430 --> 00:21:00,990
AUDIENCE: Yeah, I just wanted
to answer the question.

420
00:21:00,990 --> 00:21:02,850
Because I thought the
Medium article did

421
00:21:02,850 --> 00:21:05,910
a good job of talking
about the different ways

422
00:21:05,910 --> 00:21:08,920
that are banking use cases.

423
00:21:08,920 --> 00:21:10,770
And I've actually
gone through a lot

424
00:21:10,770 --> 00:21:12,690
in terms of just
on the banking side

425
00:21:12,690 --> 00:21:16,270
like actually having to do
customer onboarding and KYC.

426
00:21:16,270 --> 00:21:20,880
And like we actually have
what's called a KYC analyst.

427
00:21:20,880 --> 00:21:24,270
So all this is actually
very, very manual typically.

428
00:21:24,270 --> 00:21:27,000
And going through
compliance checks,

429
00:21:27,000 --> 00:21:30,543
we'll be working on a deal,
and at the last minute,

430
00:21:30,543 --> 00:21:32,210
you can't get compliance
checks through.

431
00:21:32,210 --> 00:21:34,440
And it's usually a huge pain.

432
00:21:34,440 --> 00:21:36,900
So I was excited to see
that they could potentially

433
00:21:36,900 --> 00:21:39,930
change the system,
because it ends up

434
00:21:39,930 --> 00:21:42,510
being a huge headache
for everyone.

435
00:21:42,510 --> 00:21:45,210
I think my question, though, is
like, when I read about this,

436
00:21:45,210 --> 00:21:46,500
obviously it seems like--

437
00:21:46,500 --> 00:21:48,120
I'm sure the
technology is there.

438
00:21:48,120 --> 00:21:53,220
But I think about just like
any bulge bracket banks--

439
00:21:53,220 --> 00:21:56,370
their IT infrastructure
has been in place

440
00:21:56,370 --> 00:21:57,750
for like 50-plus years.

441
00:21:57,750 --> 00:22:02,700
And changing that
technology is like removing

442
00:22:02,700 --> 00:22:05,370
one piece of a really
big complicated puzzle.

443
00:22:05,370 --> 00:22:11,700
So I almost just question
how feasible that is.

444
00:22:11,700 --> 00:22:14,370
Like the article does
a really good job

445
00:22:14,370 --> 00:22:17,250
of laying out what we
can actually automate.

446
00:22:17,250 --> 00:22:20,130
But I guess I am a
little bit skeptical as

447
00:22:20,130 --> 00:22:22,340
to like when that
time will come.

448
00:22:22,340 --> 00:22:24,250
GARY GENSLER: And Ivy,
may I ask which bank

449
00:22:24,250 --> 00:22:29,270
or what country you were
working in that was doing this?

450
00:22:29,270 --> 00:22:32,450
AUDIENCE: I worked at
Merrill and Barclays.

451
00:22:32,450 --> 00:22:35,030
GARY GENSLER: So Merrill-Lynch
or Barclays, you're right,

452
00:22:35,030 --> 00:22:35,960
they're incumbents.

453
00:22:35,960 --> 00:22:38,000
And they can
automate many things.

454
00:22:38,000 --> 00:22:41,840
The technology is in advance
of what they are actually

455
00:22:41,840 --> 00:22:43,600
doing right now.

456
00:22:43,600 --> 00:22:49,010
But robotic process automation
can provide both incumbents

457
00:22:49,010 --> 00:22:50,810
and disruptors.

458
00:22:50,810 --> 00:22:53,600
But the Merrills and
Barclays are already

459
00:22:53,600 --> 00:22:56,510
using it to some
extent to automate

460
00:22:56,510 --> 00:22:59,120
that which humans are doing.

461
00:22:59,120 --> 00:23:02,240
Some of it, as we'll
dive into later on,

462
00:23:02,240 --> 00:23:04,190
is about reading documents.

463
00:23:04,190 --> 00:23:09,410
Just literally an object
reading a document.

464
00:23:09,410 --> 00:23:12,440
You could say that one form
of robotic process automation

465
00:23:12,440 --> 00:23:17,160
that we already have is when
we can deposit a check by using

466
00:23:17,160 --> 00:23:18,550
our mobile phone.

467
00:23:18,550 --> 00:23:21,350
Now, that also uses natural
language processing,

468
00:23:21,350 --> 00:23:26,130
and it sort of reads that into
the computer, and so forth.

469
00:23:26,130 --> 00:23:30,920
But you're absolutely right
that each in incumbent

470
00:23:30,920 --> 00:23:35,210
is dedicated to ensuring that
if they're moving from a legacy

471
00:23:35,210 --> 00:23:41,670
system to a new system, that
they do that in their own way,

472
00:23:41,670 --> 00:23:44,390
so that it doesn't
break in the middle,

473
00:23:44,390 --> 00:23:46,370
and that they actually
do save money.

474
00:23:46,370 --> 00:23:47,990
And they have to schedule it.

475
00:23:47,990 --> 00:23:50,810
And they might not get to
that project for 18 months

476
00:23:50,810 --> 00:23:52,700
or even five or seven years.

477
00:23:52,700 --> 00:23:56,060
And sometimes that's what
gives the fintech disruptor

478
00:23:56,060 --> 00:23:57,560
the opportunity--

479
00:23:57,560 --> 00:24:02,150
that the incumbent can
use a new technology.

480
00:24:02,150 --> 00:24:03,830
In this case, RPA.

481
00:24:03,830 --> 00:24:05,780
They can use that technology.

482
00:24:05,780 --> 00:24:09,680
But they can't schedule it for
three years or even longer.

483
00:24:09,680 --> 00:24:11,240
Or if they're
scheduling it, they

484
00:24:11,240 --> 00:24:14,490
have to do it in a
very controlled way.

485
00:24:14,490 --> 00:24:16,370
And the disruptor
then is coming along

486
00:24:16,370 --> 00:24:19,010
and having an opportunity
in the meantime

487
00:24:19,010 --> 00:24:21,450
to attack that business model.

488
00:24:21,450 --> 00:24:23,310
So I thank you.

489
00:24:23,310 --> 00:24:25,730
Romain are there others,
or should I move on?

490
00:24:25,730 --> 00:24:27,950
PROFESSOR 2: We finally
had Andrea, who I believe

491
00:24:27,950 --> 00:24:29,210
has experience on this topic.

492
00:24:29,210 --> 00:24:32,150
So we could all benefit from it.

493
00:24:32,150 --> 00:24:36,050
AUDIENCE: Yeah, but I wanted
to add a similar point that we

494
00:24:36,050 --> 00:24:37,430
just discussed with Ivy.

495
00:24:37,430 --> 00:24:39,890
So we can move on definitely.

496
00:24:39,890 --> 00:24:43,310
But what I appreciate about
the RPA in the incumbents

497
00:24:43,310 --> 00:24:45,290
is that it helps
them to increase

498
00:24:45,290 --> 00:24:47,540
the efficiency in operations.

499
00:24:47,540 --> 00:24:53,330
But at the same time, it also
brings in the standardization.

500
00:24:53,330 --> 00:24:59,090
And people can focus--
or employees of the bank

501
00:24:59,090 --> 00:25:02,130
can focus on more
value-adding services.

502
00:25:02,130 --> 00:25:06,350
For example, the advisory
to the client when

503
00:25:06,350 --> 00:25:08,390
it comes to more
difficult products,

504
00:25:08,390 --> 00:25:11,770
such as mortgages
or consumer loans.

505
00:25:11,770 --> 00:25:13,910
But at the same time,
as you mentioned,

506
00:25:13,910 --> 00:25:18,120
the time and the resources
that you need, especially

507
00:25:18,120 --> 00:25:22,070
in huge incumbents like
Merrill or Barclays,

508
00:25:22,070 --> 00:25:24,177
it takes a lot of
time to get there.

509
00:25:24,177 --> 00:25:25,010
GARY GENSLER: Right.

510
00:25:25,010 --> 00:25:27,690
And so what's interesting about
each of these technologies--

511
00:25:27,690 --> 00:25:30,900
and this is true if
we broaden it out--

512
00:25:30,900 --> 00:25:35,010
open API, robotic
process automation,

513
00:25:35,010 --> 00:25:38,550
they're both a tool
for the disruptors

514
00:25:38,550 --> 00:25:40,980
to produce services
and new business models

515
00:25:40,980 --> 00:25:44,950
to the consuming public,
And, they're also

516
00:25:44,950 --> 00:25:47,440
tools to the
incumbents, depending

517
00:25:47,440 --> 00:25:49,450
upon on how they can
invest in those tools, how

518
00:25:49,450 --> 00:25:52,390
they can update their
business models, and the like.

519
00:25:52,390 --> 00:25:55,360
And in particular in open
API, we'll see there's a real

520
00:25:55,360 --> 00:25:58,020
challenge, that the
large incumbents--

521
00:25:58,020 --> 00:26:04,060
the JPMorgan Chases and the
PNC Banks and so forth--

522
00:26:04,060 --> 00:26:07,190
are sharing data now with
a lot of the disruptors.

523
00:26:07,190 --> 00:26:10,300
They're providing greater
services to their ultimate end

524
00:26:10,300 --> 00:26:12,040
users and customers.

525
00:26:12,040 --> 00:26:14,350
But then also they're
concerned about,

526
00:26:14,350 --> 00:26:18,220
are they giving up some of their
inherent competitive advantage

527
00:26:18,220 --> 00:26:20,440
of controlling that data?

528
00:26:20,440 --> 00:26:22,060
And so there's some
real trade offs,

529
00:26:22,060 --> 00:26:24,670
particularly in
the open API world,

530
00:26:24,670 --> 00:26:26,900
as to how banks look at this.

531
00:26:26,900 --> 00:26:30,430
So I wanted to go back to the
question of like, what is API?

532
00:26:30,430 --> 00:26:34,390
I just was able to find
a slide of TechTarget

533
00:26:34,390 --> 00:26:38,320
that I thought was helpful,
just to think about this.

534
00:26:38,320 --> 00:26:41,050
An API, just think
of two systems

535
00:26:41,050 --> 00:26:42,220
that are linking together.

536
00:26:42,220 --> 00:26:46,540
And sort of the original APIs
was just a local application

537
00:26:46,540 --> 00:26:51,810
program interface that sort
of could connect two computers

538
00:26:51,810 --> 00:26:52,810
together.

539
00:26:52,810 --> 00:26:56,560
Web-based API, which went
further-- and web-based APIs

540
00:26:56,560 --> 00:26:58,070
have been around for 30 years.

541
00:26:58,070 --> 00:26:59,560
This is not a new technology.

542
00:26:59,560 --> 00:27:01,960
But web-based are
designed really

543
00:27:01,960 --> 00:27:06,370
to represent such that
they could be widely used.

544
00:27:06,370 --> 00:27:08,920
HTML now and later
something called

545
00:27:08,920 --> 00:27:13,000
REST API, which is more
recently, these are protocols.

546
00:27:13,000 --> 00:27:16,900
These are protocols that
multiple parties on the web

547
00:27:16,900 --> 00:27:19,570
can come into your
service in some way.

548
00:27:22,160 --> 00:27:24,910
And then we talk
about public APIs,

549
00:27:24,910 --> 00:27:29,740
which really sort of
broadens it out further.

550
00:27:29,740 --> 00:27:31,630
And you could even
think of this as sort

551
00:27:31,630 --> 00:27:37,600
of private registered APIs
to broadly publicly available

552
00:27:37,600 --> 00:27:39,400
APIs.

553
00:27:39,400 --> 00:27:41,830
And what many businesses
are trying to use--

554
00:27:41,830 --> 00:27:42,880
and they manage it.

555
00:27:42,880 --> 00:27:45,430
And it's a very active
part of strategy,

556
00:27:45,430 --> 00:27:49,180
is to manage that interface
to allow the developer

557
00:27:49,180 --> 00:27:53,110
community to interface
with your platform.

558
00:27:53,110 --> 00:27:54,370
Facebook needs to do it.

