Transcript
Coming at you from Cornerstone’s Plugged In studio, I’m your host, Al Dominick, and I have quite the treat today: a conversation with the brand-new head of the Consumer Bankers Association, Lindsey Johnson.
Lindsey, it’s awesome to have you here.
Thanks for having me. Excited to be here, Al.
Now, how long until I have to drop the “new to the CBA” moniker? What do you think, six months, a year? When do you think we can retire that thing?
No, man. I’m telling you, that’s here to stay.
Well, look, we think it’s awesome that you’re taking a little bit of time to join us here on Plugged In so we can get really deep into what’s happening in our nation’s capital.
Anticipating our conversation, I picked five classic road trip songs that, as a parent, I love to embarrass my kids by singing. I know Lindsey has some children around my children’s age, so hopefully she’ll have a smile on her face when I bust out some jams.
Lindsey, before I do, I want to apologize because I was going to try to surprise you with a new Twitter handle. The old CBA boss liked to roll with the “Cajun Banker” one. You, I think, have a pretty nondescript CBA one.
You’re from the Lone Star State. We’ve got to get you something cool to put next to your name.
That’s right. Any suggestions?
Texas Tyrant. I’m open. Come on.
We’re not going to use Texas Tyrant just yet, but that could be shortlisted.
I promised you some tracks, and like we’ve been doing on past episodes of Plugged In, I’m going to try my best not to sing too badly because we just don’t have the budget to put all the classic rock in front of everyone.
But if I were to ask you, Lindsey, about Blue Öyster Cult and their famous hit “Don’t Fear the Reaper,” do you think that’s the type of song that would let us talk about the regulatory wild cards bankers need to prepare for today?
Oh God, I hope not.
But honestly, there are a lot of wild cards that we should be expecting, so that may actually be somewhat appropriate.
Maybe we’ll hum it together some other time.
Let’s think about what’s happening in the regulatory world. In my head, I think about payments, M&A, consumer protection, cybersecurity, cyber regulations. There’s a whole long list we could get into.
Could we just start at the top? The payment space is demanding time and attention. What are you seeing right now?
There are a lot of wild cards in this space.
Everybody’s focused on payments. One, just the future of payments and what that looks like.
But we know there’s going to be a lot of focus and attention from the CFPB on fees generally, so credit card late fees are a big issue.
Obviously, we’ve already had to contend on the legislative front with Durbin-Marshall, which goes to the same issue that we saw with the original Durbin Amendment for debit cards, but now for credit cards.
There’s going to be a lot of focus on that space.
Something CBA has also been spending a lot of time on is P2P transactions, the P2P networks, and the future of those networks.
A lot of attention has been given to fraud on those networks and what that is really going to lead to from a regulatory perspective.
Could the CFPB take action on Reg E? There’s a lot of discussion around that.
Then there’s the future of payments, whether it’s FedNow and obviously some of the other conversations that are front and center for our members.
There’s some sad math that bankers are potentially going to have to do next June or July.
When I think about the regulatory landscape that we’re in, it continues to shift.
Talk a little bit about the midterm elections now that they’re behind us. All the ads, mercifully, are going to stop inundating us in the morning.
But there are some new things that we’re going to have to think about as an industry. What are your key takeaways?
Talk about a wild card.
Once again, elections kind of take twists and turns and give some surprises to a lot of different folks.
What we do know is that you’re going to have a much more closely divided Congress. It’s going to be a lot harder to get some things done.
But on the Republican side in the House, there’s going to be a lot of focus on crypto and fintech.
You’ve got a new House Financial Services chairman who is very interested in those topics and who has already signaled that he’s willing to have a bill on stablecoin.
There’s going to be a lot of focus on that.
Interestingly enough, I think he’s got alignment with Treasury, probably more alignment there than he’s got with Senate Banking lead Sherrod Brown.
So we’re focused in that space.
We’re really thinking about the future of stablecoin and central bank digital currency.
Obviously, on the regulatory side, we know FedNow is coming.
We’re helping our members think through the right questions and how to be prepared for FedNow and what that pilot looks like.
There’s a lot coming down the pike.
The election gives us more certainty than we had two weeks ago, but there’s still a lot of uncertainty in terms of how those two agendas align and what that’s going to look like going forward for banks.
You talk about uncertainty.
The massive blowup of crypto exchanges has really put a massive damper on the enthusiasm people had for crypto.
What I find interesting is that the underlying blockchain technology still has some real, robust capabilities that I think folks could spend more time looking at and learning about.
