February 5, 2023

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Define the Future of Consumer Finance

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There are a lot of factors that can help define the future of consumer finance. New leadership at the CFPB, fears for financial services firms, and digital technology are just a few.

Open-source data empowers businesses and consumers

The Consumer Financial Protection Bureau is hard at work on a shiny new rulebook. At the same time, President Joe Biden wants to see some action. It is the CFPB’s job to develop a regulatory framework that will protect consumers in the event of a financial crisis. In addition, it is tasked with a worthy feat: figuring out which financial institutions to classify as worthy of your hard earned dollars and cents.

With a new name on the block, and a mandate to produce a rulebook, the CFPB is in a better position to move swiftly. For example, it is in a position to take a whack at the open banking initiative, which was a pet project of Obama’s predecessor, former teetering GOP presidential front runner Hillary Clinton. And, it has the budgetary wherewithal to do it. The CFPB is also in a good position to release the rulebook’s gander. As such, it is well positioned to play the big brother role that it once held in the realm of consumer finance.

Digital technology transforms consumer finance markets

In the consumer finance marketplace, digital technology has drastically changed the landscape. From the ability to stream wide-scale video to the reduction of transaction costs, digital innovation has improved connectivity and computing power. As a result, new entrants and new business models are emerging. Moreover, the economy is undergoing changes that are impacting the financial services industry.

Specifically, consumers are looking for a more personalized experience. They want fast and seamless processes, and the ability to engage with an organization on their preferred channel. These expectations are shifting all the time.

In addition, financial institutions must develop more nimble, digital solutions. This includes a simpler application process and enhanced mobile offerings. Banks are also pouring more resources into data and analytics. Lastly, they must respond with a faster, more transparent lending process.

Challenger banks are taking market share from traditional industry leaders. For instance, they deliver consumer banking services through user-friendly mobile applications.

Big tech companies such as Apple and Google are also eyeing the digital banking arena. These companies have a large audience and can potentially generate more revenue with features such as payments and wealth management.

Fears for financial services firms

As the financial services industry transforms to meet consumer demands, there are a host of challenges afoot. Aside from the usual suspects like banks and insurance providers, there are a number of startups trying to take on the big boys and girls. They are also confronted with a growing regulatory environment. The good news is that financial services companies are starting to adopt regtechs. These are startups that build and improve upon existing products and processes. However, they are still faced with the same challenges.

In particular, the CBI/PwC Financial Services survey measures the impact of changes in regulation, inflation and digitalization on the UK’s financial sector. This was accompanied by a spate of announcements by incumbents about how they are re-inventing themselves in the wake of the economic downturn. Many of these firms have laid off thousands of employees as part of their digital transformations. While many of these layoffs are aimed at front-end staff, those responsible for the day to day operations of the business are left to grapple with a new breed of technologies.

New leadership at the CFPB

The Consumer Financial Protection Bureau (CFPB) announced new leadership today. This includes a Principal Deputy General Counsel, a Deputy Chief Operating Officer, and a Senior Advisor to the Director. These changes reflect the agency’s efforts to address emerging market trends and to return the CFPB to its original mission of protecting consumers.

CFPB officials also announced new appointments to advisory councils. They include experts in consumer finance, fair lending, and community development. Additionally, the CFPB has appointed representatives of credit unions to the Community Bank Advisory Council, and new consumer finance experts to the Credit Union Advisory Council.

The Consumer Advisory Board will advise the Bureau’s leadership on broad consumer financial issues. It will also provide guidance on emerging market trends. New technologies, such as machine learning, alternative data, and more, will likely be a focus for the Bureau, as will traditional fair lending issues.

CFPB executives also announced new leadership in the Office of Supervision Policy. Lorelei Salas will join the Bureau as an assistant director for supervision policy. Erin Halperin will also join as an assistant director for enforcement.

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