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Restive in Washington, 2023

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Last week, we held our Annual DC Day, where we bring our founders to Washington, DC to meet with regulators and policy makers. We’ve been doing a version of this event since 2015 but the breadth of meetings, number of attendees from the government and the broader ecosystem has grown each year. The reason we do this trip is because early stage founders have a really unique opportunity to tell their story and build long term relationships.  Once the businesses have enough maturity that policy makers and regulators view them as “market participants”, they tend to view them with the same lens that they view most companies: as profit maximizing actors. 

As an early stage founder, you’re much more relatable and, frankly, interesting. 

We try to help our founders take advantage of that dynamic to build long-term relationships that, if our businesses are as successful as we expect, will pay off over the coming years. 

Steps, Suits & Security: a day in DC

This year, the day kicked off with a visit to the White House, where our founders were able to share their stories and give a brief overview of their businesses. In turn, we were able to get a better sense of the administration’s priorities which, not surprisingly, closely tracked the big developments in the news: mitigating the impact of the restart of student loan repayments, improving small business lending and continuing to understand big developments in tech, such as AI. 

Next we traveled to the CFPB. (Which, coincidentally, the Supreme Court had just heard arguments about in a big case to test the constitutionality of the Bureau’s funding mechanism.) CFPB staff were keen, as always, to hear about new innovations in the market that could improve competition and improve transparency in the market, which almost by definition do. As a regulatory and enforcement body, the CFPB doesn’t tend to oscillate as much with respect to policy but one message came across loud and clear: don’t be predatory! 

Finally, we headed over to a private session with former senior regulators to hear the nitty gritty on where they saw the market going and provide a roadmap to the political dimension that affects financial services regulation and policy in the U.S.

The take-a-ways

By making this trip an annual event, we’ve seen first-hand the growth of fintech over the last eight years, which provides extraordinarily valuable insights on the current state of the market and where regulations, enforcement, and even legislation, may move over the coming years. Given that perspective, this year’s trip was illuminating:

Fintech’s days of being the new kid on the block with the shiny cool toy are definitely over. Even worse, many people think that the best personification of fintech is SBF, who managed both to shatter the trust of everyday consumers and embarrass a lot of very important people in our government. Last year’s shiny cool toy now looks like a safety hazard. 

  1. Banking regulators regulate banks and the banks are, in layman's terms, a disaster. So the regulators are pretty focused on trying to contain that disaster before it makes an even bigger mess. That doesn’t mean though that they’re not paying attention to fintech, but there is a palpable sense that if there is work to be done with respect to fintech, it should be to constrain it and, definitely, don’t let it mess up a bank! This is in contrast to last year, when the regulators were very concerned with understanding the Banking-as-a-Service landscape. Since then, they’ve passed third party risk management guidance on that topic, and the general sentiment is that the major risk in this area has been addressed. 
  2. There are many, many, many very smart people in Washington, DC who are keenly aware that technology is changing financial services quickly and “fintech” firms are at the vanguard of that change. As such, the leaders within the regulatory and policy community aren’t necessarily giving up on the category as much as they’re looking further out for what's next. This lull in attention should not be confused for a lull in regulatory focus, especially as it relates to compliance failures.

While this is a mixed bag for later stage companies, especially later stage companies that might not have been too focused on compliance for the last few years, all of this is probably not bad for early-stage founders who may have more room to focus on gaining product market fit and the time to build in the robust compliance frameworks that will be table stakes for the next phase in the market’s development. (Our close advisor Tom Brown had some insights on how the market may continue to evolve based on his insights from the day.)

Meanwhile, the lull in interest is a good opportunity to build these relationships for the long term. This last point was the overriding advice from everyone with whom we met. The time to build relationships with regulators and policy-makers is long before they’re necessary. After all, the regulators definitely aren’t going anywhere so if you work in financial services it’s never too early to engage! We’ll certainly be back next year!

Ryan Falvey
Co-Founder & Managing Partner
Where founders build the future of financial services.

© 2023 Restive®, Inc.

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