559
00:27:54,370 --> 00:27:56,200
Instagram needs to do it.

560
00:27:56,200 --> 00:28:01,570
Any network-based or
platform-based service actually

561
00:28:01,570 --> 00:28:05,140
wants to encourage developers
to build applications

562
00:28:05,140 --> 00:28:07,535
on top of the platform.

563
00:28:07,535 --> 00:28:08,910
So now you bring
this to finance.

564
00:28:08,910 --> 00:28:12,700
Does JPMorgan Chase, does Bank
of America, does Barclays, does

565
00:28:12,700 --> 00:28:15,610
Merrill want to do the same--

566
00:28:15,610 --> 00:28:20,490
encourage development
of applications

567
00:28:20,490 --> 00:28:22,600
on top of their platform?

568
00:28:22,600 --> 00:28:25,630
Recognizing that they make
a lot on their platform--

569
00:28:25,630 --> 00:28:29,280
their balance sheet, their
funding models, their data,

570
00:28:29,280 --> 00:28:30,550
their analytics.

571
00:28:30,550 --> 00:28:33,570
Do they want to encourage the
development of applications

572
00:28:33,570 --> 00:28:34,830
on top?

573
00:28:34,830 --> 00:28:38,220
And it's a little bit of a push
and pull, because they're also

574
00:28:38,220 --> 00:28:40,470
encouraging development
of applications

575
00:28:40,470 --> 00:28:43,520
that might compete
with them, but also

576
00:28:43,520 --> 00:28:44,870
enhance what they're doing.

577
00:28:48,410 --> 00:28:51,860
So I sort of found this
other spaghetti slide

578
00:28:51,860 --> 00:28:53,920
that I thought was
really helpful.

579
00:28:53,920 --> 00:28:56,330
Now, if you think
about thousands

580
00:28:56,330 --> 00:28:59,960
of financial firms dealing
with thousands of public,

581
00:28:59,960 --> 00:29:03,000
this spaghetti wire
gets even worse.

582
00:29:03,000 --> 00:29:05,210
But application
program interface

583
00:29:05,210 --> 00:29:08,390
is a classic problem of math.

584
00:29:08,390 --> 00:29:11,990
It's that if you only have two
computers by two computers,

585
00:29:11,990 --> 00:29:14,690
you might need four
lines of connections.

586
00:29:14,690 --> 00:29:16,550
But all of a sudden
when you have thousands,

587
00:29:16,550 --> 00:29:20,550
you could have this
spaghetti wire of interfaces.

588
00:29:20,550 --> 00:29:25,580
So what's happened in the midst
of this in sector by sector

589
00:29:25,580 --> 00:29:27,020
is that there have
been companies

590
00:29:27,020 --> 00:29:31,670
that really have an API
management layer in between.

591
00:29:31,670 --> 00:29:35,180
And in many sectors,
you've seen a consolidation

592
00:29:35,180 --> 00:29:39,140
around either one standard
for APIs or companies

593
00:29:39,140 --> 00:29:41,870
that are really service
providers in the middle.

594
00:29:41,870 --> 00:29:45,260
And here are some
examples in non-finance.

595
00:29:45,260 --> 00:29:50,390
And whether you know
underneath the hood

596
00:29:50,390 --> 00:29:52,820
about Twilio or others--

597
00:29:52,820 --> 00:29:55,370
Twilio probably has,
I'm told, something

598
00:29:55,370 --> 00:30:00,770
close to an 80% market share
in voice and messaging.

599
00:30:00,770 --> 00:30:06,380
That they're sort of that
layer in between the disruptors

600
00:30:06,380 --> 00:30:11,690
and the service providers
and the classic companies,

601
00:30:11,690 --> 00:30:15,380
providing a layer in the middle.

602
00:30:15,380 --> 00:30:17,360
A layer in the middle.

603
00:30:17,360 --> 00:30:22,670
Checkr does it on employment
checks when we want a check.

604
00:30:22,670 --> 00:30:25,410
Each one of these companies
were startups over the last 20

605
00:30:25,410 --> 00:30:25,910
years.

606
00:30:25,910 --> 00:30:28,670
Salesforce is a
little bit earlier.

607
00:30:28,670 --> 00:30:30,170
And they really took--

608
00:30:30,170 --> 00:30:32,810
even if they didn't
know it at the time,

609
00:30:32,810 --> 00:30:40,390
they took the concept of open
API and API and they built it.

610
00:30:40,390 --> 00:30:45,510
And in fact, there's these
words they call API first--

611
00:30:45,510 --> 00:30:47,490
that you can build
a strategy saying,

612
00:30:47,490 --> 00:30:51,550
we're going to be the
best providing APIs.

613
00:30:51,550 --> 00:30:53,350
Now, who's done this in finance?

614
00:30:53,350 --> 00:30:54,475
Who's done this in finance?

615
00:30:54,475 --> 00:30:57,370
One company that you might
think of as a payment service

616
00:30:57,370 --> 00:31:00,400
provider, Stripe,
did it very well.

617
00:31:00,400 --> 00:31:05,920
Stripe basically said, we
will be that API provider

618
00:31:05,920 --> 00:31:08,450
in the payment space.

619
00:31:08,450 --> 00:31:11,300
What company did it really well
most recently that we talked

620
00:31:11,300 --> 00:31:14,360
about last class was Plaid.

621
00:31:14,360 --> 00:31:17,120
And we're going to come
back into Plaid as well.

622
00:31:17,120 --> 00:31:19,200
But Plaid did this very well.

623
00:31:19,200 --> 00:31:20,600
Now, they didn't
start by saying,

624
00:31:20,600 --> 00:31:24,760
we're going to be
only an API company.

625
00:31:24,760 --> 00:31:27,970
But they did start with
being an API company.

626
00:31:27,970 --> 00:31:30,280
It was two entrepreneurs,
in Plaid's case,

627
00:31:30,280 --> 00:31:33,100
about six or seven
years ago that said,

628
00:31:33,100 --> 00:31:35,940
there really isn't a good
API in the payment space.

629
00:31:35,940 --> 00:31:38,890
Now, there was Stripe.

630
00:31:38,890 --> 00:31:41,530
And I'm not sure about
their foundational stories,

631
00:31:41,530 --> 00:31:46,370
why they didn't feel that the
Stripe APIs were good enough.

632
00:31:46,370 --> 00:31:48,070
But they created an API.

633
00:31:48,070 --> 00:31:51,400
And of course, Plaid just
recently sold for $5 billion

634
00:31:51,400 --> 00:31:55,980
plus to Visa, or
announced the sale.

635
00:31:55,980 --> 00:31:58,500
So we talked a little
bit about finance

636
00:31:58,500 --> 00:32:00,240
and this history, the stack.

637
00:32:00,240 --> 00:32:03,870
And I'm going back to the
customer interface stack.

638
00:32:03,870 --> 00:32:06,360
We don't need to go back
to bricks and mortars

639
00:32:06,360 --> 00:32:08,280
and electronic payments.

640
00:32:08,280 --> 00:32:11,010
But again, sort of the
conceptual framework

641
00:32:11,010 --> 00:32:13,140
of this class and
how I think about it,

642
00:32:13,140 --> 00:32:15,570
the most recent things
added to the stack--

643
00:32:15,570 --> 00:32:19,620
the internet, mobile phones,
contact cards, and the like--

644
00:32:19,620 --> 00:32:24,870
those are all fully engaged and
part of the finance technology

645
00:32:24,870 --> 00:32:26,020
stack.

646
00:32:26,020 --> 00:32:30,180
And now we're adding
open API and chat

647
00:32:30,180 --> 00:32:32,460
bots, which we talked
about last class,

648
00:32:32,460 --> 00:32:36,060
and natural language
processing, robotic processing.

649
00:32:36,060 --> 00:32:39,210
We're adding that to the
finance technology stack.

650
00:32:39,210 --> 00:32:41,610
And that's sort of the
conceptual framework.

651
00:32:41,610 --> 00:32:44,900
And I think those are where
the opportunities are.

652
00:32:44,900 --> 00:32:46,830
In five or eight or
10 years from now,

653
00:32:46,830 --> 00:32:48,570
it will be taken for granted.

654
00:32:48,570 --> 00:32:50,670
Of course, there'll
be enhancements.

655
00:32:50,670 --> 00:32:52,560
And every change,
there's an enhancement

656
00:32:52,560 --> 00:32:55,950
that creates some
opportunities as well.

657
00:32:55,950 --> 00:32:58,300
So what do we mean by open API?

658
00:32:58,300 --> 00:32:59,990
To [? Iqbal's ?]
earlier question.

659
00:32:59,990 --> 00:33:03,080
Open Application
Program Interface

660
00:33:03,080 --> 00:33:07,590
provides developers
access to and an ability

661
00:33:07,590 --> 00:33:09,450
to get permissioned
customer data.

662
00:33:09,450 --> 00:33:11,610
That means you and I
give a password, you

663
00:33:11,610 --> 00:33:16,350
and I give a username.

664
00:33:16,350 --> 00:33:19,560
Open banking
initiatives-- open banking

665
00:33:19,560 --> 00:33:21,195
is unique to the
financial world--

666
00:33:21,195 --> 00:33:24,930
are initiatives usually
promoted by the official sector.

667
00:33:24,930 --> 00:33:27,930
Usually promoted either
by the central banks

668
00:33:27,930 --> 00:33:30,300
or by the banking
regulators, and sometimes

669
00:33:30,300 --> 00:33:32,610
promoted by
competition authority,

670
00:33:32,610 --> 00:33:35,940
to say you must
share certain data

671
00:33:35,940 --> 00:33:40,640
or you must create some
standards for these open APIs.

672
00:33:40,640 --> 00:33:43,200
And again, as I just
mentioned, open APIs

673
00:33:43,200 --> 00:33:48,000
are in every field
of online services,

674
00:33:48,000 --> 00:33:52,030
from voice to
employment to retailing.

675
00:33:52,030 --> 00:33:54,960
But the competition authorities
and the central banks

676
00:33:54,960 --> 00:33:57,180
around the globe
said, well, maybe we

677
00:33:57,180 --> 00:33:59,820
should lean into this--

678
00:33:59,820 --> 00:34:02,940
the official sector-- lean
in and promote competition

679
00:34:02,940 --> 00:34:06,370
for this sharing of data.

680
00:34:06,370 --> 00:34:08,280
And these initiatives,
which you've

681
00:34:08,280 --> 00:34:12,520
got a chance to read about,
do have policy trade offs.

682
00:34:12,520 --> 00:34:15,600
And why I focus on
these policy trade offs

683
00:34:15,600 --> 00:34:18,280
is they're also
about competition.

684
00:34:18,280 --> 00:34:21,400
Incumbents are not
going to really want

685
00:34:21,400 --> 00:34:26,000
to embrace
competition like this.

686
00:34:26,000 --> 00:34:29,679
Having said that,
many of the incumbents

687
00:34:29,679 --> 00:34:33,123
recognize that it might
be that they're shifting

688
00:34:33,123 --> 00:34:35,290
right now-- that their
business models are shifting,

689
00:34:35,290 --> 00:34:37,900
and they have to think
like platform companies.

690
00:34:37,900 --> 00:34:40,840
And to the extent that the
JPMorgans or the Barclays

691
00:34:40,840 --> 00:34:42,699
think more like
platform companies,

692
00:34:42,699 --> 00:34:45,219
they want to encourage
the developer community

693
00:34:45,219 --> 00:34:49,969
to develop applications
on top of their platforms.

694
00:34:49,969 --> 00:34:54,980
If they think it's simply
losing market share to the SoFis

695
00:34:54,980 --> 00:34:57,310
and to the new
banks, then they're

696
00:34:57,310 --> 00:35:00,620
going to be more
closed to open API.

697
00:35:00,620 --> 00:35:02,600
If they think more like
platform companies,

698
00:35:02,600 --> 00:35:05,160
they're going to
want to promote it.

699
00:35:05,160 --> 00:35:06,740
But there are also trade offs.

700
00:35:06,740 --> 00:35:09,050
There are also trade offs
that the big incumbents

701
00:35:09,050 --> 00:35:11,600
would say about cybersecurity.