If you think of crypto as a token that is essentially a proof of concept, it shows that there are some new rails potentially being developed that could make settlement that much faster.
That could have profound implications for authentication and identification, which are two issues that you touched on earlier.
In the regulatory space, there are a lot of people banging elbows trying to say, “Hey, this is my seat at the table. I’ve got a voice.”
Is it difficult to make sense, at least on the crypto front, of all the different players that are trying to claim jurisdiction over who makes the ultimate call?
Part of it is just a sexy issue.
Part of it is that you don’t want to be caught holding the bag or looking like you were behind the eight ball.
I think so many of the regulatory agencies right now are concerned that they’re going to look foolish if there hasn’t been some kind of regulatory apparatus, regime, and oversight over some of these firms.
But on the banking side, we continue to say that this is really the opportune time for banks to lead in this discussion.
A lot of what’s happened in the crypto space is kind of Banking 101. It’s Business 101. It’s the fundamentals.
It’s asset-liability mismanagement. It’s not just running the business as it should be.
But to your point, some of the fundamentals of blockchain have use cases.
I think you see a lot of banks looking at what those use cases are and how they are ultimately going to benefit their customers with some of this new technology.
I’d say there are three different flavors of where banks are.
Some banks are in the very beginning stages, just trying to understand, “What is this?”
Many banks, I’d say the vast majority, especially of our banks, are in the space of testing it out.
They’ve got entire divisions focused on this and the future of this, and how they can actually use it to benefit their customers.
Then there are those banks that are all in and really trying to drive the train a bit and lead that conversation because they see it as part of the future.
We’ve seen a variety.
But I would say most of the banks are in this space of trying to figure it out.
CBA just started a working group on digital payments and is really focused on things like stablecoin and CBDC because we see the Fed, the New York Fed, and others making some big movements here.
As you’re talking, this is a great reminder that banking isn’t boring.
Maybe that’s a Twitter handle that you could use: Banking Isn’t Boring, care of the CBA.
Talking about not looking foolish, that’s something I really worry about.
Again, as a parent, I find myself looking foolish unexpectedly at times that I will not share on this pod, but maybe some other time we can get into it.
Thinking about the pressures people face and really small-business trends, I think it’s good if we keep Queen and David Bowie in the back of our head.
“Under Pressure” seems to be a fitting song for small businesses across this country in particular.
Is there anything the CBA is paying close attention to when it comes to the small-business community?
Absolutely.
Small business is the bread and butter of the economy.
CBA member banks actually make about 45% of all small-business loans in the country, so they’re heavily invested.
We led through the pandemic with PPP funds, funding over half of those PPP loans.
We want to see small businesses make it through this next phase of the economy, and we really think our banks are well positioned to help them do that.
Credit application volumes continue to remain robust. We continue to see very strong performance.
Delinquencies, charge-offs, and things of that nature continue to be historically low, better than even 2018 and 2019 levels.
But we do start to see things slowing.
There are all the knock-on effects of supply-chain issues, the talk about recession, and people planning around that.
We know that demand is going to continue to soften.
Our folks are really thinking as that partner to small business and asking, “What are going to be their needs going forward?”
They’re trying to help them forecast out.
As small businesses are facing the same challenges as the rest of the business world in moving to digitization, how do they become better at what they do?
Banks are becoming greater partners in all of those different areas.
They’re helping them think about expense management, talent management, and all the ways a bank can serve a small business through its own platforms.
I think there’s a huge opportunity for banks to continue to serve the unique needs of small businesses.
We think that’s going to be even more important over the next couple of quarters.
I totally agree.
It’s interesting to take note that right now credit remains pristine, but there are real challenges.
You talk about inflation. You talk about wage expectations, labor shortages, and tightening.
You have these competing forces that I believe larger institutions, like the ones that really comprise the core CBA membership, are in a position to help drive some positive change.
A lot of small and even midsized business owners don’t necessarily understand the business of finance and banking.
This is one of those opportunities to say our community is not necessarily defined by our geographic presence, but by our ability to serve and help grow organizations.
If there are ways to accelerate the learning that is needed to run a business successfully, I think that’s where banks can make an impact.
You’re not necessarily going to see it on the balance sheet, but it certainly falls in line with being part of the community and making sure the vibrancy of small and midsize businesses remains strong for this economy.
Yeah, and it’s that life cycle of the customer, right?
We do it for the consumer. Banks are really thinking about how to keep those customers for that life cycle.