702
00:35:11,600 --> 00:35:14,720
If we just let anybody
into our platform,

703
00:35:14,720 --> 00:35:18,490
they can also bring down
that platform possibly.

704
00:35:18,490 --> 00:35:21,910
And so these are real
public policy trade offs,

705
00:35:21,910 --> 00:35:26,345
but they're also commercial
trade offs as well.

706
00:35:26,345 --> 00:35:28,220
[Romain I don't know if
there was a question.

707
00:35:28,220 --> 00:35:30,200
I see some activity in the chat.

708
00:35:30,200 --> 00:35:32,080
PROFESSOR 2: We have a
question from Geetha.

709
00:35:32,080 --> 00:35:32,955
GARY GENSLER: Please.

710
00:35:35,160 --> 00:35:39,720
PROFESSOR 2: Gary, I've been
thinking a lot about incumbents

711
00:35:39,720 --> 00:35:42,280
becoming platforms.

712
00:35:42,280 --> 00:35:47,560
Other than an ability to allow
access to their customer data

713
00:35:47,560 --> 00:35:53,610
to lenders, I'm
not able to think

714
00:35:53,610 --> 00:35:58,680
of examples of what kind of
platforms incumbents can be.

715
00:35:58,680 --> 00:36:00,930
Like, they are not a
specific payment company.

716
00:36:00,930 --> 00:36:04,180
They're only servicing
their own customers.

717
00:36:04,180 --> 00:36:08,130
So I wonder if you
have any examples.

718
00:36:08,130 --> 00:36:10,350
GARY GENSLER: So I think
many of the major banks

719
00:36:10,350 --> 00:36:13,050
are already platforms.

720
00:36:13,050 --> 00:36:16,200
They don't necessarily think
of themselves this way,

721
00:36:16,200 --> 00:36:21,360
but they are bringing together--

722
00:36:21,360 --> 00:36:25,300
and this is true for centuries--
they are bringing together

723
00:36:25,300 --> 00:36:27,970
borrowers and
lenders, or savers.

724
00:36:27,970 --> 00:36:31,420
So they have a balance
sheet that brings together,

725
00:36:31,420 --> 00:36:36,010
in some cases, millions of
savers and tens of thousands

726
00:36:36,010 --> 00:36:38,170
or hundreds of
thousands of borrowers.

727
00:36:38,170 --> 00:36:40,010
And they're bringing
that together.

728
00:36:40,010 --> 00:36:42,850
And when you consider that sort
of the modern large financial

729
00:36:42,850 --> 00:36:45,730
firm with $1 trillion or
$2 trillion balance sheet,

730
00:36:45,730 --> 00:36:49,810
many of the largest [? were ?]
[? all-- ?] and so forth.

731
00:36:49,810 --> 00:36:51,820
And so they're
bringing that together,

732
00:36:51,820 --> 00:36:53,650
and they're managing risk.

733
00:36:53,650 --> 00:36:59,300
And they're very good
at it, or some of them

734
00:36:59,300 --> 00:37:01,550
are very good at
that risk management

735
00:37:01,550 --> 00:37:05,600
of those millions of
depositors and tens

736
00:37:05,600 --> 00:37:07,970
or hundreds of
thousands of borrowers.

737
00:37:07,970 --> 00:37:10,610
That in itself is a platform.

738
00:37:10,610 --> 00:37:12,830
That creates a data
advantage that they

739
00:37:12,830 --> 00:37:14,870
have about risk management.

740
00:37:14,870 --> 00:37:16,610
And it could be a real one.

741
00:37:16,610 --> 00:37:21,620
And they can offer activities
and products on top of that.

742
00:37:21,620 --> 00:37:24,350
The fintech startups
can be, in a sense,

743
00:37:24,350 --> 00:37:28,160
a front end distribution
channel to bring more in.

744
00:37:28,160 --> 00:37:30,500
Because a lot of
the fintech startups

745
00:37:30,500 --> 00:37:34,190
don't have that same
balance sheet capability--

746
00:37:34,190 --> 00:37:38,660
that same ability to in
essence earn a spread

747
00:37:38,660 --> 00:37:42,510
between savers and borrowers.

748
00:37:42,510 --> 00:37:44,670
Now, you might contend,
well no, they're

749
00:37:44,670 --> 00:37:46,500
losing their
competitive advantage,

750
00:37:46,500 --> 00:37:50,490
because those startups
sort of have that customer

751
00:37:50,490 --> 00:37:52,780
interface, that direct--

752
00:37:52,780 --> 00:37:58,140
one might consider it the
last mile with that customer.

753
00:37:58,140 --> 00:38:00,780
But the technology companies
have taken another approach

754
00:38:00,780 --> 00:38:04,200
in saying, we like developers
developing applications

755
00:38:04,200 --> 00:38:05,520
on top of our platforms.

756
00:38:05,520 --> 00:38:07,320
We think it brings
more activities.

757
00:38:07,320 --> 00:38:10,240
We think it brings more
interface, more data.

758
00:38:10,240 --> 00:38:13,920
And so they're sort of a
network that is bringing data

759
00:38:13,920 --> 00:38:17,505
and activity on the platform.

760
00:38:17,505 --> 00:38:18,380
But I agree with you.

761
00:38:18,380 --> 00:38:20,180
It's a real strategic trade off.

762
00:38:20,180 --> 00:38:22,230
It's a real strategic challenge.

763
00:38:22,230 --> 00:38:26,487
And the incumbents are
still sorting it out.

764
00:38:26,487 --> 00:38:27,320
PROFESSOR 2: Camilo?

765
00:38:30,238 --> 00:38:31,030
AUDIENCE: Yeah, hi.

766
00:38:31,030 --> 00:38:37,060
I just wanted to ask, in
one of the other lectures,

767
00:38:37,060 --> 00:38:40,440
they tried to classify
the open banking between

768
00:38:40,440 --> 00:38:42,130
[? prescriptive, ?]
to facilitate

769
00:38:42,130 --> 00:38:44,800
market-driven, and in-process.

770
00:38:44,800 --> 00:38:49,000
But there were many countries,
as for example Colombia, who

771
00:38:49,000 --> 00:38:52,150
didn't have any classification.

772
00:38:52,150 --> 00:38:53,320
What's the meaning of that?

773
00:38:53,320 --> 00:38:56,530
It means that it's forbidden.

774
00:38:56,530 --> 00:38:58,660
I mean, is it impossible
to scrape the data

775
00:38:58,660 --> 00:39:02,457
from that from the bank?

776
00:39:02,457 --> 00:39:04,040
GARY GENSLER: So
it's a good question.

777
00:39:04,040 --> 00:39:06,190
The Bank of International
Settlements paper I think

778
00:39:06,190 --> 00:39:08,090
is to which you refer.

779
00:39:08,090 --> 00:39:12,270
And what they did was country
by country review where it is.

780
00:39:12,270 --> 00:39:15,530
And in fact, that's
probably good

781
00:39:15,530 --> 00:39:21,980
leading to the map that was
in that report that I'll show.

782
00:39:21,980 --> 00:39:26,530
In many countries, the
central bank, bank regulators,

783
00:39:26,530 --> 00:39:30,050
and competition authorities
have not said much.

784
00:39:30,050 --> 00:39:33,070
I'm not close enough
to Colombia to know.

785
00:39:33,070 --> 00:39:36,490
But in those countries, you
can still technologically

786
00:39:36,490 --> 00:39:37,750
go in and scrape.

787
00:39:37,750 --> 00:39:39,940
An alternative,
as I lay out here,

788
00:39:39,940 --> 00:39:42,880
is actually scraping
from the screen.

789
00:39:42,880 --> 00:39:44,900
And so I think actually
it's the next--

790
00:39:44,900 --> 00:39:48,910
I grab this slide from the Bank
of International Settlements

791
00:39:48,910 --> 00:39:49,450
reports.

792
00:39:49,450 --> 00:39:52,390
And thank you, it's a
great setup, Camilo.

793
00:39:52,390 --> 00:39:55,240
That Europe passed
something called

794
00:39:55,240 --> 00:39:58,330
the Payments System Directive.

795
00:39:58,330 --> 00:40:00,010
And it was actually
the second time

796
00:40:00,010 --> 00:40:04,210
that the European parliament
came together and said,

797
00:40:04,210 --> 00:40:07,060
we need to promote in
the payment space--

798
00:40:07,060 --> 00:40:09,170
not necessarily in
the lending space,

799
00:40:09,170 --> 00:40:11,080
but in the payment space--

800
00:40:11,080 --> 00:40:15,380
that there's more
availability from merchants

801
00:40:15,380 --> 00:40:20,600
and from fintech startups
to access your data and move

802
00:40:20,600 --> 00:40:21,200
money.

803
00:40:21,200 --> 00:40:22,960
That's Europe.

804
00:40:22,960 --> 00:40:26,550
And as the Bank of
International Settlements says,

805
00:40:26,550 --> 00:40:28,370
it's more prescriptive.

806
00:40:28,370 --> 00:40:32,360
In the countries that are gray
on this map-- most of Africa,

807
00:40:32,360 --> 00:40:35,930
many parts of the
Mideast, and so forth,

808
00:40:35,930 --> 00:40:38,700
parts of Latin America--

809
00:40:38,700 --> 00:40:41,340
the Bank of International
Settlements, I should say,

810
00:40:41,340 --> 00:40:43,150
only covers about 60 countries.

811
00:40:43,150 --> 00:40:44,820
So many of the
parts that are gray

812
00:40:44,820 --> 00:40:47,220
are countries that Bank of
International Settlements

813
00:40:47,220 --> 00:40:48,950
didn't survey.

814
00:40:48,950 --> 00:40:51,980
But those countries
are probably,

815
00:40:51,980 --> 00:40:54,950
like the US, technically
market-driven.

816
00:40:54,950 --> 00:40:57,560
There is no federal
law in the US,

817
00:40:57,560 --> 00:40:59,570
and there's no
banking rule, that

818
00:40:59,570 --> 00:41:04,070
prescribes that you must
have open API in the US.

819
00:41:04,070 --> 00:41:07,130
So I think that in Colombia
it might be a technically

820
00:41:07,130 --> 00:41:10,850
market-driven, where
the startups are using

821
00:41:10,850 --> 00:41:14,660
some form of screen scraping
and some form of robotic process

822
00:41:14,660 --> 00:41:15,950
automation.

823
00:41:15,950 --> 00:41:20,220
But what we found in the US
is companies like Stripe,

824
00:41:20,220 --> 00:41:22,650
companies like Plaid,
others that I'm

825
00:41:22,650 --> 00:41:27,780
going to list in a moment,
like Yodlee and others,

826
00:41:27,780 --> 00:41:34,050
just built a business model
out of creating public APIs.

827
00:41:34,050 --> 00:41:36,270
And the incumbents
possibly in Colombia

828
00:41:36,270 --> 00:41:37,530
are dealing with the same.

829
00:41:37,530 --> 00:41:38,190
I don't know.

830
00:41:40,335 --> 00:41:40,960
AUDIENCE: Yeah.

831
00:41:40,960 --> 00:41:42,610
Well, I don't know.

832
00:41:42,610 --> 00:41:46,840
In Colombia, the banks are
happy to not let create APIs,

833
00:41:46,840 --> 00:41:50,360
because they don't believe
themselves as platforms.

834
00:41:50,360 --> 00:41:52,960
They prefer to charge
any type of fees

835
00:41:52,960 --> 00:41:56,120
for whatever they can do it
in the small print letter.

836
00:41:56,120 --> 00:41:59,830
So they get more the
defensive approach,

837
00:41:59,830 --> 00:42:02,980
rather than what you're saying,
seeing themselves as a platform

838
00:42:02,980 --> 00:42:07,790
and monetizing over many
layers of application.

839
00:42:07,790 --> 00:42:11,560
GARY GENSLER: Yeah, I think
that in many countries

840
00:42:11,560 --> 00:42:14,350
and in many incumbents,
they're taking

841
00:42:14,350 --> 00:42:16,450
a sort of guarded approach,
and sort of saying,

842
00:42:16,450 --> 00:42:21,262
no, no, no, this is dangerous
for our business model.

843
00:42:21,262 --> 00:42:22,970
This is dangerous for
our business model.

844
00:42:22,970 --> 00:42:28,730
But to that incumbent that
does that, often they lose out.

845
00:42:28,730 --> 00:42:30,650
It sometimes takes
years to lose out.

846
00:42:30,650 --> 00:42:33,540
But it's that
somebody finds a way

847
00:42:33,540 --> 00:42:36,330
to encroach on that
business model.

848
00:42:36,330 --> 00:42:39,710
And what we're finding
around the globe

849
00:42:39,710 --> 00:42:41,870
is that more and more
countries are promoting this.

850
00:42:41,870 --> 00:42:43,670
Brazil, for instance,
is taking it

851
00:42:43,670 --> 00:42:45,170
to their national legislature.

852
00:42:45,170 --> 00:42:49,325
Now, with the corona crisis, I
haven't stayed closely enough.

853
00:42:49,325 --> 00:42:51,360
It looked like it was
going to pass this spring.

854
00:42:51,360 --> 00:42:54,470
And maybe one of the students
knows whether they did.

855
00:42:54,470 --> 00:42:57,830
But the central bank was
trying to, in essence,

856
00:42:57,830 --> 00:43:02,150
insert more competition, so
that E2O and others in Brazil

857
00:43:02,150 --> 00:43:05,000
had to sort of take a
little bit more competition

858
00:43:05,000 --> 00:43:08,010
in that environment.

859
00:43:08,010 --> 00:43:11,690
So my prediction would
be, even in Colombia, it

860
00:43:11,690 --> 00:43:14,780
would be hard to guard against
this for multiple years.

861
00:43:14,780 --> 00:43:16,500
Maybe a few more years.

862
00:43:16,500 --> 00:43:18,980
But they'll be guarding a
business model that will

863
00:43:18,980 --> 00:43:21,500
have some encroachment on it.

864
00:43:21,500 --> 00:43:23,000
The Bank of
International Settlement

865
00:43:23,000 --> 00:43:25,070
also sort of did
this chart, which

866
00:43:25,070 --> 00:43:27,380
sort of said what's mandatory.

867
00:43:27,380 --> 00:43:30,110
Australia and Europe is
fuller to the mandatory.

868
00:43:30,110 --> 00:43:32,060
That's why they're at
the top of this chart.

869
00:43:32,060 --> 00:43:35,570
And you see the US,
China, Argentina, probably

870
00:43:35,570 --> 00:43:39,320
Colombia, is technically market
driven towards the bottom.

871
00:43:39,320 --> 00:43:41,000
It's also what products?

872
00:43:41,000 --> 00:43:43,550
Is it all about
just funds transfer?

873
00:43:43,550 --> 00:43:45,890
Europe was more about payments.

874
00:43:45,890 --> 00:43:48,830
Was it also about the
underlying product information?

875
00:43:48,830 --> 00:43:51,770
Because if it's
forced upon the banks

876
00:43:51,770 --> 00:43:54,260
from the official sector--

877
00:43:54,260 --> 00:43:55,770
in the US it's not.

878
00:43:55,770 --> 00:43:58,850
But in Europe, in Australia,
Hong Kong, it has been.

879
00:43:58,850 --> 00:44:02,240
If it's sort of by
the official sector,

880
00:44:02,240 --> 00:44:04,580
then it might well
be that you have

881
00:44:04,580 --> 00:44:07,130
to include the product
information, as well as

882
00:44:07,130 --> 00:44:11,130
the information underneath it.

883
00:44:11,130 --> 00:44:13,850
So back to the
market-driven side.

884
00:44:13,850 --> 00:44:18,020
So the market-driven side is
what's happened here in the US.

885
00:44:18,020 --> 00:44:20,960
And what's happened here
in the US-- and I list--

886
00:44:20,960 --> 00:44:23,750
this is not just the US,
but also Europe, Australia,

887
00:44:23,750 --> 00:44:24,820
and some places.

888
00:44:24,820 --> 00:44:28,970
I list about a dozen firms that
are very active in this place.

889
00:44:28,970 --> 00:44:32,000
This is not forced by
the official sector.

890
00:44:32,000 --> 00:44:37,070
This is basically the
private sector saying,

891
00:44:37,070 --> 00:44:39,140
let's avoid that spaghetti wire.

892
00:44:39,140 --> 00:44:40,870
These are companies
that are going

893
00:44:40,870 --> 00:44:45,880
in between all the startups and
the financial firms and saying,

894
00:44:45,880 --> 00:44:52,710
we can provide a standard
way to do these interfaces.

895
00:44:52,710 --> 00:44:55,720
Plaid that I talked
about just announced

896
00:44:55,720 --> 00:44:59,550
it's being sold to
Visa for $5.3 billion.

897
00:44:59,550 --> 00:45:02,860
What do these firms compete on?

898
00:45:02,860 --> 00:45:07,370
They compete on a lot of things.

899
00:45:07,370 --> 00:45:08,860
First is coverage.

900
00:45:08,860 --> 00:45:12,420
If I'm Plaid, do I cover
all the banks that you need?

901
00:45:12,420 --> 00:45:14,620
If I'm a new startup,
and I'm thinking,

902
00:45:14,620 --> 00:45:16,360
should I use Plaid or Yodlee?

903
00:45:16,360 --> 00:45:19,780
And Yodlee and Plaid
are deep competitors.

904
00:45:19,780 --> 00:45:22,810
Maybe one can stay just as
competitive with each other

905
00:45:22,810 --> 00:45:25,720
as Goldman Sachs
and Morgan Stanley.

906
00:45:25,720 --> 00:45:30,310
Yodlee was acquired years ago
by a company called Envestnet.

907
00:45:30,310 --> 00:45:33,880
But Yodlee and Plaid, deep
competitors to each other.

908
00:45:33,880 --> 00:45:36,610
Well first, what
coverage do they have?

909
00:45:36,610 --> 00:45:39,560
As a startup, if I use
Plaid instead of Yodlee,

910
00:45:39,560 --> 00:45:42,820
can I get to all of the banks?

911
00:45:42,820 --> 00:45:45,460
What services do they
give me as a developer?

912
00:45:45,460 --> 00:45:46,840
Obviously, what price?

913
00:45:46,840 --> 00:45:47,740
Are they reliable?

914
00:45:47,740 --> 00:45:50,270
What's their security,
and the like?

915
00:45:50,270 --> 00:45:51,800
So all of these are important.

916
00:45:51,800 --> 00:45:55,360
And one of the sort of
incumbents in this space,

917
00:45:55,360 --> 00:45:58,030
Fiserv bought CashEdge.

918
00:45:58,030 --> 00:46:01,270
And Plaid was being
bought by Visa.

919
00:46:01,270 --> 00:46:03,550
So some of these get caught up.

920
00:46:03,550 --> 00:46:07,680
SaltEdge is in 55 countries.

921
00:46:07,680 --> 00:46:10,650
And then I did a little
research on a paper that

922
00:46:10,650 --> 00:46:12,390
was written three years ago--

923
00:46:12,390 --> 00:46:16,050
or it's really a website
that keeps a list.

924
00:46:16,050 --> 00:46:19,380
And I sort of put together--
this list is three years old.

925
00:46:19,380 --> 00:46:22,620
These are the
account aggregators

926
00:46:22,620 --> 00:46:23,910
in all of these countries.

927
00:46:23,910 --> 00:46:27,027
And I'm sorry, Camilo, I
don't see one for Colombia.

928
00:46:29,680 --> 00:46:33,730
But all of these
companies in some way

929
00:46:33,730 --> 00:46:36,070
built up a business
model to say,

930
00:46:36,070 --> 00:46:40,750
we will serve in these
various countries

931
00:46:40,750 --> 00:46:45,370
to be between the
incumbents and the startups.

932
00:46:45,370 --> 00:46:48,490
We will build some
business model in between.

933
00:46:51,380 --> 00:46:54,410
Now, what can you
do once you do that?

934
00:46:54,410 --> 00:46:56,370
You get a lot of data.

935
00:46:56,370 --> 00:46:59,670
And so what used to be
just a software company--

936
00:46:59,670 --> 00:47:03,920
Plaid, for instance,
started as, in essence, we

937
00:47:03,920 --> 00:47:07,190
can provide this software.

938
00:47:07,190 --> 00:47:11,830
Started to have remarkable
amounts of data.

939
00:47:11,830 --> 00:47:16,480
And that remarkable
amounts of data in Plaid--

940
00:47:16,480 --> 00:47:20,290
founded in 2013, sells
for $5.3 billion to Visa,

941
00:47:20,290 --> 00:47:24,520
or announces the sale,
only 450 employees.

942
00:47:24,520 --> 00:47:29,170
And Forbes estimates it's only
had $109 million of revenues.

943
00:47:29,170 --> 00:47:31,710
So that's nearly
50 times revenues.

944
00:47:31,710 --> 00:47:33,810
Quite a multiple.

945
00:47:33,810 --> 00:47:36,720
You might wonder why
Visa's doing this.

946
00:47:36,720 --> 00:47:40,170
This is from the Visa slides
that Visa announced in January.

947
00:47:40,170 --> 00:47:44,880
This is how they
sort of picture.

948
00:47:44,880 --> 00:47:45,840
They look at Plaid.

949
00:47:45,840 --> 00:47:53,540
They say, Plaid is connected
to 2,600 fintech firms.

950
00:47:53,540 --> 00:47:58,310
That's 2,600 fintech
firms connected to Plaid.

951
00:47:58,310 --> 00:48:00,950
And then Plaid on the
other side provides an API

952
00:48:00,950 --> 00:48:04,580
into 11,000 data sources--

953
00:48:04,580 --> 00:48:06,980
11,000 financial firms.

954
00:48:06,980 --> 00:48:10,790
2,600 fintech firms
connected to Plaid, Plaid

955
00:48:10,790 --> 00:48:13,390
connects to 11,000.

956
00:48:13,390 --> 00:48:15,400
Again, that's the classic
place you want to be.

957
00:48:15,400 --> 00:48:17,880
Plaid is at the bottleneck.

958
00:48:17,880 --> 00:48:21,250
Plaid is at the
gateway, you would say.

959
00:48:21,250 --> 00:48:24,550
And they can collect data
on 200 million users.

960
00:48:27,550 --> 00:48:29,440
Visa thinks there's
a value in that.

961
00:48:29,440 --> 00:48:30,370
We'll have to see.

962
00:48:30,370 --> 00:48:32,320
We'll have to see
whether that ends up

963
00:48:32,320 --> 00:48:35,200
being a good acquisition
for Visa or not.

964
00:48:35,200 --> 00:48:38,350
But these companies
in the middle--

965
00:48:38,350 --> 00:48:43,450
the Plaids, the Yodlees,
have right in the middle

966
00:48:43,450 --> 00:48:45,280
created value.

967
00:48:45,280 --> 00:48:47,050
Romain I'm going to
pause there and see

968
00:48:47,050 --> 00:48:49,610
if there's some discussion
that we can get going.

969
00:48:54,730 --> 00:48:58,280
PROFESSOR 2: [? Iqbal. ?]

970
00:48:58,280 --> 00:49:00,030
AUDIENCE: Yeah, professor.

971
00:49:00,030 --> 00:49:04,528
Can you shed some insight as to
the relationship between Plaid

972
00:49:04,528 --> 00:49:05,820
and the financial institutions?

973
00:49:05,820 --> 00:49:07,612
What's in it for the
financial institutions

974
00:49:07,612 --> 00:49:10,850
to face Plaid in reality?

975
00:49:10,850 --> 00:49:12,030
Were there fees involved?

976
00:49:14,580 --> 00:49:16,590
Because in the example
we looked at some

977
00:49:16,590 --> 00:49:19,490
for some Latin American
countries, such as Brazil,

978
00:49:19,490 --> 00:49:23,430
the incumbents are reluctant
to participate in open API.