They’re thinking about that on the small-business side too.
Understanding what small businesses are looking into in terms of the economy, employment, labor challenges, and supply challenges helps banks help them forecast and be prepared.
We see our members having those conversations.
We’ve got a small-business committee here within CBA, and those are the exact conversations they’re having.
They’re also having conversations about the fraud these small businesses are seeing, and what that means for their own businesses and their own books too.
It’s interesting. Sometimes I think we forget banks are businesses.
We act like this is an industry that is different from other industries just because it’s heavily regulated and going through periods of consolidation.
When you think about how and where people make decisions, you’re not able to go back in time and say, “Hey, I should have done something different.”
You sometimes just have to adjust on the fly and make smart bets for the future.
I think about how people are digitizing and trying to transform.
There are the Twin Towers of Transformation, on the tech front and on the talent side.
It’s happening in banking, but it’s happening in healthcare, manufacturing, and retail.
We’re all in this together, to draw from our old COVID friends.
But we can learn from one another and see things that might help us avoid mistakes going forward.
You touched on fintech earlier.
I’m an unabashed fan of the friendly fintechs that are helping to move this industry forward.
I’m a little suspect of the ones that are trying to displace, if not disrupt, the banking industry because this is a massively important sector in the global economy.
So I’m going to use the Rolling Stones’ “Sympathy for the Devil” to talk about some of the not-so-friendly fintechs.
I don’t want banks to take the victory lap because fintech valuations are down and they’re having some challenges.
But let’s talk a little bit about the fintech space in a competitive way.
You’ve got a number of great banks that are pushing forward and trying to digitize in places that were formerly analog.
But they’re dealing with some of these fintechs that don’t have the same business DNA around risk, compliance, and regulatory expectations.
How do you think about the non-friendly fintechs today?
There are a couple of different categories I’d put the non-friendly fintechs in.
There’s this whole discussion about fintechs coming in and disintermediating banks.
That did happen on certain product lines.
But I think, by and large, what we see now is that it’s really important to have access to deposits and other sources of funding.
Banks continue to have the ability to innovate while also being that steady hand.
That is really coming to the benefit of the consumer and the economy.
What I think is going to continue to happen is you’re going to see banks, especially CBA members and the nation’s leading banks, continue to be leaders in innovation.
It’s not this stodgy old business that I think a lot of people imagine.
We’re probably going to see a million people laid off in tech and fintech by the end of the first quarter of this coming year in total.
That’s an enormous pipeline of talent.
You see banks picking those folks up and adding to their own talent, data engineers and data scientists, and being able to become innovators.
I think this whole evolution of banking is upon us.
There are so many exciting things happening.
The other category of those unfriendly fintechs would be the Walmarts, Apples, and Googles.
They are in a class of their own.
That’s where CBA pushes back very strongly and says, “Okay, look, we’ve had for decades a delineation between banking and commerce.”
We really need to see the inverse.
We need to make sure that we’ve got this delineation between commercial institutions getting into banking.
We’ve been very vocal.
We actually have alignment with the CFPB and some of the other consumer groups who have concerns about Google and Amazon entering banking and offering financial products directly to consumers.
We’ve seen some of the fallout when consumers are offered different products like buy now, pay later.
They can get it from a bank and have pretty strict disclosures and safeguards in place.
If it’s from another provider that has nothing akin to that, it really leaves the consumer at a disadvantage.
We continue to have concerns about that unlevel playing field and about some of those behemoth tech companies coming into the space.
It’s interesting you bring up Walmart.
Walmart, for years, was thrown up as the big competitive force that was going to truly disrupt banking because people thought about the branch network and equated it to the Walmart physical experience.
I think it’s interesting that Walmart has reentered the mix, not because of their physical presence, but because of the acquisitions they’re making and the types of talent they’re trying to bring in.
Think about data and how they’re able to look at customer spending behavior and use that to model decisions.
There are some really sophisticated things happening in the world of data and analytics.
I think this is where banks should not become complacent.
Just because some of the fintechs are down in value doesn’t mean they’re down in ambition.
There’s a natural opportunity to say, “Okay, your business model used to be valued at X because you were masquerading as a SaaS business when in reality maybe you were just a lending front.”
That doesn’t change the fact that you were a great marketer and were able to acquire customers.
We can talk about how much it cost to acquire the customer, but you were able to do something that banks were sleeping on.
I wouldn’t get complacent and assume the fintech space is gone.