979
00:49:23,430 --> 00:49:26,670
And it would be [INAUDIBLE].

980
00:49:26,670 --> 00:49:29,760
GARY GENSLER: It's
a terrific question.

981
00:49:29,760 --> 00:49:31,520
And I'm going to
apologize, because I'm

982
00:49:31,520 --> 00:49:35,726
going to slide back
here on the slides a bit

983
00:49:35,726 --> 00:49:40,140
to go back to something.

984
00:49:40,140 --> 00:49:42,960
This is what they want to avoid.

985
00:49:42,960 --> 00:49:47,160
Even the incumbents don't
want thousands of folks

986
00:49:47,160 --> 00:49:50,130
to enter into
contractual arrangements,

987
00:49:50,130 --> 00:49:53,580
enter into secure private APIs.

988
00:49:53,580 --> 00:49:56,250
Even the incumbents
want to sort of avoid

989
00:49:56,250 --> 00:49:59,610
this spaghetti wire of mess.

990
00:49:59,610 --> 00:50:06,150
Now, it might have been less
strategic and more incremental

991
00:50:06,150 --> 00:50:13,110
that when you think about all
these companies on this list--

992
00:50:13,110 --> 00:50:16,890
these 10 or 12 that have built
up these remarkable businesses,

993
00:50:16,890 --> 00:50:19,310
or around the globe all these--

994
00:50:19,310 --> 00:50:23,130
that many of these started
as small software providers.

995
00:50:23,130 --> 00:50:25,470
And they were saying
to the big incumbents,

996
00:50:25,470 --> 00:50:28,960
we can handle that
spaghetti wire.

997
00:50:28,960 --> 00:50:31,050
We can ensure that
people aren't just screen

998
00:50:31,050 --> 00:50:34,220
scraping and using RPA.

999
00:50:34,220 --> 00:50:36,450
It's going to happen anyway.

1000
00:50:36,450 --> 00:50:39,180
You need somebody
to help manage.

1001
00:50:39,180 --> 00:50:42,540
And so every modern
online company

1002
00:50:42,540 --> 00:50:45,390
in finance and
outside of finance

1003
00:50:45,390 --> 00:50:49,620
has to have an AP
management strategy.

1004
00:50:49,620 --> 00:50:55,020
You don't normally think about
something in the CEO suite,

1005
00:50:55,020 --> 00:50:57,930
this chief executive
officer who's managing this.

1006
00:50:57,930 --> 00:51:00,660
But here we are at MIT, I'd
like to bring this technology.

1007
00:51:00,660 --> 00:51:03,360
This is an important
technology question

1008
00:51:03,360 --> 00:51:06,000
that you need to be
asking is, how are we

1009
00:51:06,000 --> 00:51:09,510
managing our
developer community,

1010
00:51:09,510 --> 00:51:11,700
our public interface?

1011
00:51:11,700 --> 00:51:14,250
Are we going to
do it internally,

1012
00:51:14,250 --> 00:51:16,450
or are we going to hire a Plaid?

1013
00:51:16,450 --> 00:51:20,340
And I can tell you that
the banks now-- this

1014
00:51:20,340 --> 00:51:23,790
has happened in the last
four to seven years.

1015
00:51:23,790 --> 00:51:25,710
And many of the banks
are sort of saying,

1016
00:51:25,710 --> 00:51:26,970
this has gotten out of hand.

1017
00:51:26,970 --> 00:51:28,680
This has gotten out of control.

1018
00:51:28,680 --> 00:51:30,450
Is this something
that we really want

1019
00:51:30,450 --> 00:51:34,140
to allow the Plaids and
the Yodlees and others

1020
00:51:34,140 --> 00:51:38,020
to commercialize our data?

1021
00:51:38,020 --> 00:51:42,510
But I think that in part, it
was incrementally decisions

1022
00:51:42,510 --> 00:51:46,610
about how to manage
broadly this interface.

1023
00:51:46,610 --> 00:51:50,960
And it's also possible
that it wasn't far enough

1024
00:51:50,960 --> 00:51:54,110
up in the C-suite, and
it was sort of managed

1025
00:51:54,110 --> 00:51:56,810
down in some regards.

1026
00:51:56,810 --> 00:52:01,370
But one reaction is this
financial data exchange

1027
00:52:01,370 --> 00:52:02,390
that's happened here.

1028
00:52:02,390 --> 00:52:07,190
And I've listed the
major founders of FDX.

1029
00:52:07,190 --> 00:52:09,890
But Financial Data Exchange--
and this is straight from

1030
00:52:09,890 --> 00:52:12,140
their own white paper--

1031
00:52:12,140 --> 00:52:15,830
they want to create this group
of remarkably large banks.

1032
00:52:15,830 --> 00:52:23,330
I think the members of FDX have
$2 trillion of market value,

1033
00:52:23,330 --> 00:52:25,260
if I remember.

1034
00:52:25,260 --> 00:52:30,470
Because many of these actually
have $2 trillion balance

1035
00:52:30,470 --> 00:52:31,610
sheets.

1036
00:52:31,610 --> 00:52:33,523
When you add up all
of these companies,

1037
00:52:33,523 --> 00:52:34,940
they've come
together and said, we

1038
00:52:34,940 --> 00:52:38,540
want to create standards
for financial data sharing

1039
00:52:38,540 --> 00:52:41,090
and secure APIs.

1040
00:52:41,090 --> 00:52:45,950
We want to basically not sort of
have the Plaids and the others

1041
00:52:45,950 --> 00:52:47,780
commercialize our data.

1042
00:52:47,780 --> 00:52:52,790
Even though that's
not in FDX' mandate.

1043
00:52:56,180 --> 00:53:00,810
But in some regards, the
cat's already out of the barn.

1044
00:53:00,810 --> 00:53:03,710
And now they're
grappling with it.

1045
00:53:03,710 --> 00:53:08,670
But the JPMorgans and the
PNC actually, I believe--

1046
00:53:08,670 --> 00:53:13,560
which is a large
mid-sized bank in the US--

1047
00:53:13,560 --> 00:53:19,510
has stopped having Plaid have
access, if I'm not mistaken.

1048
00:53:19,510 --> 00:53:23,810
So it's sort of an interesting
challenge back and forth.

1049
00:53:23,810 --> 00:53:26,525
PROFESSOR 2: You now
have Geetha and then Lin.

1050
00:53:26,525 --> 00:53:29,150
GARY GENSLER: Geetha's from the
incumbent side going to tell us

1051
00:53:29,150 --> 00:53:32,170
why they're using the Plaids.

1052
00:53:32,170 --> 00:53:34,690
AUDIENCE: Yeah, I just wanted
to make a comment on Plaid

1053
00:53:34,690 --> 00:53:36,310
specifically.

1054
00:53:36,310 --> 00:53:39,940
We allow access to a number of
fintech lenders to our data,

1055
00:53:39,940 --> 00:53:41,680
because then we have no choice.

1056
00:53:41,680 --> 00:53:44,980
Because the customer is
providing access to their data,

1057
00:53:44,980 --> 00:53:49,030
and we have to allow
them to access it.

1058
00:53:49,030 --> 00:53:53,050
To somebody's question
earlier, the biggest problem

1059
00:53:53,050 --> 00:53:53,680
with Plaid--

1060
00:53:53,680 --> 00:53:55,420
and I'll probably
send some articles

1061
00:53:55,420 --> 00:53:59,830
on kind of issues between
Plaid and Capital One.

1062
00:53:59,830 --> 00:54:03,160
There was a period of time
when we stopped giving access

1063
00:54:03,160 --> 00:54:06,070
to Plaid, because
Plaid wouldn't comply

1064
00:54:06,070 --> 00:54:08,920
with any of the standards
that we imposed.

1065
00:54:08,920 --> 00:54:11,710
For example, we
needed fintech lenders

1066
00:54:11,710 --> 00:54:14,880
to come from certain IPs,
because they looked like bots,

1067
00:54:14,880 --> 00:54:15,380
right?

1068
00:54:15,380 --> 00:54:17,350
Because they do all
these batch accesses,

1069
00:54:17,350 --> 00:54:19,120
and they look like bots.

1070
00:54:19,120 --> 00:54:22,930
But Plaid wouldn't comply
with those standards,

1071
00:54:22,930 --> 00:54:27,280
and it became very difficult
for us to differentiate Plaid

1072
00:54:27,280 --> 00:54:30,220
from a bot.

1073
00:54:30,220 --> 00:54:33,790
And even though we had APIs,
they would do screen scraping.

1074
00:54:33,790 --> 00:54:36,070
Sometimes they would come
through our mobile channels.

1075
00:54:36,070 --> 00:54:38,195
Sometimes they would come
through our web channels.

1076
00:54:38,195 --> 00:54:40,540
They would come through any API.

1077
00:54:40,540 --> 00:54:43,090
It became really hard for
us to differentiate Plaid

1078
00:54:43,090 --> 00:54:46,300
from fraudsters.

1079
00:54:46,300 --> 00:54:48,700
So there was a period of
time when we blocked Plaid.

1080
00:54:48,700 --> 00:54:51,420
And then they came to the
table, we had conversations,

1081
00:54:51,420 --> 00:54:52,420
and then we let them in.

1082
00:54:54,950 --> 00:54:57,610
GARY GENSLER: And Geetha,
you were at Cap One?

1083
00:54:57,610 --> 00:54:58,480
AUDIENCE: Yes.

1084
00:54:58,480 --> 00:54:58,980
Yeah.

1085
00:54:58,980 --> 00:55:01,188
GARY GENSLER: So for those
who might not be familiar,

1086
00:55:01,188 --> 00:55:05,220
Cap One is one of the largest
credit card banks in the US,

1087
00:55:05,220 --> 00:55:11,460
competing head to head with Bank
of America and Citi and Chase,

1088
00:55:11,460 --> 00:55:15,180
Discover, and American
Express and so forth.

1089
00:55:15,180 --> 00:55:18,090
I sort of call it the Big Seven.

1090
00:55:18,090 --> 00:55:24,120
And Cap One's the largest
that isn't in and of itself

1091
00:55:24,120 --> 00:55:26,145
one of the big four
banks in the US.

1092
00:55:29,240 --> 00:55:31,110
So it's a remarkable
organization,

1093
00:55:31,110 --> 00:55:35,760
and it's cut out a big
chunk of its business model

1094
00:55:35,760 --> 00:55:39,575
around serving customers
in the credit card space.

1095
00:55:39,575 --> 00:55:40,950
And here you're
hearing Gita say,

1096
00:55:40,950 --> 00:55:46,680
but we didn't really have a
choice, is what you're saying.

1097
00:55:52,040 --> 00:55:53,670
Romane, others?

1098
00:55:53,670 --> 00:55:55,670
PROFESSOR 2: Let's go
with Lin, and then Carlos,

1099
00:55:55,670 --> 00:55:56,670
if we have time.

1100
00:55:56,670 --> 00:55:57,645
GARY GENSLER: Please.

1101
00:55:57,645 --> 00:55:58,270
AUDIENCE: Yeah.

1102
00:55:58,270 --> 00:56:02,360
So in the example for Plaid,
it seems like most of the data,

1103
00:56:02,360 --> 00:56:04,820
if not all of the data,
is financial data coming

1104
00:56:04,820 --> 00:56:06,440
from financial institutions.

1105
00:56:06,440 --> 00:56:08,690
I'm just curious to
hear your thoughts

1106
00:56:08,690 --> 00:56:12,270
on the market moving towards
using non-financial data.

1107
00:56:12,270 --> 00:56:15,200
So customer data in
the retail health

1108
00:56:15,200 --> 00:56:19,920
sector to inform or build
financial services upon,

1109
00:56:19,920 --> 00:56:22,135
and whether there are
any people doing that.

1110
00:56:22,135 --> 00:56:22,635
PROFESSOR 2:

1111
00:56:22,635 --> 00:56:26,450
GARY GENSLER: No, it's a
really good observation

1112
00:56:26,450 --> 00:56:30,530
that the data aggregators--

1113
00:56:30,530 --> 00:56:32,550
I'll go back a slide.

1114
00:56:32,550 --> 00:56:36,000
This whole cacophony
from three years

1115
00:56:36,000 --> 00:56:37,980
ago around the
globe, or the data

1116
00:56:37,980 --> 00:56:39,960
aggregators here in the US--

1117
00:56:39,960 --> 00:56:43,620
these big eight or 10
in the US and Europe--

1118
00:56:43,620 --> 00:56:45,930
these data aggregators
are largely

1119
00:56:45,930 --> 00:56:50,750
about financial data for now.

1120
00:56:50,750 --> 00:56:54,010
So their business
strategy-- these dozen

1121
00:56:54,010 --> 00:56:55,810
companies, their
business strategies

1122
00:56:55,810 --> 00:56:59,080
was sort of API first.

1123
00:56:59,080 --> 00:57:03,370
They built an API upon which
they got a network advantage

1124
00:57:03,370 --> 00:57:06,400
to get a lot of financial data.

1125
00:57:06,400 --> 00:57:09,950
But it is also true that
they could add other data.

1126
00:57:09,950 --> 00:57:13,120
And in fact, Plaid
gets bought by Visa.

1127
00:57:13,120 --> 00:57:15,640
Yodlee got bought by Envestnet.

1128
00:57:15,640 --> 00:57:21,730
And Envestnet is also in asset
management and fund management

1129
00:57:21,730 --> 00:57:23,210
and so forth.

1130
00:57:23,210 --> 00:57:24,550
I believe you're right.

1131
00:57:24,550 --> 00:57:25,960
Your observation is right.

1132
00:57:25,960 --> 00:57:31,010
A lot of these "API first,
data aggregator second"

1133
00:57:31,010 --> 00:57:35,300
are also going to be adding
other non-financial data.

1134
00:57:35,300 --> 00:57:37,880
Alternative data, as
we've talked about,

1135
00:57:37,880 --> 00:57:40,700
can come from finance,
like whether you're paying

1136
00:57:40,700 --> 00:57:42,740
your utility bill or not.

1137
00:57:42,740 --> 00:57:46,370
It can come from finance
and building full cash flow

1138
00:57:46,370 --> 00:57:47,990
underwriting models.

1139
00:57:47,990 --> 00:57:51,860
But it also can be your
social media footprint.

1140
00:57:51,860 --> 00:57:53,120
And it often is.

1141
00:57:53,120 --> 00:57:55,490
Alternative data is
about your social media

1142
00:57:55,490 --> 00:58:00,200
input and your
footprint, I should say.

1143
00:58:00,200 --> 00:58:01,430
Your footprint.

1144
00:58:01,430 --> 00:58:04,070
So I think you're right.

1145
00:58:04,070 --> 00:58:09,750
Their comparative advantage
is around this financial data.

1146
00:58:09,750 --> 00:58:16,910
Plaid, that's their advantage.

1147
00:58:16,910 --> 00:58:21,320
I want to note one company
that's on this list here,

1148
00:58:21,320 --> 00:58:23,590
I think I included, was Galileo.

1149
00:58:23,590 --> 00:58:24,090
Did I?

1150
00:58:24,090 --> 00:58:25,880
Yeah, I included Galileo.

1151
00:58:25,880 --> 00:58:28,730
Galileo has done a
recent fundraising round

1152
00:58:28,730 --> 00:58:31,670
in the middle of 2019.

1153
00:58:31,670 --> 00:58:32,960
It's still private.

1154
00:58:32,960 --> 00:58:36,007
I think their valuation
was $1.2 billion.

1155
00:58:36,007 --> 00:58:37,340
Might have been a little higher.

1156
00:58:37,340 --> 00:58:39,260
I can't recall the figure.

1157
00:58:39,260 --> 00:58:40,460
So it's a unicorn.

1158
00:58:40,460 --> 00:58:42,650
Not many of us have
heard of Galileo.

1159
00:58:42,650 --> 00:58:44,340
But two of their big customers--

1160
00:58:44,340 --> 00:58:47,990
Chime is one.

1161
00:58:47,990 --> 00:58:51,170
I'll just say, Chime is
one fintech company that's

1162
00:58:51,170 --> 00:58:52,790
one of their big customers.

1163
00:58:52,790 --> 00:58:55,610
Last year, Galileo had a glitch.

1164
00:58:55,610 --> 00:58:58,370
And Chime went
down for 24 hours,

1165
00:58:58,370 --> 00:59:03,150
because Galileo's standards
in API had a glitch.

1166
00:59:03,150 --> 00:59:06,170
So sometimes, you're
that fintech startup

1167
00:59:06,170 --> 00:59:10,560
relying upon a Galileo,
in that instance.

1168
00:59:10,560 --> 00:59:16,070
And if Galileo software has a
problem, you have a problem.

1169
00:59:16,070 --> 00:59:21,170
So there's that challenge
too in the midst of this.

1170
00:59:21,170 --> 00:59:23,630
Marqeta has done a
fundraising round.

1171
00:59:23,630 --> 00:59:26,240
I think its valuation
is about $2 billion.

1172
00:59:26,240 --> 00:59:32,450
Again, still private, still in
the venture land, and so forth.

1173
00:59:32,450 --> 00:59:37,620
So there's significant
value that has been built,

1174
00:59:37,620 --> 00:59:40,230
API first, data
aggregation second.

1175
00:59:40,230 --> 00:59:42,600
And these companies
are all somewhere

1176
00:59:42,600 --> 00:59:45,810
between the incumbents and
the developer community

1177
00:59:45,810 --> 00:59:48,170
and the startups.

1178
00:59:48,170 --> 00:59:50,150
Back to the class, Romain?

1179
00:59:50,150 --> 00:59:52,160
PROFESSOR 2: Carlos is up.

1180
00:59:52,160 --> 00:59:53,440
AUDIENCE: Hi.

1181
00:59:53,440 --> 00:59:55,780
So I just want to give
an example of a shout

1182
00:59:55,780 --> 00:59:57,340
out to Plaid,
really, for something

1183
00:59:57,340 --> 00:59:58,507
they're doing at the moment.

1184
00:59:58,507 --> 01:00:01,990
So as part of the SBA PPP
program for emergency funding

1185
01:00:01,990 --> 01:00:04,850
for small businesses with
the whole corona crisis,

1186
01:00:04,850 --> 01:00:07,263
there's $200 billion being
disbursed over the course

1187
01:00:07,263 --> 01:00:07,930
of three months.

1188
01:00:07,930 --> 01:00:09,463
And actually probably
this Thursday

1189
01:00:09,463 --> 01:00:11,380
there's going to be an
additional $200 billion

1190
01:00:11,380 --> 01:00:12,830
approved.

1191
01:00:12,830 --> 01:00:13,750
$250, sorry.

1192
01:00:13,750 --> 01:00:15,640
So what Plaid is doing
is they're actually

1193
01:00:15,640 --> 01:00:18,640
helping, because of their
role as a data aggregator,

1194
01:00:18,640 --> 01:00:22,630
to populate the payroll portion
of these loan applications,

1195
01:00:22,630 --> 01:00:25,020
because a lot of banks are
trying to do it manually,

1196
01:00:25,020 --> 01:00:27,220
which is completely
infeasible, given

1197
01:00:27,220 --> 01:00:29,660
the massive size of the
rollout that they're proposing.

1198
01:00:29,660 --> 01:00:32,230
So thanks to Plaid and
what they're trying to do,

1199
01:00:32,230 --> 01:00:34,630
at least, a lot of
loans can be approved,

1200
01:00:34,630 --> 01:00:37,937
or at least applications
submitted exponentially faster.

1201
01:00:37,937 --> 01:00:40,020
And that can make a huge
difference for businesses

1202
01:00:40,020 --> 01:00:41,860
to survive.

1203
01:00:41,860 --> 01:00:44,440
GARY GENSLER: And I thank you
for bringing that information

1204
01:00:44,440 --> 01:00:44,940
in.

1205
01:00:44,940 --> 01:00:46,510
Do you work with Plaid?

1206
01:00:46,510 --> 01:00:47,770
Or have you worked there?

1207
01:00:47,770 --> 01:00:50,265
Or is this something you're
reading about online?

1208
01:00:50,265 --> 01:00:51,640
AUDIENCE: So I've
been following,

1209
01:00:51,640 --> 01:00:53,920
because I work for a
fintech-focused VC that

1210
01:00:53,920 --> 01:00:56,700
actually invested in Quovo,
which was acquired by Plaid.

1211
01:00:56,700 --> 01:00:58,840
So I know the model pretty well.

1212
01:00:58,840 --> 01:01:02,410
GARY GENSLER: These companies
have brought a great deal

1213
01:01:02,410 --> 01:01:04,690
more financial inclusion.

1214
01:01:04,690 --> 01:01:07,510
These companies have opened
up the banking sector,

1215
01:01:07,510 --> 01:01:08,410
to some extent.

1216
01:01:08,410 --> 01:01:10,330
And now the banking
sector was probably

1217
01:01:10,330 --> 01:01:13,270
going to be opened up
by competitive pressures

1218
01:01:13,270 --> 01:01:15,430
in any regard.

1219
01:01:15,430 --> 01:01:20,900
But with the Plaids,
earlier Stripe, the Galileos

1220
01:01:20,900 --> 01:01:23,350
and the Yodlees and
others, what they've done

1221
01:01:23,350 --> 01:01:25,690
is they've brought
some standardization

1222
01:01:25,690 --> 01:01:28,840
to that spaghetti wire
that I put earlier--

1223
01:01:28,840 --> 01:01:31,470
these interfaces.

1224
01:01:31,470 --> 01:01:34,180
They're in the weeds.

1225
01:01:34,180 --> 01:01:39,423
To some of us, it might
just be mundane connections.

1226
01:01:39,423 --> 01:01:40,090
But they're not.

1227
01:01:40,090 --> 01:01:43,640
They're really, really
important connections.

1228
01:01:43,640 --> 01:01:46,480
And I would say if you take
anything out of this lecture

1229
01:01:46,480 --> 01:01:49,210
and moving forward, if
you're at an incumbent

1230
01:01:49,210 --> 01:01:52,870
or you're at a startup,
that you sort of think

1231
01:01:52,870 --> 01:01:54,920
about your API strategy.

1232
01:01:54,920 --> 01:01:56,290
What is it?

1233
01:01:56,290 --> 01:01:59,600
You might not manage it, but
it's good to know what it is.

1234
01:01:59,600 --> 01:02:03,800
You might know what your
competitors view of it.

1235
01:02:03,800 --> 01:02:08,350
But I agree with Carlos that
in this time of crisis--

1236
01:02:08,350 --> 01:02:12,670
the corona crisis in the US, the
program that he's referencing,

1237
01:02:12,670 --> 01:02:19,180
was of this $2 trillion package
that Congress just passed,

1238
01:02:19,180 --> 01:02:23,570
there was $350 billion
to fund small businesses.

1239
01:02:23,570 --> 01:02:25,590
They have to be 500
employees or less.

1240
01:02:25,590 --> 01:02:28,750
But small businesses.

1241
01:02:28,750 --> 01:02:34,233
It's called a Payroll
Protection Program, PPP.

1242
01:02:34,233 --> 01:02:36,150
And through the Small
Business Administration,

1243
01:02:36,150 --> 01:02:40,570
it guarantees the
banking sector can

1244
01:02:40,570 --> 01:02:42,580
make loans that are forgiven.

1245
01:02:42,580 --> 01:02:47,430
So they're forgivable loans
up to $10 million a piece.

1246
01:02:47,430 --> 01:02:49,680
They're a loan,
but they're really

1247
01:02:49,680 --> 01:02:53,580
a grant if you can show
in your application

1248
01:02:53,580 --> 01:02:58,030
that the money is going
to support employment.

1249
01:02:58,030 --> 01:03:03,060
And there's various
conditions and conditionality.