I think there’s more that’s going to be coming up.
We’ve got to continue to learn. We’ve got to continue to partner with one another.
But yours is a good point.
There are some competitive forces out there whose names are familiar, but you shouldn’t assume you know everything that they’re doing right now.
Right.
There’s a lot happening in that space, and the way they’re coming about it is not the way we were worried about 10 years ago.
I think my biggest fear with a Walmart or an Amazon is that they don’t have to go out and build their customer base.
They’ve already got the customer.
It’s front and center for them.
We just want to make sure that we’re thinking about how quickly they can move to market and what that looks like.
I couldn’t agree more with your point about the partnership between banks and fintechs.
I really don’t see it as nearly as adversarial as I think we thought about it in the past.
Yes, there are areas where fintechs now have, for example, around 60% of all personal loans.
But there are a lot more partnerships occurring.
You see a lot more banks buying fintechs.
You see fintechs buying banks.
We see SoFi. We see LendingClub.
I think you’re going to see more of that.
It’s going to continue to be this evolution of understanding where they can leverage each other and where more partnership can occur.
Lindsey, as you’re saying this, I’m geeking out on the music side.
I’m thinking about Tom Petty and his song “Wildflowers” because that’s kind of the image I have.
We’ve got this really massive world in front of us, and there are some things growing up that aren’t expected, but they’re going to bear some pretty beautiful results.
Finding a way to have a level playing field is so important.
On the regulatory front, I had a chance to spend a little bit of my early career with the former chairman of the FDIC, Bill Seidman.
Mr. Seidman was fond of a number of turns of phrase, but one that has always stood out to me is that, from a regulatory standpoint, if they’re doing their job correctly, they essentially are like a boxing official.
You’ve got two combatants in the ring, and they should be allowed to slug it out provided that they’re hitting above the belt.
It’s when things start to get sideways or you’re out of the ring that the regulators have to bring you back in and make sure it’s a fair fight.
What I’m excited about for Washington as we move forward is finding more people who can be pragmatic and understand that competition and capitalism are bedrocks of this country.
Regulatory bodies have opportunities to encourage behavior, not necessarily punish behavior.
I’ll get off my soapbox on this one.
Fully agree.
I’ll get off my soapbox because I’ve got one last song for you.
It’s by Warren G, and it’s basically, “You can’t be any geek off the street.”
This is for regulators.
The reason I’m bringing that up is that you’re no geek off the street coming in to lead the CBA.
You’ve got a really cool background and a lot of people who are pulling for you and excited for you to take the CBA forward.
So how can bankers better engage with you and your team in the coming months?
It is an exciting time to be a banker.
It’s a really exciting time to be joining CBA.
I took the helm of CBA about four months ago.
It’s a 100-year-old organization, and it has done phenomenal things focusing on the consumer retail space.
But there is so much more that we are aiming to do.
Some of the issues that are front and center for the industry in terms of the future of banking, the future of payments, and what that looks like are where we are really focusing.
We’re trying to shape how the regulators, agencies, and policymakers are thinking about those issues.
Issues like 1033 and 1071 are front and center, along with all things CFPB.
We really work through our 14 committees.
These are typically the heads of these different business segments who sit on our committees.
They drive our analysis.
They drive our advocacy, communication, and messaging.
I would encourage the bankers who are members to continue to do what they do.
They engage, and they’re incredibly vocal through our different committees.
If you’re a retail bank and you are in the purview of the CFPB in particular, this is the place where you want to be.
You want to be with your colleagues having those conversations and hearing how others are thinking about the future.
Al, you can attest to this better than anybody.
Banks are thinking about it in a lot of different ways right now.
It depends on the bank you talk to, what its strategic focus is, what it thinks the future of banking is, and how quickly it’s moving to get there.
There’s a lot of learning, collaboration, and discussion that happens within CBA.
I think it’s really important to have that ability to convene bankers, have those conversations, and ultimately shape the regulatory and operating environment here in D.C.
It’s a really interesting time.
It’s a wonderful organization. Get behind it. Check out what Lindsey’s doing.
They’ve got an incredible event called CBA LIVE.
I think that’s going to be where?
Las Vegas.
Las Vegas, that’s right. March 27th to the 29th.
So we’ll bust out some Elvis Presley for that one and “Viva Las Vegas.”
Thank you to Lindsey. This has been awesome.
I’m Al Dominick.
We appreciate everyone getting Plugged In with Cornerstone Advisors today.
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