1250
01:03:03,060 --> 01:03:04,830
And so what Carlos
is talking about

1251
01:03:04,830 --> 01:03:08,370
is in the loan applications,
the loan applications

1252
01:03:08,370 --> 01:03:10,680
were first being filed
I think last Friday,

1253
01:03:10,680 --> 01:03:12,780
but it might have
been over the weekend.

1254
01:03:12,780 --> 01:03:16,020
And these loan applications had
to go through your employment

1255
01:03:16,020 --> 01:03:19,260
and show who you had earning
less than a certain amount

1256
01:03:19,260 --> 01:03:20,980
of dollars per employee.

1257
01:03:20,980 --> 01:03:22,367
So a lot of data.

1258
01:03:22,367 --> 01:03:22,950
A lot of data.

1259
01:03:22,950 --> 01:03:25,200
And it sounds like
Plaid is actually

1260
01:03:25,200 --> 01:03:28,250
helping facilitate
that, in some regard.

1261
01:03:28,250 --> 01:03:28,860
So thank you.

1262
01:03:34,010 --> 01:03:34,550
Romain.

1263
01:03:34,550 --> 01:03:37,820
I think I'm getting close to
that 15 minute warning time.

1264
01:03:37,820 --> 01:03:39,860
But is there another
question, or are we

1265
01:03:39,860 --> 01:03:41,780
just going to move
on to robotic process

1266
01:03:41,780 --> 01:03:42,860
automation for a minute?

1267
01:03:42,860 --> 01:03:44,360
PROFESSOR 2: I think
we can move on.

1268
01:03:44,360 --> 01:03:46,820
And indeed, we have
17 minutes left.

1269
01:03:46,820 --> 01:03:47,960
GARY GENSLER: All right.

1270
01:03:47,960 --> 01:03:49,910
So let me just
pause for a minute

1271
01:03:49,910 --> 01:03:52,700
again on financial
data exchange.

1272
01:03:52,700 --> 01:03:56,280
I'm not close
enough to it to know

1273
01:03:56,280 --> 01:03:58,020
where they are in
their development.

1274
01:03:58,020 --> 01:04:02,590
But basically, a large set
of big incumbents-- and I've

1275
01:04:02,590 --> 01:04:05,860
just put a visual of
their principal members.

1276
01:04:05,860 --> 01:04:09,370
But then they have behind
this another 50 or 100 second

1277
01:04:09,370 --> 01:04:10,600
tier members.

1278
01:04:10,600 --> 01:04:13,830
And by second tier,
this is the group

1279
01:04:13,830 --> 01:04:17,800
that's primarily running its
board of directors and sort

1280
01:04:17,800 --> 01:04:19,150
of coordinating.

1281
01:04:19,150 --> 01:04:23,230
And it has all the big US
banks on here, the largest--

1282
01:04:23,230 --> 01:04:25,160
Quicken Loans,
which is the largest

1283
01:04:25,160 --> 01:04:28,030
in mortgage lending
in the US, and CIFBA,

1284
01:04:28,030 --> 01:04:30,633
which is the trade association.

1285
01:04:30,633 --> 01:04:32,050
They're coming
together to say, we

1286
01:04:32,050 --> 01:04:35,110
need to standardize financial
data sharing standards

1287
01:04:35,110 --> 01:04:41,200
for secure authentication and
how this user experience works.

1288
01:04:41,200 --> 01:04:42,520
But part of it--

1289
01:04:42,520 --> 01:04:44,530
well, part of it is
the incumbents sort

1290
01:04:44,530 --> 01:04:49,403
of trying to reclaim a
little bit of the territory.

1291
01:04:49,403 --> 01:04:51,820
I don't think the cat's going
to be able to be pushed back

1292
01:04:51,820 --> 01:04:55,210
into the barn, so to speak.

1293
01:04:55,210 --> 01:04:57,320
Or you might say the
horse is out of the barn,

1294
01:04:57,320 --> 01:04:59,170
and I won't use the cat.

1295
01:04:59,170 --> 01:05:03,310
But I think that this is an
interesting dynamic that's

1296
01:05:03,310 --> 01:05:05,440
going on right now.

1297
01:05:05,440 --> 01:05:09,010
Now, you put that in the
context of what we talked about,

1298
01:05:09,010 --> 01:05:10,930
robotic process automation.

1299
01:05:10,930 --> 01:05:16,200
Robotic process automation
can be used in a positive way

1300
01:05:16,200 --> 01:05:19,830
by the incumbents and
by the startups to do

1301
01:05:19,830 --> 01:05:24,480
account opening, onboarding,
as we talked about earlier,

1302
01:05:24,480 --> 01:05:26,040
loan processing.

1303
01:05:26,040 --> 01:05:29,310
Anything that you
can take and automate

1304
01:05:29,310 --> 01:05:32,810
that which humans are doing.

1305
01:05:32,810 --> 01:05:35,690
And I'm not sort of
moving into chat bots

1306
01:05:35,690 --> 01:05:38,690
and the conversational
interfaces

1307
01:05:38,690 --> 01:05:40,340
that we've already spoken about.

1308
01:05:40,340 --> 01:05:44,690
I'm talking about the more
standardized documents,

1309
01:05:44,690 --> 01:05:49,550
reading the documents,
and opening the accounts,

1310
01:05:49,550 --> 01:05:52,850
and, as was mentioned
earlier and I maybe

1311
01:05:52,850 --> 01:05:54,380
should have put
on this list, also

1312
01:05:54,380 --> 01:05:59,070
compliance for any
money laundering

1313
01:05:59,070 --> 01:06:00,590
and Know Your Customer.

1314
01:06:00,590 --> 01:06:02,660
Those are very positive ways.

1315
01:06:02,660 --> 01:06:05,960
But it's also a way
that challenger banks

1316
01:06:05,960 --> 01:06:10,020
and challengers can use
it to scrape the data

1317
01:06:10,020 --> 01:06:12,960
and pull the data out
of the incumbents,

1318
01:06:12,960 --> 01:06:16,350
as long as a customer
permissions it.

1319
01:06:16,350 --> 01:06:23,290
So it's sort of both of those
sides in a very positive way

1320
01:06:23,290 --> 01:06:26,440
across the entire
field of finance--

1321
01:06:26,440 --> 01:06:29,410
a very positive way that
we can automate that which

1322
01:06:29,410 --> 01:06:31,740
humans are doing in the past.

1323
01:06:31,740 --> 01:06:36,910
This is frankly just the same
as when the tractor came along

1324
01:06:36,910 --> 01:06:39,670
and we were automating
what humans and the horse

1325
01:06:39,670 --> 01:06:42,580
and the cow and the oxen
were doing in the field.

1326
01:06:42,580 --> 01:06:45,550
We can automate that
which the human does.

1327
01:06:45,550 --> 01:06:48,180
But it changes the way that--

1328
01:06:48,180 --> 01:06:52,020
the sort of dynamic between
incumbents and startups.

1329
01:06:55,820 --> 01:06:59,660
And then I want to pause and
see if there are questions.

1330
01:06:59,660 --> 01:07:02,905
And then I wanted to say bit
on assignments, and then close.

1331
01:07:02,905 --> 01:07:05,030
PROFESSOR 2: We have a
question in the chat for you

1332
01:07:05,030 --> 01:07:08,510
from Alex, a Sloan
fellow, who tells us

1333
01:07:08,510 --> 01:07:11,210
that one of the readings
one of the authors

1334
01:07:11,210 --> 01:07:14,130
ends with consumer will access
financial services from one

1335
01:07:14,130 --> 01:07:15,590
central hub.

1336
01:07:15,590 --> 01:07:17,900
But then another author
in another reading

1337
01:07:17,900 --> 01:07:21,230
speaks of another trend
of embedded fintech.

1338
01:07:21,230 --> 01:07:22,820
So which ones of
these perspectives

1339
01:07:22,820 --> 01:07:25,940
would you tend to agree with?

1340
01:07:25,940 --> 01:07:28,880
GARY GENSLER: Well Alex,
I think that's the debate.

1341
01:07:28,880 --> 01:07:35,960
And I think you probably could
guess that I'm at neither end.

1342
01:07:35,960 --> 01:07:46,200
I don't think that we'll end
up with truly decentralized

1343
01:07:46,200 --> 01:07:48,720
and we can sort of disaggregate.

1344
01:07:48,720 --> 01:07:50,520
We had this discussion
a little earlier.

1345
01:07:50,520 --> 01:07:52,950
Will it be completely unbundled?

1346
01:07:52,950 --> 01:07:53,920
I don't think so.

1347
01:07:53,920 --> 01:08:00,690
I think there's still going to
be economic benefits to scale.

1348
01:08:00,690 --> 01:08:03,440
Sometimes that's driven
by balance sheet.

1349
01:08:03,440 --> 01:08:08,690
The balance sheet financing
side leads to scale,

1350
01:08:08,690 --> 01:08:12,530
though securitization and
asset securitization as a way

1351
01:08:12,530 --> 01:08:14,620
to rent somebody
else's balance sheet

1352
01:08:14,620 --> 01:08:17,870
and to sort of lay off
that risk to somebody else.

1353
01:08:17,870 --> 01:08:21,260
But I think that there's a
lot of reasons that scale

1354
01:08:21,260 --> 01:08:23,120
and network effects--

1355
01:08:23,120 --> 01:08:25,910
balance sheet being one of
the network effects, data

1356
01:08:25,910 --> 01:08:29,029
being another network
effect, customer user

1357
01:08:29,029 --> 01:08:31,399
interface another
network effect--

1358
01:08:31,399 --> 01:08:36,290
that there's benefits
to some scale,

1359
01:08:36,290 --> 01:08:38,810
that there will be
some concentration.

1360
01:08:38,810 --> 01:08:40,520
Will there be one portal?

1361
01:08:40,520 --> 01:08:43,700
Will we go all the
way to one portal?

1362
01:08:43,700 --> 01:08:47,120
Will it be that
Amazon will sort of

1363
01:08:47,120 --> 01:08:53,000
be the one place I go to for all
of my online financial needs?

1364
01:08:53,000 --> 01:08:55,220
Jeff Bezos might have
a strategy that way.

1365
01:08:55,220 --> 01:08:57,439
You might write papers that way.

1366
01:08:57,439 --> 01:08:59,450
I would caution that
I think that there

1367
01:08:59,450 --> 01:09:02,270
will be some
competitive pressures

1368
01:09:02,270 --> 01:09:04,310
and economic pressures
on the other side--

1369
01:09:04,310 --> 01:09:07,220
that we'll still have
some disaggregation.

1370
01:09:07,220 --> 01:09:10,460
For instance, in
country after country,

1371
01:09:10,460 --> 01:09:13,189
for decades, there's
been the debate

1372
01:09:13,189 --> 01:09:16,670
whether insurance products will
be sold by banks and banking

1373
01:09:16,670 --> 01:09:18,920
products by insurance firms.

1374
01:09:18,920 --> 01:09:20,760
And for some reason
around the globe

1375
01:09:20,760 --> 01:09:23,840
by and large, we still
see this separation.

1376
01:09:23,840 --> 01:09:26,930
Some of it's just
legacy and history.

1377
01:09:26,930 --> 01:09:29,180
Some of it is regulation.

1378
01:09:29,180 --> 01:09:31,220
But it's also how we
think of the products,

1379
01:09:31,220 --> 01:09:35,630
that we think of buying
our life insurance

1380
01:09:35,630 --> 01:09:38,323
or our household insurance
or auto insurance

1381
01:09:38,323 --> 01:09:39,740
a little differently
than we think

1382
01:09:39,740 --> 01:09:41,779
about funding the same things.

1383
01:09:41,779 --> 01:09:46,609
Funding our house is called a
mortgage and funding our car

1384
01:09:46,609 --> 01:09:49,880
is what's called an auto loan.

1385
01:09:49,880 --> 01:09:53,359
Now, it's true in some
countries, it's come together.

1386
01:09:53,359 --> 01:09:55,580
But by and large,
it's not one portal.

1387
01:09:58,870 --> 01:10:01,170
But Alex, do you
have a point of view?

1388
01:10:01,170 --> 01:10:03,810
Did you did you feel strongly
one way or the other,

1389
01:10:03,810 --> 01:10:05,740
if you're there still?

1390
01:10:05,740 --> 01:10:13,590
AUDIENCE: I think the embedded
fintech is quite insightful,

1391
01:10:13,590 --> 01:10:16,590
because nowadays
that people talk

1392
01:10:16,590 --> 01:10:20,490
about customer-centric
ideas even more than before,

1393
01:10:20,490 --> 01:10:24,390
because we have more data to
provide relevant services.

1394
01:10:24,390 --> 01:10:29,580
But the thing is that when we
talk about the jobs to be done,

1395
01:10:29,580 --> 01:10:32,580
financial services are
not actually the job.

1396
01:10:32,580 --> 01:10:38,340
The ultimate job you want to
get done, you want to buy house,

1397
01:10:38,340 --> 01:10:40,620
so you need a loan.

1398
01:10:40,620 --> 01:10:45,060
Which means that maybe it makes
sense, some of the services

1399
01:10:45,060 --> 01:10:46,360
will be the second layer.

1400
01:10:46,360 --> 01:10:49,840
I mean, be embedded into
those jobs that really need

1401
01:10:49,840 --> 01:10:51,952
to be done by the customers.

1402
01:10:51,952 --> 01:10:53,910
GARY GENSLER: I want to
say this about embedded

1403
01:10:53,910 --> 01:10:57,840
finance and this concept
that was in the article.

1404
01:10:57,840 --> 01:11:00,990
And I'm glad you reminded
me of this, Alex.

1405
01:11:00,990 --> 01:11:03,690
I do think that we're
going to see more

1406
01:11:03,690 --> 01:11:05,030
what's called embedded finance.

1407
01:11:05,030 --> 01:11:08,710
And by that term,
what I take from it--

1408
01:11:08,710 --> 01:11:10,390
and it's not a
well-defined term.

1409
01:11:10,390 --> 01:11:12,550
You can't look at a
Webster's dictionary

1410
01:11:12,550 --> 01:11:14,620
and say what's embedded finance.

1411
01:11:14,620 --> 01:11:20,560
But what I take from that term
is that non-financial firms

1412
01:11:20,560 --> 01:11:23,350
will embed some
aspect of finance

1413
01:11:23,350 --> 01:11:25,420
in their product offering.

1414
01:11:25,420 --> 01:11:26,890
Not a new concept.

1415
01:11:26,890 --> 01:11:30,040
Even the local grocery
store in the 19th century

1416
01:11:30,040 --> 01:11:34,890
was saying you can buy your
groceries and pay tomorrow.

1417
01:11:34,890 --> 01:11:36,670
You know, that local merchant.

1418
01:11:36,670 --> 01:11:40,300
And that led over 50 or 70
years to the modern credit

1419
01:11:40,300 --> 01:11:46,390
card being invented in the 1940s
and taking off by the 1960s.

1420
01:11:46,390 --> 01:11:49,230
So we've had some concepts
of embedded finance.

1421
01:11:49,230 --> 01:11:52,530
But I think that the
modern technology

1422
01:11:52,530 --> 01:11:57,720
will provide more alternatives
to embed a payment mechanism

1423
01:11:57,720 --> 01:11:59,380
or a lending mechanism.

1424
01:11:59,380 --> 01:12:01,800
And those will be the
two principal things.

1425
01:12:01,800 --> 01:12:06,230
Some aspect of a loan or
some aspect of payment right

1426
01:12:06,230 --> 01:12:07,890
in an app.

1427
01:12:07,890 --> 01:12:11,460
In a sense, like
Uber and Lyft does.

1428
01:12:11,460 --> 01:12:16,850
In a sense, like of
point-of-sale lending--

1429
01:12:16,850 --> 01:12:21,140
that I can buy
something online and pay

1430
01:12:21,140 --> 01:12:25,700
on installment over
four or six payments,

1431
01:12:25,700 --> 01:12:28,870
maybe over multiple months.

1432
01:12:28,870 --> 01:12:32,170
I think embedded
finance is a trend.

1433
01:12:32,170 --> 01:12:37,940
I also do think that because
of this API movement--

1434
01:12:37,940 --> 01:12:40,660
and this is a way
to close on APIs--

1435
01:12:40,660 --> 01:12:44,170
that startups can
provide services in a way

1436
01:12:44,170 --> 01:12:46,270
they couldn't in the past.

1437
01:12:46,270 --> 01:12:48,460
That a Robinhood
could come along--

1438
01:12:48,460 --> 01:12:50,380
and we'll talk about
Robinhood more when

1439
01:12:50,380 --> 01:12:51,820
we talk about capital markets.

1440
01:12:51,820 --> 01:12:54,400
But a Robinhood could
come along and say,

1441
01:12:54,400 --> 01:12:58,210
we offer that you can
open brokerage accounts

1442
01:12:58,210 --> 01:13:01,690
on this handheld device.

1443
01:13:01,690 --> 01:13:05,110
You can scan your documents
using robotic process

1444
01:13:05,110 --> 01:13:07,180
automation and natural
language processing.

1445
01:13:07,180 --> 01:13:11,250
You can scan your documents
by taking a picture

1446
01:13:11,250 --> 01:13:15,420
from your phone, open
a brokerage account,

1447
01:13:15,420 --> 01:13:19,920
and trade automatically,
interfacing-- there's probably

1448
01:13:19,920 --> 01:13:23,730
dozens of APIs that stand
between your Robinhood

1449
01:13:23,730 --> 01:13:26,970
app and the New
York Stock Exchange.

1450
01:13:26,970 --> 01:13:28,890
And it's not just
Robinhood directly

1451
01:13:28,890 --> 01:13:30,210
to the New York Stock Exchange.

1452
01:13:30,210 --> 01:13:34,780
There's multiple
interfaces in between.

1453
01:13:34,780 --> 01:13:39,210
So I think it's facilitated a
remarkable shift in finance,

1454
01:13:39,210 --> 01:13:43,230
that we can do those things
right on our cell phones.

1455
01:13:43,230 --> 01:13:48,810
And embedded finance and
these APIs relate to it.

1456
01:13:48,810 --> 01:13:50,850
I'm just not quite
there that it will all

1457
01:13:50,850 --> 01:13:54,090
be bundled up into
one service provider,

1458
01:13:54,090 --> 01:13:56,678
or that it will
all be fragmented.

1459
01:13:56,678 --> 01:13:58,470
I think we'll have a
little bit in between.

1460
01:14:02,080 --> 01:14:04,080
I just want to mention
something on assignments,

1461
01:14:04,080 --> 01:14:06,060
because the April 8th.

1462
01:14:06,060 --> 01:14:09,870
Again, assignments--
particularly at this stage,

1463
01:14:09,870 --> 01:14:13,800
where we're pass emergency,
no credit emergency,

1464
01:14:13,800 --> 01:14:16,770
or sort of colloquially
pass/fail--

1465
01:14:16,770 --> 01:14:19,560
assignments are a great way
to engage in this subject.

1466
01:14:19,560 --> 01:14:23,490
I think of that even when we
have A's and B's and things

1467
01:14:23,490 --> 01:14:24,780
like that.

1468
01:14:24,780 --> 01:14:27,570
I just really ask you to
engage in this subject.

1469
01:14:27,570 --> 01:14:31,260
Pick some subject that
interests you, that excites you,

1470
01:14:31,260 --> 01:14:33,690
and you want to write
to an incumbent,

1471
01:14:33,690 --> 01:14:38,490
to a big tech firm like
Amazon or Andreessen Horowitz.

1472
01:14:38,490 --> 01:14:42,270
Which Andreessen Horowitz owns a
slice of a lot of the companies

1473
01:14:42,270 --> 01:14:44,850
we've been talking
about already.

1474
01:14:44,850 --> 01:14:48,060
I mean, they're a remarkable
venture capital firm.

1475
01:14:48,060 --> 01:14:51,900
And just think of some
sort of strategy around it.

1476
01:14:51,900 --> 01:14:53,880
The individual
papers are just a way

1477
01:14:53,880 --> 01:14:56,340
to break up the
assignment in a way

1478
01:14:56,340 --> 01:14:58,410
that one person
would write about it.

1479
01:14:58,410 --> 01:15:01,050
Overall market
analysis, somebody

1480
01:15:01,050 --> 01:15:02,850
doing the technological trends.

1481
01:15:02,850 --> 01:15:10,120
If you pick that you're writing
to Amazon about, let's say,

1482
01:15:10,120 --> 01:15:14,580
the consumer lending space, what
are the technological trends

1483
01:15:14,580 --> 01:15:18,180
really doing to that space?

1484
01:15:18,180 --> 01:15:19,920
Who are the
traditional competitors

1485
01:15:19,920 --> 01:15:21,990
and who are the big
tech competitors?

1486
01:15:21,990 --> 01:15:26,850
And just breaking it up three or
four pages, 900 to 1,200 words.

1487
01:15:26,850 --> 01:15:30,473
Again, we're just helping you
kind of engage in a subject.

1488
01:15:30,473 --> 01:15:32,640
PROFESSOR 2: Perhaps you
can answer another question

1489
01:15:32,640 --> 01:15:35,015
that I've received from a
student who does not understand

1490
01:15:35,015 --> 01:15:36,135
how Plaid makes money.

1491
01:15:36,135 --> 01:15:37,260
What is the business model?

1492
01:15:40,560 --> 01:15:42,950
GARY GENSLER: With only $110
million in revenues-- now,

1493
01:15:42,950 --> 01:15:45,050
that's a Forbes estimate--

1494
01:15:45,050 --> 01:15:46,300
you sort of go, wait a minute?

1495
01:15:46,300 --> 01:15:47,680
How does this work?

1496
01:15:47,680 --> 01:15:51,020
But how the space makes money--

1497
01:15:51,020 --> 01:15:56,030
not just Plaid, but
how API companies make

1498
01:15:56,030 --> 01:16:02,150
money in finance and outside of
finance is they do charge fees.

1499
01:16:02,150 --> 01:16:05,750
I apologize, I don't know if
it's a penny a transaction

1500
01:16:05,750 --> 01:16:06,560
or what it is.

1501
01:16:06,560 --> 01:16:08,770
And maybe somebody on
this call actually knows--

1502
01:16:08,770 --> 01:16:12,560
Gita or others know their
actual revenue model.

1503
01:16:12,560 --> 01:16:18,560
But charging a very small
fraction of money per trade.

1504
01:16:18,560 --> 01:16:21,650
And then what they do
is data aggregation.

1505
01:16:21,650 --> 01:16:24,260
And with that data
in other fields,

1506
01:16:24,260 --> 01:16:26,960
then you try to see how
you can commercialize

1507
01:16:26,960 --> 01:16:34,430
that data by cross-selling
either directly.

1508
01:16:34,430 --> 01:16:36,350
Or remember, a lot
of these companies

1509
01:16:36,350 --> 01:16:40,640
like Plaid and Galileo
and others are in between.

1510
01:16:40,640 --> 01:16:45,170
They're behind the scenes,
between one side of the market

1511
01:16:45,170 --> 01:16:47,040
and another side of the market.

1512
01:16:47,040 --> 01:16:50,780
But when you create
that like Twilio,

1513
01:16:50,780 --> 01:16:56,630
Twilio is an 80% market share
between voice and messaging

1514
01:16:56,630 --> 01:16:59,300
and things like that--
in the US, at least.

1515
01:16:59,300 --> 01:17:01,190
So all of a sudden,
then you can either

1516
01:17:01,190 --> 01:17:03,500
enhance your fee
structure, because you're

1517
01:17:03,500 --> 01:17:07,090
such dominant
oligopolies, sort of.

1518
01:17:07,090 --> 01:17:09,190
You can collect economic rent.

1519
01:17:09,190 --> 01:17:11,020
Or you commercialize the data.

1520
01:17:11,020 --> 01:17:13,720
And it's the data
aggregation side--

1521
01:17:13,720 --> 01:17:18,340
I think Visa's paying what
might be 25 or 50 times revenues

1522
01:17:18,340 --> 01:17:21,190
for that data aggregation side.